Over the next 20 years, the airline industry, as a whole, will need to attract $4 trillion to $5 trillion in outside investment to ensure future connectivity demand is achieved, according to a recent study by the International Air Transport Association and McKinsey & Co.
A poor return on airline investment is at the heart of the problem, said Tony Tyler, IATA’s director general. From 2004-2011, he said, investors would have made $17 billion more each year if they had put their money in bonds instead of in the airline industry. During that time period, airline investment return averaged 4.1 percent, which was an increase over the previous eight-year average return of 3.8 percent. From 2004-2011, investments of similar risk outside the airline industry gave an average return of 7.5 percent.
“Unless we find ways to improve returns for our investors it may prove difficult to attract the… capital we need to serve the expansion in connectivity over the next two decades, the vast majority of which will support the growth of developing economies,” he said in a statement.
Low profitability among airlines, the high cost of fuel and the highly fragmented nature of the industry are key challenges that, if improved, would help attract investors, according to IATA.
“More effective partnerships are required among stakeholders in the air transport industry,” Tyler said in a statement. “Efficiency gains are a win-win for all concerned.” – Jon Ross
IATA: Industry must be more attractive to investors
