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Profitability and the Air Transport Value Chain

International Air Transport Association (IATA)

Air transport is one of those industries that has transformed the world. Providing rapid connections between the world’s cities by air has enabled the globalization that has shaped modern business and the experiences of individuals. Airlines and the wider air transport supply chain clearly create substantial value for consumers and the broader economy. That value creation is why, over the past forty years, air travel has expanded ten-fold and air cargo fourteen-fold, compared to a three to four fold rise in world GDP. Yet over this period airlines have only been able to generate sufficient revenues and profit to pay their suppliers and service their debt. There has been nothing left to pay investors for providing equity capital to the airline industry.

Does this matter? Well, now that 75% of the world’s airlines are at least majority owned by the private sector it should be a concern that today’s returns on invested capital do not justify retaining the existing capital invested in the airline industry. Of even more importance is the need to attract $4-5 trillion of new capital over the next two decades to buy aircraft to meet the needs of the expansion in the Asia-Pacific and other emerging regions. Improving the efficiency of use of existing capital, and the returns it generates for investors, will be essential to attract new investment to the industry.

This report demonstrates the need for effective partnership between airlines and all their business partners in the air transport supply chain, including governments. Investors make good returns in most sectors supplying airlines and particularly in those sectors distributing airline product to end customers. But inefficiencies and slow adoption of new technologies and processes abound. In most cases efficiency improvements are a win-win for all concerned. Partnership between airlines and suppliers makes a lot of sense in these circumstances. IATA, the airlines and airports have already seen much success with joint projects such as e-ticketing and self-service, projects that improve the customer experience as well as delivering efficiency gains to all parties.

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Category: Transport

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