The crisis in Ukraine and economic woes bedeviling emerging markets have dealt blows to an airline industry struggling to get on firmer footing.
Last month, the International Air Transport Association’s revised its outlook for the global aviation industry to $18.7 billion from its previous forecast of $19.7 billion. In its March financial forecast for the global airline industry, the group said the crisis in Ukraine and the ensuing geopolitical risk are putting upward pressure on oil prices again. In addition, the downturn in emerging markets resulting from a serious fall in capital flows has dampened economic growth. That affected the airline industry because emerging market growth has generated proportionately more air travel than in developed travel markets.
And then there’s the continuing news coverage of the missing Malaysian Airlines jetliner. Whether that causes travelers to skip flying is an open question. The stock of the airliner has fallen in recent years, even before the airliner went missing.
Despite the problems, investors like Nick Cowley, portfolio manager for Henderson Global Investors’ Emerging Markets Opportunities Fund, the global airline sector offers opportunities. “After 9/11, many people dismissed investing in the airline industry, and more recently, they have stayed away because of oil prices,” Cowley said. “In the pre-9/11 era, many airlines grew too fast, but today, a number of airlines have changed their business models to cope with higher oil prices and if you look on a case-by-case basis, we still think you can find some well positioned companies that are well managed and have sustainable competitive advantages.”