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Industry Overview
The airline industry is one of the most significant contributors to the GDP of the country. Aviation industry not only promotes tourism, but they are also influencing global trade and economic growth. Over the last few decades, the airlines through strategic partnerships and alliances are exploring the new markets worldwide. Now the majority of leading airlines have a presence globally and are continuously improving their service offerings.
Airline Industry is amongst the highest revenue generating industry. But many political, economic and social factors make it the most volatile industry as well. Based on the risk factors, the airline industry is also known to be least profitable among other sectors. The profitability of the Aviation industry is correlated with the cost factors, economic growth. To remain profitable, aviation companies need to innovate and evolve to overcome the effects of external risk factors.
In 2008/2009, the global aviation industry witnessed the recession, but with the improvement in the global economy, the aviation industry had improved its profitability and post some strong results in the last couple of years.
The (IATA) International Air Transport Association is the trading entity promoting collaboration among worldâs airlines to ensure secure, economical and reliable service. The IATA represents around 290 airlines with 82 per cent air traffic in total. IATA monitors various areas of the aviation industry and helps to formulate many critical policies on issues faced.
As per the data provided by the IATA, the airlinesâ industry had been delivering strong performance, which is driven by strong economic growth. The economic growth industry is experiencing high traffic, which is much higher than the 6.1 per cent growth of the industry capacity with a 0.3 pts marginal net gain in passenger load factor.
As per the statistics by IATA, passenger numbers expected to increase to 4.59 billion in 2019 and cargo tonnes will reach to 65.9 million against the 2018 data. The forecasted net profit from the global aviation industry is expected to be around $35.5 billion in 2019.
The European region witnessed the highest capacity growth of 5.8 per cent in the year 2018 as it recovers from the effects of terrorist activities in the year 2016. The competitive environment, together with an increase in the passenger load factors resulted in the European Market Growth. Europe had witnessed the uppermost load factor for the year.
North America, on the other hand, posted a robust financial performance with a 4.7 per cent growth in the capacity in the financial year 2018.
Latin America posted higher capacity growth with 6.6 per cent above the total market average. Passenger load factor in Latin America region had declined with a decline in overall profitability.
African air industry remained the weakest with 1 per cent growth. Despite an increase in capacity, the load factors improvement in African region remained relatively low and, all regions witnessed a lower load factor (passenger).
The Middle Eastâs industry growth remained restrained and was below the market average. Load factor for the area remained low and political factors resulted in a further decline of demand in the region.
 Asia Pacific region with diverse performance in all the regions witnessed a high airline capacity growth of 7.9 per cent.
Overview of the Aviation industry in the UK
The United Kingdomâs aviation industry is ranked amongst the top aviation markets globally with the large multitude of airlines. The aviation industry in the UK is one of the most active and busiest airline industries in the world and include large international airline groups and low-cost carrier models as well.
UK airlines industry, including members from all sectors of the industry, are registered under a trade body called Airlines UK. Airlines UK works with governments officials, legislators and regulators and to promote the interests of UK airlines, with a focus to encourage long-term and sustainable growth in aviation. Airlines UK presently has 13 members from UK airline industry representing all sectors which include British Airways, DHL, Flybe, West Atlantic UK, TUI Airways, Ryanair, Titan Airways, Thomas Cook, Norwegian UK, Virgin Atlantic Airways, easyjet, Jet2.com and CargoLogicAir. Airlines with CAA registration is open for Airlines UKâs Membership.
Lufthansa Group led the European Aviation Industry on passenger bases and is followed by other airline companies from the European region which include Ryanair, Air France-KLM, IAG, Turkish Airlines, Aeroflot and easyJet. In Europe, the Ryanair remained ahead of Lufthansa Group based on profit after tax in the year 2018.
In the financial year 2018, the Lufthansa Group remained Europe's largest airline based on passenger numbers. The companyâs passengers increased by 10 per cent to 142 million. Ryanair remained Europeâs biggest individual brand but was the second largest airlinesâ company on passenger bases. The companyâs passengers increased by 8 per cent to 139 million in the financial year 2018.
