Airline new entrants still falling after the GFC. Low oil prices could spark a 2016 entry resurgence

In a Jan-2016 report on the world airline profit outlook, CAPA flagged the potential emergence of ideal conditions for new entry into the airline sector. Barriers to entry have never been very high compared with some other capital-intensive, cyclical industries. Access to aircraft and finance is probably the most important pre-requisite, and it does provide at least something of a barrier.

However, the effectiveness of access as a barrier has been weakened by factors including a long term increase in the importance of lessors (and their fondness for ordering aircraft before securing a customer), historically low interest rates, and the large volume of aircraft orders and deliveries over the past decade. Nevertheless, new entry is at historically low levels and has not picked up since the global recession.

This report considers the main barriers to entry for airlines and, in particular, examines data on the relationship between the annual number of new entries and together - fuel costs and interest rates. Low oil prices have extended the life, and therefore the availability, of older, cheaper aircraft. This could provide the spark to ignite a resurgence of new starts.