Air Traffic Under Closed Economic Policies Due To Hostile Situations: Downside Scenario
Research conducted by the International Air Transport Association (IATA) forecasts the growth in air traffic to almost double in the next two decades, hitting close to 7.3 billion in 2034, driven by socioeconomic recovery, low air fares, and demographic changes. In our previous note, we discussed the potential upside in future air traffic growth on account of more liberalized economic policies, resulting in globalization and better standards of living.
However, if the world continues to face terror attacks such as the recent serial bombings in Paris, growth in air traffic is likely to slow down, putting an end to the surging profits that airlines across the world have been enjoying due to depressed oil prices. The fear of such incidents puts pressure on air travel demand due to safety concerns, causing the aviation industry to suffer. Further, such incidents also prompt policy-makers to rethink globalization, causing severe distress to not only the citizens of the world but also air carriers.
- Should You Pick American Airlines Stock At $14 After A 6% Fall In A Week?
- With 20% Gains This Month Is Alaska Air A Better Pick Than American Airlines Stock?
- Which Airlines Stock Will Offer Better Returns – American Or United?
- What To Expect From American Airlines’ Q2?
- Will American Airlines Stock Recover To Its Pre-Inflation-Shock Level?
- Pick Either American Airlines Stock Or Its Peer – Both May Offer Similar Returns
To make matters worse, after such acts of terrorism, the drop in air traffic is usually coupled with a surge in prices of commodities such as crude oil and gold due to the uncertain economic outlook. Although short-lived, these trends impact air carriers’ top line in the short term. In such a case, we can expect air traffic to only grow approximately 1.6% year-on-year, as compared to 4% in the base case.
Such a scenario will negatively affect the aviation industry which after a long struggle, has recently bounced due to the impact of low oil prices. It could mean an end to the industry’s soaring profitability.
Have more questions about American Airlines (NYSE:AAL)? See the following links:
- Lower Unit Revenues, Higher Tax Provisions Weigh On American Airlines’ Q2’16 Results
- American Q2’16 Earnings Preview: Rising Oil Prices, Lower Unit Revenues To Weigh Heavily
- Here Are The Key Factors That Can Impact American Airlines’ Earnings Growth
- Here’s Why We Revised American Airlines’ Price Estimate To $46 Per Share
- American Airlines’ 1Q’16 Revenue And Earnings Decline; Investors Penalize Airline For Downward Revision Of 2016 Capacity Growth Target
- US Legacy Carriers: A Comparison Of Aircraft Fleet
- How Important Will American’s International Operations Be In 2020?
- How Will American Airlines’ Equity Value Move, If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- Why Are American Airlines’ Domestic Operations More Valuable Than Its International Operations?
- How Will American Airlines’ Equity Value Move, If Crude Oil Prices Average $50 Per Barrel In 2018?
- How Did American Airlines’ Revenue And EBITDA Grow Over The Last Five Years?
- How Did American Airlines Use Its Increased Cash Flows In 2015?
- How Will American Airlines’ Revenue And EBITDA Grow Over The Next Five Years?
- What Is American Airlines’ Fundamental Value Based On 2016 Estimated Numbers?
- How Has The Oil Slump Impacted American Airlines’ Operating Margins?
- How Has American Airlines’ Revenue And EBITDA Composition Changes Over The Last Five Years?
- What Is American Airlines’ Revenue And EBITDA Breakdown?
- US Airlines: A Comparison Of Operating Margins
- US Airlines: A Comparison Of Dividend Yields
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Airlines
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap