Airline capacity discipline: a new global religion delivers better margins – but for how long?

The world is entering its fifth year since the global financial crisis and world GDP growth remains below historic trend rates. In addition, fuel prices look set to remain in a historically high range. In spite of these headwinds, IATA is forecasting global airline operating margins of 2.1% and 2.9% in 2012 and 2013 respectively. While these margins are very slight compared with other sectors of the aviation supply chain, they represent a creditable mid-cycle level for the airline industry.

Capacity discipline appears to be helping mitigate the impact of a sluggish global economy and high fuel prices. In this analysis, we examine the relationship between capacity utilisation and airline sector profitability and derive our Capacity Index to assess the stage reached in the cycle. We also look at how it came to pass that the industry decided to embark upon the righteous path as disciples of capacity discipline.