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27th September 2011

The Greek Financial Crisis

The Unpredictable Fate of the Eurozone

The International Air Transport Association has predicted that the airline industry will suffer a drop in profits of up to 29% in 2012. The Greece financial crisis has been blamed for such harsh industry issues with an expected 80% drop in European market profit as the debt crisis saps demand. Every day Europe’s eyes are watching the constant fluctuations across the globe with the FTSE struggling to stay above 5,000 and the DOW J being constantly unpredictable affecting even the most established organisations.

So what will this mean for the Aviation Sector?

Some airlines will have stock piled cash for this foreseen circumstance that has been materialising through-out the past few months and a reputation that will ensure survival. However, some airlines will fall. As bold a statement as this may be, a large scale reduction in demand will in effect, cause the base fixed costs to shield any revenue that small-to-medium sized airlines secure. The airlines that stock pile cash will also be at risk of being targeted by suppliers if this stock pile becomes a market awareness. Ultimately jcba has seen that a stronger financial backing will bring about raised prices at the petrol pumps.

So is anyone safe?

The economic situation will however provide a bargaining chip to the suppliers. As OEMs will undoubtedly face a reduction in customers due to various airlines becoming insolvent and reduction in airline capacity, negotiations should be able to secure lower costing contracts. Organisations with effective and efficient purchasing will take advantage of this early and ultimately benefit form lowering their cost base to match the reduction in revenue that will emerge.

Over the next few years, the airline industry may see a reduction in the already backlogged orders from Boeing and Airbus, with more focus into aircraft leasing to secure liquidity through these uncertain times. However it will also give the aircraft manufacturers breathing space to the larger order from airlines such as Quantas and Emirates.

It is also expected to see is the efficient low cost carriers maintaining their growth across Europe as Spain and Italy come under threat of a domino effect from Greece. The low cost of flights will appeal to the customers that can afford to travel abroad for business and pleasure. Will we see a change in market share? Or will the larger prestigious airlines adapt to the economic fluctuations.

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