Capacity discipline key for improved airline earnings: KfW

This story is sourced from

The global economy is still on the mend almost five years after the financial crisis, but KfW believes the aviation industry will continue to perform well due to restored capacity discipline despite an uncertain outlook.

“The global economy is recovering only slowly and …the oil price remains at a high level, all in all, not good news for the cyclical, GDP-driven aviation industry,” says KfW in a research report today, adding: “In spite of these difficult conditions, airlines have managed to again improve their earnings in recent years. The outlook for 2013 and 2014 holds out the prospect of a positive trend.”

Capacity discipline remains a key factor for improved earnings for airlines, says the German financier.

“Enduring capacity discipline increases the airplane load factor and reduces the exposure of airlines to fluctuations in demand,” says KfW.

At present, the airlines are “cautiously expanding” their capacity in the "saturated" aviation markets.

KfW also notes large order backlogs and limited aircraft manufacturer production capacities are also helping to smooth out delivery cycles.

Sustained capacity discipline in Europe and North America is ensuring “climbing ticket prices” and a “fragile equilibrium”. However, the bank notes this balance is endangered by Middle East carriers, for example, which divert international traffic flows through the region by offering low-priced tickets, aiming to capture market shares especially from European airlines.

For sustained profitability, the bank calls for "further consolidation" and "reduced pressure on prices".