The International Airline Trade Association (IATA) is the trade association for 290 of the world’s airlines, representing 82% of global air traffic. In its mission to represent, lead, and serve airlines, IATA released a semi-annual report on June 4 about the state of the industry. The report takes a big picture perspective on how the industry is affecting consumers, governments, investors, and the economy as a whole – and the bottom line is that things are looking fantastic!
Throughout 2018, consumers will benefit from increased value in air travel: the price of travel has dropped 59% since 1998 (after adjusting for inflation) and the number of connections and travel destinations are higher than ever. It’s estimated that by year’s end, consumers will spend $871 billion – or 1% of global GDP – in air travel, with return fares running $380 per passenger, before taxes and surcharges. The world is opening up to consumers at historically low prices.
Worldwide economic development is being facilitated by increased air travel and unique connections between cities. Since 1998, the number of inter-city connections have more than doubled, resulting in the travel network expecting to exceed 21,000 unique connections by the end of this year. With more connections and more people traveling, the fare cost for consumers is dropping, increasing the flow of people, goods, capital, technology, and ideas.
Tax Revenue Boom for Governments
Governments stand to benefit to the tune of $133 billion in tax revenues as a direct result of the growth of the airline industry. Whether the revenues are generated through payroll deductions from airline employees, corporate taxes, or product taxes paid by consumers, the air travel industry is helping to fill the coffers of governments the world over. Strict visa requirements and increasing travel taxes, however, do somewhat discourage inbound passenger and business tourism.
It’s been clear skies for airline investors for four consecutive years now. Capital providers have been seeing airlines generate enough revenue to service their loans and reduce debt ratios reliably and more quickly. Prior to 2015, investors with equity in airlines took on a great deal of risk. But now capital providers can comfortably rely stable returns on their investments.
Throughout 2018, commercial airlines are expected to launch 1,900 new aircraft. As the cost of fuel has continued to rise – due to the unpredictable and uncontrollable cost of oil – airlines have retired older, less efficient aircraft and have replaced them with brand new, significantly more efficient ones. By year’s end, it’s projected that the worldwide fleet will grow to 30,000 aircraft operating with 4.4 million seats.
Fuel costs usually represent nearly one quarter of all airline operating costs, totaling approximately $188 billion globally. Much like at the gas pumps, airlines are also subject to the volatile price of oil. To combat growing fuel bills, industry experts labor to improve fuel efficiency. Advances in aviation fuel technology and eliminating operational inefficiencies in airports is expected to keep record numbers of planes in the air while reducing CO2 emissions by a stunning 14 million tonnes. Additionally, the benefit of those technological advancements is passed on to the consumer: without having to factor in sharp changes in fuel costs, consumers stand to save $2.9 billion.
Airlines are expected to hire droves of new employees for the rest of 2018 and well into 2019, resulting in 2.8 million new jobs with higher wage levels. While, like fuel, labor is a huge cost for airlines, it directly contributes to improved operations. Furthermore, the job opportunities directly contribute to local and national economies through tax revenues.
The aviation industry is subject to countless positive and negative factors worldwide. The following are broad strokes notes on how each major is expected to perform going forward.
Check out some of the other InteliSys blog content on international air travel? Read some of the stories linked below.