Aviation – A Cautious Industry in 20102 February 2010
The aviation industry has faced some of its toughest financial challenges in recent times. Frost & Sullivan aerospace and defence consulting analyst Julius Yeo speaks to Alex Hawkes about how this is likely to change in 2010.
Alex Hawkes: How are the two leading aircraft manufacturers – Airbus and Boeing – likely to fare during 2010?
Julius Yeo: During 2009 there was a huge decline in new orders for commercial jets for both Boeing and Airbus compared with 2008. Even when preparing for the projected financial upturn this year, clients, particularly airlines, will be keeping a precautionary outlook.
Most airlines remained in the red during 2009 and as such cashflow will continue to be a major concern. They will therefore be looking to the aircraft lessors to expand their fleet size.
In view of these market dynamics, Frost & Sullivan forecasts that there will be a slight increase of new orders for both Boeing and Airbus in 2010 compared with 2009, but there is also a noticeable backlog of orders accumulated from the previous years.
AH: In particular, how do you predict the sale of each company's flagship aircraft – the Airbus A380 and the Boeing Dreamliner – will compare to each another?
JY: For now it is very hard to determine how the sales of the Airbus A380 will fare against the Boeing Dreamliner. There is a distinct difference in seat range between them, with the former offering a capacity of 500 to 800 seats whereas the latter has between 200 and 300.
While the Dreamliner is slated to provide a fuel saving of 20% compared to other aircraft on the market, if a particular airline can carry more passengers by the A380 for the same distance, the revenue passenger kilometres (RPK) will be comparable to that achieved by the Dreamliner.
AH: Is the industry as a whole likely to experience any significant change in procurement patterns for long-haul and short-haul aircraft during 2010?
JY: Any changes to procurement patterns are most likely to be triggered by the mass consumer market's continued attraction to the budget pricing offered by low-cost carriers attracting the mass consumers market.
In today's market low-cost carriers are increasingly becoming more influential than legacy carriers, and as a result aircraft manufacturers are taking more notice of the future design of narrow-body aircraft.
The recent tie-up between Air Asia and Jet Star Asia is a good example of how low-cost carriers are partnering to influence manufacturers to design aircraft specific to the nature of low-cost carriers. Additional stress factors are a major consideration for low-cost carriers as are fuel savings and reliability issues. Frost & Sullivan therefore foresees there will be an increase in demand for narrow-body aircraft designed specifically for low-cost carriers.
AH: What are some of the key aircraft components manufacturers are likely to focus on during 2010?
JY: Frost & Sullivan sees an increased demand for in-flight entertainment (IFE) upgrades as well as interior cabin modifications activities during 2010. As such, the key aircraft components will be cabin fitting, electrical connectors as well as IFE systems that airlines are likely to purchase in the coming years.
AH: And in particular how will fuel efficient engines continue to play an essential role in the industry?
JY: Fuel pricing is always an integral component to the bottom-line of an aerospace business particularly in the case of airlines. High oil prices will erode profitability of the airline business so it is therefore paramount for them to acquire fuel-efficient engines.
I believe that manufacturers will continue to focus on technologies that will create fuel savings for aircraft. Lighter fan blades and light airframes, for example, are key areas that manufacturers will continue to explore. Alternative energy is also another interesting area that manufacturers are looking at.
AH: Overall, is the aviation industry expected to invest or reconsolidate during 2010?
JY: Frost & Sullivan expects the aviation industry to invest during 2010, but the amount will still not compare to previous boom years. Stakeholders will continue to enforce a precautionary approach for acquisition or investments in 2010.