Aviation industry prospects seen as cloudy at best as IATA wraps up annual meet

Delegates included Piyasvasti Amranand, the Thai Airways International (THAI) president, who was ousted last month but has agreed to stay in post until June 20.

He said the industry faced a bumpy road ahead, with risks from high fuel prices and operating costs, more intense competition, unfair regulation imposed by governments, lower margins and overcapacity.

One important factor this year is the continued emergence of oil-rich Arab airlines, in particular Qatar Airways. They are fanning competitive flames through the introduction of a pricing war, thanks largely to strong financial support from their governments, in order to steal passengers from rivals via their capital cities.

"Keeping revenue ahead of costs is a never-ending struggle," IATA director-general Tony Tyler said, adding that 2012 is another challenging year in terms of how to survive in a "thin" margin business.

This year’s overall net profits in the industry are expected to come in at US$3 billion (Bt94.6 billion), from revenue of $631 billion. That represents a net margin of just 0.5 per cent, he said.

"The industry’s profitability is balancing on a knife edge. If the bottom line worsens by even the equivalent of just 1 per cent of revenue, our $3-billion profit very quickly becomes a $3-billion loss," he said, adding that the crisis in euro zone is "the biggest and most immediate risk" if it evolves into a banking crisis.

THAI leadership vacuum

Having posted a loss of Bt10.2 billion last year, THAI’s 2012 first-quarter results saw a net profit of Bt3.64 billion, against Bt618 million a year ago. However, the next quarters are expected to post losses before rebounding in the final three months of the year. Previously, the national carrier expected to achieve a 2012 net profit of Bt6 billion.

Given its leadership vacuum, THAI’s financial expectations seem challenging. At the IATA submit, experts pointed out that many players were facing hardship and needed to adjust to meet the changing business environment, which is plagued by risks.

The evidence is clear that a quick decision at the helm of a carrier like THAI, with an innovative business model led by a visionary leader, is crucial.

Piyasvasti, who was among a number of CEOs sharing his vision on the aviation business outlook, was asked on-stage about his removal from the THAI presidency. He told a session chaired by CNN’s Richard Quest that he wanted the reasons for his sacking to be clarified in public.

On the global trend, he said THAI’s business outlook was worrying. The carrier is faced with fiercer competition, driven by cheaper fares from low-cost airlines and carriers from China and the Middle East, and charter flights.

To survive, the airline will have to make its operating costs as low as possible. Looking for efficient aircraft to fit the business is also crucial, he said.

"If we keep fighting each other, it will make us lose competitiveness. In the longer term, whether we can survive depends on our operating costs and our potential to make ticket prices more competitive," he added.