Global Aviation and the Global Market

The aviation industry is one of the biggest contributing factors of the overall economic market. These are just some of the global factors I think will continue to shape this industry boom over the next 15-20 years.

There are many areas of the global aviation market in which US commercial airlines have grown exponentially since the last aviation market dip. One of these areas includes the growing competition of carriers in the Middle East. The Middle East has been leading the way with global aviation growth. Middle East airlines claimed the strongest passenger growth worldwide in the latest data revealed by the global aviation industry body. Traffic for Middle East carriers jumped 11.7 per cent in November, from a year earlier, the International Air Transport Association said. Globally, international passenger demand advanced 5.4 per cent in November, compared with a year earlier. All regions except Africa saw a year-over-year increase in demand. However, growth had slowed in most regions compared with October of 2014 (El Gazzar, 2015).

Moreover, as the global price of oil continues to drop, you would think that airlines all over the globe would see a generous boost for the aviation market. However, Only U.S. airlines are reaching the level of profitability that allows them to recover the cost of capital. The airline industry is forecast to benefit significantly from the drop in fuel prices, and part of the improvements will be passed on to consumers in the form of significantly lower fares. The association believes airlines will make a combined profit of $25 billion in 2015, up from $19.9 billion this year, $10.6 billion in 2013 and $6.1 billion in 2012. “We see falling oil prices to give a great boost both to the industry and consumers,” said IATA Chief Economist Brian Pearce (Flottau, 2014). On the other hand, with lower fuel prices comes less efficient aircraft maintaining operation. “As a result of falling fuel prices, aircraft fuel efficiency improvements will slow down from 1.8% in 2014 to 1.6%. This is because less fuel efficient aircraft are still in operation” (Flottau, 2014).

Globalization in manufacturing also plays a big part in non-leveled playing field. With faster growing markets, fierce competition arises. When people think about manufacturing aircraft, they think of Boeing, Airbus, or Lockheed Martin. China is on an aggressive course to build a world-class commercial aviation manufacturing base. Mexico continues as an important supplier to the North American industry. But which companies will supply the new aircraft? “In Boeing’s latest outlook, the world will see demand for 35,280 new jet aircraft from 2013–2032 at a value of $4.8 trillion, with single-aisle aircraft accounting for most of that demand. (Globalization, 2015). Below is a graph that depicts aircraft demand by region for the years 2013-2032:

Finally, while researching the topic of labor costs for this blog, I came across the American Airlines’ approved contract that was voted two-thirds in favor of a new five-year contract that gives them 23 percent pay raises this year and 3 percent pay raises on Jan. 1 for the next five years. “By voting in favor of the JCBA, our pilots will benefit from higher pay rates. In effect, the pilots of American Airlines made a business decision,” Keith Wilson, Allied Pilots Association president said in a statement” (Maxon, January 12, 2015). APA will now focus on further engagement with American Airlines management to address ongoing shortcomings in our contract. Our total compensation will still trail industry-leader Delta, while work rules affecting our pilots’ quality of life need meaningful improvement. There’s a lot of work remaining to achieve the industry-leading contract our pilots deserve,” Wilson said. The decision avoids a scenario in which the Allied Pilots Association contract combining US Airways and American Airlines pilots under a single agreement would have gone to binding arbitration (Maxon, January 30, 2015). A "no" vote would have sent the pilots and management to binding arbitration, which would have capped wage gains to zero percent for December 2014, 3 percent for January and an extra 13 percent a year later, per an agreement that the pilots union had accepted during the merger (Dastin, 2015).

Overall, I agree with most of these findings from the writers of the articles, which is why I used them as sources. Obviously, there are a great deal of things to consider in order to level the playing field when it comes to growth of the aviation market. The aviation industry is one of the biggest contributing factors of the global economic market. It has a number of factors going into the growth of the latest industry boom, including the various different factors I have researched above. I believe we can make this a level playing field by allowing countries to grow and compete healthfully alongside large U.S. carriers, like American or Delta. If oil continues to drop, it may have an up-and-down effect on the global market as it is now. Raising the pay for pilots, not just in the U.S. but all over, can have a great impact on the job outlook for many future pilots. I think larger pay is playing a big role in capturing a prospective pilot’s eye. These are just some of the global factors I think will continue to shape this industry boom over the next 15-20 years.

References

Dastin, J., & Ajmera, A. (2015, January 30). American Airlines Group pilots approve contract to
            raise pay. Retrieved March 17, 2015, from http://www.reuters.com/article/2015/01/30/us-
            american-airline-workers-idUSKBN0L31XC20150130

El Gazzar, S. (2015, January 8). Middle East carriers lead global aviation growth. Retrieved
            March 16, 2015, from http://www.thenational.ae/business/aviation/middle-east-carriers-
            lead-global-aviation-growth

Flottau, J. (2014, December 10). As Oil Price Falls IATA Sees Steep Profit Rise, Traffic Increase
            In 2015. Retrieved March 17, 2015, from http://aviationweek.com/commercial-
            aviation/oil-price-falls-iata-sees-steep-profit-rise-traffic-increase-2015

Globalization of aircraft manufacturing: New markets, new players. (n.d.). Retrieved March 17,
            2015, from http://www.pwc.com/us/en/industrial-products/commercial-aircraft-industry-
            future/globalization-new-markets-and-manufacturers.jhtml

Maxon, T. (2015, January 12). American Airlines says proposed pilot contract would raise its
            2015 costs by $650 million. Retrieved March 16, 2015, from
            http://aviationblog.dallasnews.com/2015/01/american-airlines-says-proposed-pilot-
            contract-would-raise-its-2015-costs-by-650-million.html/  

Maxon, T. (2015, January 30). American Airlines pilots approve new contract, with nearly two
            thirds in favor. Retrieved March 16, 2015, from
            http://aviationblog.dallasnews.com/2015/01/american-airlines-pilots-approve-new-   contract-66-34.html/