Pilot issues plague airlines; Airline Economics prepares for its first annual Growth Frontiers conference in New York Oct. 18-19

Eleanor Steed
By Eleanor Steed October 12, 2017 10:05

Pilot issues plague airlines; Airline Economics prepares for its first annual Growth Frontiers conference in New York Oct. 18-19

The pilots problem has been shifted front and centre for airlines over the past month. From Ryanair’s very public problems – which seems to have resulted in the loss of COO Michael Hickey, who resigned yesterday – to pilot industrial action that has crippled Avianca (see Americas News below). The pilot shortage is not a new problem – manufacturers and analysts have been warning airlines for a decade or more of a growing gap in the supply of pilots to cope with demand as new aircraft deliveries ramp up. Boeing’s latest pilot forecasts that the Asia Pacific region will require over a quarter of a million more commercial pilots by 2036 – more than 40% of the entire predicted global demand. That is until pilotless aircraft extend to the commercial sector. This debate is being brought to the fore in aviation circles and it makes sense. Cowen & Company’s Helane Becker at last years Growth Frontiers event in Hong Kong, commented that this was likely to start with cargo aircraft – pilotless lorries and cars are already in operation in some parts of the world so why not planes, which are almost all automated anyway. Of late, the focus has been on the shortage of pilots in Europe and Asia, but the US has a major shortage brewing caused by changes to its hours rulings, which again Becker has been warning the industry about for several years. Airlines around the world have pilot programmes in place but the demand will still outstrip demand – invention is always driven by necessity so in this case, the shortage of pilots will likley accelrate the move to pilotless planes.

The Wall Street Journal today said that the bull market has reached “epic proportions” with record highs being reported almost daily. Investors are keen to put their money into anything that pays out higher than the paltry returns on sovereign or even high yield risk these days. Aviation is fully in vogue with investors seemingly not to be swayed by high profile insolvencies of late – Monarch, Air Berlin, Alitalia, VIM – even the larger carriers are having problems – think of the Gulf carriers. Etihad and Emirates are both having problems for differing reasons. Etihad’s issues are mainly compounded by its own rash airline investment model but both Gulf carriers are seeing traffic fall and both are seeing their model tested with Emirates falling into the trap I mentioned here last year that cutting frequencies to save money and lengthening stop-over time in Dubai, means the loss of business traffic. Investors should remind themselves of the once mighty TWA and Pan Am – if they can fail then anything is possible. But Etihad and Emirates, like so many others are flag carriers. Airlines made huge losses for decades in the 1980s and 1990s and much of the 2000s and still today what do we see? We see governmental interference impacting heavily on the private sector as flag carrier airlines are given what is really an unfair advantage, from JAL a decade ago and all the US majors through to the current market manipulators: Aeroflot, South African Airlines, PIA, Air India, Aerolineas Argentinas, Alitalia, Fiji Airways, MAS, Garuda Indonesia, SriLankan Airlines, even Lufthansa/Air Berlin (we all see what is going on). The list goes on and between all of these huge airlines, LCCs, ULCCs, regionals and others are fighting for market share. This is fine so long as oil prices remain below US$85 a barrel, when airlines on the whole can make very good profits. In summary, investing in an airline for the long-term should be one of the best bets in the market as this is as bad as it can get. New aircraft in production now are cutting fuel use by 15-20% and cutting maintenance costs (we predict) by another 20%, this leaves pilot costs as the only real worry in the near term and for Ryanair this is a problem right now. For a long-term investment consider the fact that the aircraft for 2035 and beyond will not require pilots and they may very well not require fossil fuel either, at least not on the same scale as today. That should see costs cut by over half from today’s average levels and that in turn should see the best airlines post significant profit margin growth for the coming decade.

Back in the here and now, and fresh from our Dubai conference, even though the region is awash with liqudiity with banks and investors lining up to take metal risk on widebodies, this will not last forever. The delayed ARAMCO partial IPO (the proposed 5% sale is estimated at $300-$400 billion), when it goes off potentially next year but likely in 2019, will suck the primary regional banks dry for the short term. This should be great news for the Western banks, if they can devise ways around Basel IV, while the lessors will have to collect the near-term shortfall for aircraft financing in the region.

We would like to apologise for the intermittent news services this week – after closing the second Airline Economics Growth Frontiers in Dubai last week, the team are busy preparing for the first Airline Economics Growth Frontiers conference in New York being held next week – Oct. 17-18 – at the Hilton in Midtown New York. As this is the same week as the annual Wings dinner, if you are in town, please come along and listen to our speakers, meet airlines and investors and network with some of the most senior members of the aviation community all for FREE. Contact Juliette to register your details: juliette@aviationnews-online.com.

The Airline Economics team will then move to Hong Kong to prepare for the fourth Growth Fronitiers APAC event, which this year takes place at the Hyatt Regency on October 31 to November 1. As a larger venue, the delegate list has surpassed last year with more than 1600 individuals already booked. Please register now to secure your place at this essential event for all aviation personnel.

The Aviation Industry Talent Squeeze
Skilled individuals are in high demand across the spectrum of aviation companies from airlines, to lessors and financial institutions. Airline Economics Research is again conducted a survey into the main themes in aviation recruitment for the past 12 months. The results will be revealed at the Growth Frontiers Dublin 2018 event held at The Shelbourne in Dublin in January 2018. Cast your vote here

Eleanor Steed
By Eleanor Steed October 12, 2017 10:05