Complex Made Simple

Oil prices remain a major concern for ME aviation sector: Experts

The uncertain oil price is one of the chief concerns for the aviation industry and advanced technology will play an important role to increase the customer experience, said industry specialists.

An expert panel discussed challenges in airport capacity, next gen technology facilitation, financing of airport projects and innovation at a forum in Dubai today.

Aviation leaders and experts highlighted key aviation industry issues, challenges and opportunities for the industry worldwide during the fifth Global Airport Leaders Forum (GALF). The two-day forum, co-located with the Airport Show 2017, was organised by CAPA – Centre for Aviation.

Challenges ahead

Aviation industry experts indicated that the sector is facing short- and long-term challenges, and there are opportunities on increasing travel demand in the wake of competitive or lower oil price.

Paul Griffiths, Chief Executive Officer, Dubai Airports, talked about oil price, global economy, political unrest and consumer confidence as short-term factors.

He said: “If oil price goes up it will be another problem for the industry.”

Technology essential for travel

Griffiths said that technology, urbanisation, economic balance of power and resource scarcity are long-term factors. He appreciated the role of technology to increase the customer experience at the airports.

The cost of infrastructure improvement is phenomenally high for any airport, he said, adding that smart technology can play an important role to improve the capacity and service.

Dubai’s investing in improved infrastructure

Dubai invested around $7.8 billion during the last two years to improve aviation infrastructure.

Griffiths said: “We are planning to increase the capacity of Dubai Airports to 118 million passengers by 2023 and we are expecting the number of passengers to increase at both airports to 90 million by the end of 2017.”

Dubai International ranks the world’s busiest airport for international traffic. Aviation sector is contributing a lot in Dubai’s GDP and also creating a lot of employment opportunities, Griffiths said. He also mentioned that aviation will contribute $88.1bn or 45 per cent of the Dubai GDP by 2030.

UAE Aviation Outlook 2025

General Civil Aviation Authority (GCAA) Deputy Director General Omar Bin Ghaleb talked about UAE Aviation Outlook 2025. He hoped that by 2025 the country will address many of the challenges to the industry by adopting corrective measures.

Peter Harbison, Executive Chairman of CAPA- Centre for Aviation said the industry is going through a lot of changes in the wake of some uncertainties but it is a very interesting place to be.

He added that it’s a relatively benign environment, with low interest rates, low oil prices, economies performing adequately. He added that the main driver of profit growth since 2014 has been lower fuel costs.

But he also said that in a competitive market place, lower costs because of fuel price have a strong tendency to drive prices down. So, instead of pushing profits up, lower prices squeeze margins.

Oil prices remain volatile

Harbison said that the uncertain direction of oil price is one of the major concerns for the aviation industry. Nobody really knows where fuel prices will go. “Only three months ago, projections were for a range of $55-$65 for 2017,” he added.

He said any airline that is not making money now is at risk if fuel prices rise.

Talking about Low Cost Capacity (LCC), he revealed the bulk of LCC orders are in Asia Pacific. This promises a very competitive market for the next decade. India has more LCC orders than any other country and they will stimulate the growth domestically and in East Asia.

Harbison said China will become the world’s biggest ever aviation disruptor. It’s a massive and rapidly growing domestic market. Its airlines are going international at an accelerated rate and have new low cost equipment.

Robust growth in passenger volumes

A recent IATA business confidence survey says: “On the demand side, the survey responses were consistent with the robust growth seen in both passenger and freight volume at the start of 2017.

“Our respondents remain very positive about demand prospects for the year ahead: more than three-quarters expect passenger volumes to rise, while the forward-looking weighted-average score for freight has now risen in each of the past four quarterly survey.”

The initial financial results from Q1 2017 highlight the extent that airline profit margins were squeezed in the opening months of the year by a combination of higher costs and weak yields.