Analyst Insight by Nadejda Popova - Senior Travel and Tourism Analyst
Not long ago, the International Air Transport Association (IATA) announced that the airline industry was performing well and that there was huge potential with a forecast for global airline profitability to reach US$18 billion in 2014, compared to US$10.6 billion in 2013. Did it speak too soon? Geopolitical tensions, the Ebola virus outbreak in Africa, fuel price spikes due to the turbulent events in the Middle East, airplane crashes in war zones, airspace closures, terrorist threats and volcanic eruptions are all expected to challenge these predictions for a successful 2014. External factors will continue to drive uncertainty and test the financial muscle of global airline players, while putting at stake the survival of others.
The political tensions that erupted in the Middle East will continue to be a drag on the region’s economic prospects, but also globally. In addition, fluctuating fuel prices and regional turmoil are but a few of the ongoing threats to airlines’ growth and profit margins.
For the first six months of 2014 jet fuel prices recorded very low levels compared to previous years, which was leading to a snowballing effect, forcing many airlines to cut their hedges. This could bring more problems later in the year, however, if prices were to sharply rise and result in huge losses. According to IATA, the jet fuel price declined by 5.6% in August 2014 compared to the same period a year ago.