IAG (International Consolidated Airlines Group) remained on the third position based on the passengers. The companyâs passengers increased to 112.9 million giving an increase of 7.7 per cent for the year 2018. Air France-KLM remained the fourth airline with over 100 million passengers. The company showed a growth of 2.8 per cent to 101 million for the period.
EasyJet Plc a British company remained at fifth with 92 million passengers showing a growth of 13 per cent against 2017 data. Turkish Airlines gained 9.5 per cent to 75 million passengers in the year 2018. Aeroflot Group and the Norwegian UK retained their 2017 position of 7th and 8th top airlines in the year 2018. The Aeroflot Group had passenger base of 56 million giving a growth of 11 per cent against 2017 data. The Norwegian UK showed a growth of 12.7 per cent with 37 million passengers.
Wizz Air showed the second fastest growth among all airlines with 19.6 per cent and gained 34 million passengers for the period. The Wizz air pushed SAS (Scandinavian Airlines) to become the ninth top airline company. SAS airlines had a passenger base of 30 million with a growth of 1.2 per cent in the year 2018 and is in danger of falling out of the top 10 airlines companies. Pegasus Airlines currently at 11th position had 100,000 passengers less than the SAS airlines. The company had grown its passenger base by 7.7 per cent in the year 2018.
The TUI Group retained its 12th position with a passenger base of 23 million approximately. The Alitalia was able to grow its number of passengers by 0.9 per cent to over 21 million in the year 2018. The company witnessed a decline was under the administration for the entire 2018.
The tour operator group Thomas Cook retained its 14th position with the passenger base of 20 million for the Financial year ending September 2018.
S7 Airlines and TAP Air Portugal were 15th and 16th in the ranking with a growth of 12 per cent and 11 per cent respectively. S7 Airlines had carried 16 million passengers and TAP Air Portugal passengers were marginally below 16 million and showed double-digit growth in two successive years.
Aegean Airlines Group with around 14 million passengers showed a growth of 6 per cent and was on 17th rank. Finnair passengers increased to 13 million with a growth of 11.6 per cent and retained the 18th position.
Jet2.com is the British company known for its low-cost fares is the fastest growing company and was ranked at 19th position in 2018. The company pushed Air Europa into 20th position and knocked out Flybe from top 20 airlines in the European region.
The UK Low-cost carriersâ traffic in 2018 grown by 32.7 per cent to 12.2 million passengers.
Key Performance Indicators for the Airline Industry
Net Promoter Score (NPS)
NPS is a non-financial metric used to measure the customerâs loyalty towards a brand. The IAGâs NPS declined by 0.5pts in FY2018. The company launched various upgrades in its products and enhance its service and was well acknowledged by the customers. The easyJetâs customer satisfaction surged by 71.2 per cent in FY2018 as compared to 71 per cent in FY2017.
ROIC
ROIC is used to assess the returns generated from its invested capital. The IAGâs ROIC increased by 0.9 points against the last year data.
ROCE
Headline ROCE of easyJet Plc surged by 14.4 per cent in FY2018 against 11.9 per cent in FY2017. The total ROCE surged from 11.3 per cent in FY2017 to 11.5 per cent in FY2018.
Lease-adjusted operating margin
Lease-adjusted operating margin is used to measure the efficiency of the business in terms of profitability as well as improvements done in the financial performance. The IAGâs Lease-adjusted operating margin had improved and was 14.4 per cent which was within the companyâs target.
Average growth (ASKs)
Airlineâs capacity is measured based on available seat kilometres (ASKs). ASK is the function of a number of seats available for sale and the distance flown. The IAG robust financial performance had helped them to increase the average growth rate.
Equity free cash flow
Equity free cash flow is used to identify the cash generated by the business, which is available to return to shareholders, to undertake growth opportunities and to improve leverage. The IAGâs equity free cash flow stood at â¬819 million lower than 2017 data at â¬1,801 million. easyJet liquidity remained above the minimum policy position of £2.6 million per 100 seats. The company entered into revolving credit facility which helped the company to raise additional liquidity of £250 million.
