Is the current financially healthy global airline industry just a temporary change?
In this IIL aviation lecture Brian Pearce talked about the dramatic improvement in airline industry profitability since 2015, following its decades of shareholder value destruction, its breadth and durability, and what this could mean for London's insurance industry.
He explained that until 2015 the global airline industry had never generated a return on invested capital that reached the industry's cost of capital; on average investors' capital was destroyed at a rate of $20 billion a year. That all changed in 2015. Since then the industry has delivered above-cost-of-capital returns. There have been structural changes, particularly in the US, suggesting this transformation has some durability. One view is that the industry may not be as risky an investment as it was. But the US experience is not yet widespread, low fuel costs may be either transitory or a generator of excess capacity, and there are some major disruptors on the horizon.
By the end of this lecture members would have gained an insight into:
- Why the airline industry has only recently generated 'normal' invest returns
- How durable and widespread is the transformation
- Why this matters for the wider economy
Brian became IATA's Chief Economist in 2004, following similar roles at Forum for the Future, SBC Warburg (now UBS) and at EY's ITEM Club. He is also a Visiting Professor at Cranfield University.
Liz Holton, IATA.
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