The global airline industry is set to face more tougher competition in the coming year, partly due to the expansion of low-cost carriers (like Spirit, Vueling and easyJet) and the growth of airlines in the Middle East, a new report released today says.
The Tailwinds report, by consulting firm PwC US, also said that the rise in joint ventures among airlines to increase international flights could add to the competitive field.
Still, the study concluded that 2013 was a successful year for the industry, with global airline revenues expected to have reached a new high of $708 billion. Lower fuel prices helped as did having more flights and passengers willing to travel.
Low-cost carriers have increased their share of that to more than 25% last year. The report expects the low-cost carrier model to spread to Asia, which is already working on a low-cost carrier. Russia is also working on a budget airline that will serve domestically when it begins service.
Middle East carriers have a competitive advantage on international routes because they are well-funded and have lower fuel costs. They’ve placed a record number of orders for wide-body aircraft for the next decade, signaling their intent to expand even more, the report concluded. Middle Eastern airlines are also innovating their business and first class model by offering luxurious amenities and commodities such as en-suite rooms aboard their planes.
“The airline industry is undergoing a recovery marked by increased revenues and profitability, but the results widely vary between regions, and cost pressures remain a challenge across all markets,” Jonathan Kletzel, U.S. transportation and logistics leader for PwC said in the report. “With growth in expenses and increased competition threatening future profit growth, many airlines find themselves at a crossroads. They can continue to make small incremental improvements, or take bolder steps to become the ‘connected airline’ of the future, applying technology and analytics to achieve more significant advancements.”