ABSTRACT
The airline industry has experienced seven years of good profitability, enjoying the benefits of a relatively long world economic upswing between 1994 and 2000. This followed its emergence from four to five years of large financial losses, following the Gulf War and subsequent economic recession. Cumulative net losses of the world's scheduled airlines amounted to US$ 20.3 billion between 1990 and.1993, but this was followed by almost $40 billion in net profits between 1995 and 2000. This highlights the cyclical nature of the industry, and the need to treat with caution comments after the Gulf War recession about the continued ability of the industry to finance expansion. Since the end of the last recession, the airlines' balance sheets have been
considerably strengthened, even allowing for the replacement of large numbers of noisier aircraft that did not meet current Chapter 3 standards. ICAO figures show the debt/equity ratio for the world's scheduled airlines declining from a high of 2.9:1 at the end of 1993 to 1.3:1 at the end of 1999: However, clouds appeared on the horizon in 1999, with the price of jet
fuel jumping from 40 cents per US gallon a barrel to 75 cents in January 2000. This led to a drop in operating profits, although net profits were maintained largely due to the sale of aircraft and non-core investments such as holdings in IT and communications companies. The dollar price of fuel in 2001 was still well below its high in 1981. At that time fuel expenses rose to just under 30% of total airline operating expenses. In 2000, they were still only 12% of the total, even after recent sharp increases. This has been helped by substantial advances in fuel efficiency. For example, British Airways has reduced its average consumption in terms of grams per revenue tonne-Ian from around 440 in 1990/91 to 345 in 1999/2000 (or by an average of 2.6% a year), and is on track to meet its target of 306 gms in 2010.2
Figure 1.1 ICAO scheduled airline traffic growth vs, world GDP growth
lower distribution costs. The Asian financial crisis of 1997/98 can be seen to have had little effect on the fortunes of the world's airlines. The difference between the operating and net profit is caused by net
interest paid, gains or losses on asset sales, taxes and subsidies. Interest paid is the largest of these items, and this has declined in the second half of the 1990s due to the combined effects of falling interest rates and lower debt outstanding. Profits from asset sales also make a good contribution in some years, generating almost $3 billion in both 1998 and 1999.
