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KBRA Releases Research Report: The Latest Trends in the Global Airline Industry

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases The Latest Trends in the Global
Airline Industry research report, which provides an overview of the
challenges facing the global airline sector as well as outlines key
themes in the space.

The global airline industry experienced good growth over the past year
and is expected to maintain positive momentum in 2019. However, the
industry faces heightened structural and macroeconomic challenges and
uncertainties, which are expected to negatively impact fundamentals over
the intermediate to long term. Some key themes discussed in the report
are listed below:

  • Strong Demand Momentum Maintained: Despite economic and
    political headwinds in many geographic locations around the world,
    passenger demand fundamentals in 2019 will continue to benefit from
    positive momentum, supported by incremental growth in global GDP and
    favorable capacity trends.
  • Stable Operational Metrics: Less volatile and lower fuel prices
    have led to profit margins becoming largely stabilized, following
    sizable increases in jet fuel prices during the first half of 2018.
    Positive operating fundamentals since the trough have also
    complemented airlines’ improved financial flexibility.
  • Solid Access to Capital: Airlines across all regions have been
    proactive in opportunistically refinancing debt to take advantage of
    the low interest rate environment over the past few years, which will
    help insulate coverage metrics from any uptick in interest rates.
  • Volatile Fuel Prices: During volatile fuel prices,
    airlines typically adopt financial flexibility through a combination
    of ticket price increases and cost-cutting measures. Although
    relatively lower fuel prices in the last few months will act as a
    tailwind into most of 2019, KBRA’s view on the airline sector takes
    into account the longer-term unpredictability of fuel prices and
    distinguishes airlines’ credit performance by favoring those carriers
    whose strong financial metrics can withstand spikes in fuel prices.
  • FX Volatility: The effects of a stronger U.S. dollar had
    a greater impact across emerging markets, where key costs for
    airlines—primarily fuel, maintenance, overhaul expenditures along with
    aircraft purchase and lease payments—are typically priced in U.S.
    dollars, making operations more expensive.
  • Pilot Shortage: Boeing estimates that nearly 800,000 additional
    cockpit crew members will be needed over the next 20 years to satisfy
    demand for the global airline industry expansion underway. But efforts
    may be stymied by a critical shortage of pilots due to a change to the
    retirement age to 65 years that came into force in 2009.
  • Labor Negotiations: Labor relations across the airline industry
    are becoming more contentious, with negotiations between labor unions
    and airlines taking longer to complete—which exposes the industry to
    potential strike and non-strike actions over the intermediate term.
  • Growth of Low-Cost Carriers: Low-cost carriers (LCC), in
    particular non-U.S. airlines, are expected to benefit from another
    year of rapid growth. LCCs are expanding their operations beyond the
    traditional short-haul model through the development of global hubs
    and increased offerings of long-haul routes. Low-cost carriers’
    aggressive expansion into the long-haul markets could challenge legacy
    carriers. The success of LCCs and ultra-low-cost carriers in Europe
    and Asia have been especially troublesome for both legacy and smaller
    carriers, who face a fiercely competitive pricing environment for
    popular routes.
  • Political Disruptions: The global nature of the airline
    industry makes it uniquely vulnerable to geopolitical changes. For
    example, the partial U.S. government shutdown earlier this year
    resulted in flight and security delays that reduced air travel demand
    and, in turn, required discounts to attract passengers.
  • 737 Max: Prolonged grounding of the 737 Max will have a
    far-reaching financial impact, with airlines and lessors potentially
    canceling and Boeing having to continue to delay or suspend
    deliveries. Interestingly, the 737 Max grounding has had a positive
    impact on both demand and pricing for other narrow-body aircraft.
    However, given large orderbooks for the aircraft, a prolonged
    grounding of the 737 Max could have a number of negative operational
    and financial consequences for airlines during the remainder of the
    year.
  • Cyclical Nature of Travel: Economic upward mobility in much of
    the world is still in its development stage and passenger demand
    fundamentals remain strong. However, the nature of both leisure and
    business travel are highly dependent on GDP health and growth rates,
    making the airline industry a cyclical business.

To read the full report, please click here.

Related Publications: (available at www.kbra.com)

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S.
Securities and Exchange Commission as an NRSRO. In addition, KBRA is
designated as a designated rating organization by the Ontario Securities
Commission for issuers of asset-backed securities to file a short form
prospectus or shelf prospectus. KBRA is also recognized by the National
Association of Insurance Commissioners as a Credit Rating Provider and
is a certified Credit Rating Agency (CRA) by the European Securities and
Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is
registered with ESMA as a CRA.

Contacts

Analytical:

Boris
Alishayev, Director
(646) 731-2484
balishayev@kbra.com

Marjan
Riggi, Senior Managing Director
(646) 731-2354
mriggi@kbra.com

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