Airline Economic Analysis 2013

For the first time ever, U.S. low-cost airline unit revenue on domestic routes exceeded that of network carriers.

Read the Airline Economic Analysis 2014 report here

Oliver Wyman’s annual Airline Economic Analysis report, released at the Raymond James Global Transportation Conference, highlighted this and other important shifts taking place in the global airline market.

The fifth annual analysis is a 45-page report covering a range of industry data, including: CASM/RASM comparisons, stage length adjusted and long term trends, fuel prices, break-even load factors, ancillary revenues, and fleet composition and global capacity growth by region.

Other highlights of the 2013 report include: Asia strengthening its position as the world’s largest airline market; between U.S. network airlines and low cost airlines during the past five years; and increasing pressure from ultra-low-cost carriers.

Also, read the 2014 MRO Survey, to learn how 3-D printing technology may lower the cost of aviation replacement parts.

Asia Strengthens Its Position As The World’s Largest Airline Market

The Asian airline market continues to grow, gaining market share after surpassing the West last year to become the largest market in the world. According to Oliver Wyman’s annual Airline Economic Analysis, the ranking of world regions in terms of airline capacity has flipped during the past few years. Asia now ranks first, Europe second, and the U.S. third. Just four years ago the positions were reversed.

1What does the emergence of Asia as the largest airline market mean for the industry?

The US and Europe have dominated aviation for years and years, but Asia has become the largest and fastest growing major market. So, it really is time to stop thinking of aviation as a US and Europe based industry. The reason why manufacturers are increasingly focused on Asia is very clear.
2Now that low-cost carriers generate higher unit revenue than network carriers, how will the industry change?

For the first time ever, US low-cost carriers this year generated higher revenue per seat mile on domestic routes than the network airlines. This isn’t the full story because the low-cost carriers also fly shorter routes, which inherently generate higher unit revenue. But it is evidence of a major change. Higher revenue will likely drive more profit in the short term. The environment could also facilitate the emergence of a new group of lower fare airlines.
3How can network airlines keep up with low-cost competitors?

Network airlines generally still struggle to make money on domestic routes. That is why they expand internationally instead, and increasingly view domestic routes as feeders for international operations. At some point, network airlines must figure out how to make money on domestic service in order to maintain the long-term viability of their route networks.
4What happens as customers realize the ultra-low-cost carriers aren’t any cheaper than the network airlines, when you add up the fees?

Some ultra-low-cost airlines unbundle their products to the maximum extent and charge low base fares and high ancillary fees. Added together, these low fares and high fees can equal the higher fares and lower ancillary fees at traditional airlines. The question is: Is this situation sustainable or will traditional airlines find ways to regain their historic revenue premium?