Posted on: 27 February 2018 by Mark Thomas
If an industry can attract the attention of famous US mega-investor Warren Buffett, then it must be worth looking at – and it was the commercial aviation sector that famously made him change his mind about it.
According to Quynh Thai Le, senior associate director at Singapore’s Changi Airports International, the airline industry’s recent profits and returns on invested capital was just one of the factors that helped the billionaire change his mind and reinvest in several airlines in 2016 after decades spent criticising them.
Speaking as session chair at the Global Low Cost Airlines Congress channel at the Aviation Festival Asia event in Singapore, she highlighted the rise in return on invested capital for the airline industry from just 2% in 2009 to 10% last year. Global net profits for the sector have risen from around US$8 billion in 2011 to around $35 billion last year.
In the Asia-Pacific region, net profits rose from $5 billion to $8.3 billion between 2011 and 2016, while in North America and Europe they rose from $1.7 billion and $0.3 billion to $15.6 billion and $9.8 billion respectively over the same period.
The rise has, of course, been helped by the fall in oil prices over the past few years from a peak of more than $100/barrel in 2013 to less than half that in 2015/16. Fuel prices usually make up about one-third of an airline’s operating costs on average.
The Asia-Pacific region, she continued, is leading the way in air traffic growth, especially in terms of the rise in the number of low-fare carriers. The number of LCCs globally rose by 5% from 129 in 2009 to 136 in 2016. In APAC the number of LCCs increased by a huge 43% from 53 in 2009 to 76 in 2016, led by carriers such as Scoot, Jetstar, Cebu Pacific Air, Indigo, AirAsia, Spicejet and others.
Air passenger growth has also been strongest in the region, but she pointed out that the picture varies dramatically for LCCs if comparing intra-regional travel with travellers to and from the region as a whole. Within APAC the number of passengers using LCC operators has risen ten-fold since 2005, from about 35 million then to over 359 million last year.
Their intra-APAC success has seen LCCs achieve a market penetration rate of 27% in 2017, according to Quynh Thai Le, but their market penetration for inbound and outbound passengers to and from the region is much lower at just over 8%, signalling significant room for future growth.