Too many cheap seats being sold by airlines, insists aircraft leasing boss
There are too many cheap seats being sold by the world's airlines, and the sector will see a moderate decline in profitability this year, according to Dick Forsberg, the head of strategy at aircraft leasing giant Avolon.
He said that while supply and demand in the airline sector is "nominally in balance", carriers aren't selling enough expensive seats. "Airline profitability remains highly concentrated, with over 45% coming from North American carriers," said Mr Forsberg.
"A slew of airline failures during the course of the past 18 months, plus several more in intensive care, suggests that full planes are not always cause for celebration."
Last week, German airline Germania went bust after it failed to secure additional investment to see it through a cash squeeze. Scandinavia airline Norwegian has also been forced to secure a fresh equity investment to keep it in the air.
Mr Forsberg said the deluge of cheap seats being sold is the fault of airlines, but also of aircraft manufacturers, coupled with cheap finance.
He said plane makers "continue to sell the dream of greater efficiency, longer range and lower seat costs - especially when ordered in bulk".
"This formula only works when airlines compete rationally and resist the temptation to chase market share and load factor through irrational pricing," he said.
Avolon is the world's third largest aircraft lessor and was co-founded by Domhnal Slattery. It has an owned, managed and on-order fleet of 971 jets. It is majority owned by Bohai, with 30% now owned by Orix.
Mr Forsberg added that some airlines without sufficient hedging will be exposed to continued oil price volatility.
"In this fuel price environment, the most effective hedge against oil price movement for airlines is operating the most fuel efficient fleets," he said.
"For lessors, the ability to apply appropriate risk-management processes to their airline customers, and pick up early warning signs of trouble ahead, will be critical in determining success."