Dusting off 747-400s after their stay in the desert is a good sign of a recovering global economy. The long-range, high capacity jumbo’s return to service with airlines like Cathay Pacific, British Airways and United Airlines signals a resurgence of strong demand on a diverse array of routes. While it is no longer the most efficient aircraft in its class with the larger A380 or slightly smaller 777-300ER filling its previous role, the need for capacity growth is outweighing the reintroduction of the less efficient type.
Though, with each individual carrier making decisions based on increases in demand, Bloomberg’s report on capacity increases introduces this variable:
“Everybody is getting very excited about passenger and cargo volumes coming back, but there’s a great temptation to add too much capacity,” said Chris Tarry, an independent airline analyst and strategy consultant in London who has followed the industry for almost three decades. “What may be rational fleet decisions for individual airlines can add up to a problem for the industry when taken together.”
This trend of bringing aircraft out of the desert along with production output rising on nearly every commercial assembly line at Boeing and Airbus, commercial aerospace, by all outward appearances, is a solid barometer of the way toward a global economic recovery. Yet, like all good cause and effect equations, is commercial aviation a leading or trailing indicator of global growth? It’s like dividing by zero, it will make you cross eyed if you think about it too long.
Unleashed pent up demand from lessors came to the fore at Farnborough with lessors signing up for billions of dollars worth of aircraft, but for Richard Aboulafia – who has a pesky habit of hitting the nail on the head – the order bonanza may be shortsighted. Here’s reason two of six the parade might be premature:
2. There’s a degree of separation between the air travel market and the economy. Passenger and cargo traffic are doing great, and airlines are making money. Yet today’s traffic numbers are now completely disconnected from, and way better than, the economic indicators that typically drive them. Stock prices, GDP growth, inflation (or even deflation), bond rates, retail sales, housing inventories, employment, and consumer confidence numbers in the US and Europe all show continuing uncertainty.
The numbers across the world’s largest economies are decidedly uneven: Germany is growing like gangbusters, but the US and Japan are sputtering and Chinese factory output slowed for the fifth month straight. Economic indicators are all going in different directions, so what’s an airline to do? Too many aircraft in the marketplace could wreak long-term havoc on airlines, lessors and manufacturers alike. Let’s just hope the painful lessons in capacity discipline didn’t get parked in the desert too.
This post was originally published to the internet between 2007 and 2012. Links, images, and embedded media from that era may no longer function as intended.
This post originally appeared at Flightglobal.com from 2007 to 2012.