25-Jan-2011 8:13 AM

CIT study reveals concerns over rising fuel costs; M&A activity to continue

CIT Group Inc, in a research report entitled 2011 Global Aerospace Outlook — Challenges of an Ever-Changing Industry, stated (24-Jan-2011) airline executives continue to express concern about rising fuel costs, yet despite these concerns, many continue to take a wait-and-see approach towards new aircraft technology. Concerns over increased competition also remain.  Additional findings include:

  • Increased merger and acquisition activity: Growth in M&A and other forms of consolidation are being set in motion by a need to optimise costs and capacity with consolidation activity expected to increase in the next five years, according to CIT Group. This will be driven by marketing synergies through more routes and a stronger brand, the need to optimise labour efficiency and cost and opportunities to optimise fleet capacity. Regional consolidation is expected to be most prevalent followed by alliance, global and emerging markets;
  • Leasing remains the most important form of financing: According to the survey, leasing remains the most important form of fleet financing;
  • Emerging markets promise the greatest opportunity for growth: Working through the Great Recession required some major carriers, particularly those in the US and Europe, to trim their fleets, reduce their routes, and look for new areas of income. However, these actions were not universal, as carriers in emerging markets, such as China, India, Russia and Latin America, increased their fleet size, network and capacity; 
  • Regulatory uncertainty creates anxiety: Potential regulatory actions continue to weigh heavily on the industry especially in relation to carbon emissions; 
  • Business travellers remain the main source for revenue growth: Going forward, airlines expect revenue growth to come from a range of sources. Over the next two years business travelers will be the most likely source, followed by increased international traffic, ancillary revenues and fare increases, according to the survey. Nearly 40% of airlines s now charge passengers for food and their first checked bag, with this trend particularly more common among US carriers.  [more]

CIT: “Faced with fierce competition and steep fuel prices, airline executives are taking a close look at how they operate. In response, airlines are optimising their fleets, looking for cost savings, exploring new forms of revenue growth, considering mergers and strategic alliances, and focusing on the business traveller,” Jeffrey Knittel, President of Transportation Finance. Source: Company Statement, 24-Jan-2011.

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