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The airline sector comes in the perfect storm

The "pen-and-rocket" in the prices of fuel The fine rain that they endured for months, the aviation sector has become a strong storm. The relentless rise o

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The airline sector comes in the perfect storm
The "pen-and-rocket" in the prices of fuel

The fine rain that they endured for months, the aviation sector has become a strong storm. The relentless rise of the oil, the tragic accident of the Boeing 737 and the unknown of the war business have been combined with the nth price war in the sector, conditioned by the operation of the "low cost". The worst, however, could be to come: on the horizon the fall the glimpse of the tornado of a Brexit hard.

This compendium of phenomena has begun to touch the results of the major airlines. Last Monday, Lufthansa released a "profit warning" for all by 2019. In particular, the airline is now scheduled to achieve a margin on your net operating profit (Ebit) of between 5.5% and 6.5% in 2019 , compared to earlier estimate of between 6.5% and 8%. A fit that the giant of the aviation blames the price war that exists in Europe, especially by the influence of the low-cost carriers.

And is that the sector is buckling under the pressure of the front door. The competition is fierce and there seems to be no truce in the price war. In fact, these do not stand to lose. According to data published by the National Statistics Institute (INE) this week, the price of air transport of passengers extended their fall to 1% in the first quarter, six tenths more than the previous period.

"The aviation sector is striving for prices to remain low. There has been a demand growth and there are factors that are pushing the industry. But, still, flying remains accessible and the passengers what they value," explains the general director of easyJet in Spain and Portugal and president of the Association of Airlines (ALA), Javier Gándara.

A delicate moment for the sector air, which, however, does not play outside of Europe. "In Latin america there are no excessive difficulties, the revenues have grown more than costs", said the expert of Esade Josep-Francesc Valls. It is in the Old Continent where it was "planned for this year height difference of costs and revenues , among other things, by the competition outrageous," says Valls.

This particular pressure and an adverse context lead you to think that the "profit warning" from Lufthansa, which has had an immediate impact on the markets, will be able to replicate in the coming months. The International Air Transport Association (IATA) as cut to the beginning of the month and 21.1% of its forecast profit for 2019 , because of the increase in the price of oil (more costs) and the trade war between China and the united States (slowing down demand). In particular, the organization estimated that the 290 airlines that together will earn a few 28.000 million dollars (close to 25,000 million euros). By the end of 2018 anticipated benefits of 35.500 million (about 31,000 in millions of euros)

it is Not the only agency that provides for a review of the benefits. HSBC has published a report this week that recommends delinking of shares of IAG and easyJet because it considers that its forecast earnings will not be met. The report has been the last straw for the stock prices of these companies, you have closed the week with strong losses . It rains it pours, because the industry has already had to deal with in the floor with the threat of a Brexit to the bravas and the ups and downs of the oil production in the middle East.

"have stirred up some ghosts inside of a very competitive sector," explains the professor of operations, IESE Business School Philip Moscoso, highlighting the uncertainty generated by the trade war. "As stated by the IATA, the conflict may make the cargo business ; between 30% and 45% comes from Asia. Even so, we must take into account that only a few years ago the sector was losing money. There is that to put these figures in perspective," he says.

beyond the benefits, it remains to be seen what victims are charged the "perfect storm" facing the sector. Could be airlines, but also frequency and routes. "Unfortunately, bankruptcies are a constant within the sector. Since the beginning of the century have disappeared 30 airlines in Spain . It is possible that in the next few months to look more at the international level. Which for large companies is a decrease in the benefit, to the small can result in the bankruptcy," explains Gándara.

This critical time could have a second outcome. " We are faced with another wave of mergers [the last one at the end of the last century, with the liberalization of the air space]", writes the expert of the Esade business school. "It will be the great reaction of the companies to acquire a dimension able to absorb imbalances", explains Valls.

winter Is coming

The fact that the sector has a process of consolidation slope gives wings to the possibility of bankruptcies and mergers in the coming months. But the ceo of easyJet puts on the table a third option: cuts capacity .

Gandara remember that the airlines planned their seasons with several months in advance. "For this reason, factors such as the rise of oil and the slowdown of demand in countries such as Germany and the United Kingdom have not had as much impact in the summer season". In turn, these circumstances may have traveled with regard to the planning of winter. "Do not forget that it is low season , so that is not dischargeable as to produce a trimming of capacity," explains Gándara.

In recent months, companies such as Vueling, Ryanair and Norwegian have already decided to close routes , which they considered little efficient. A process that threatens to expand in the future. And is that the airline industry is facing the winter surrounded by doubts.

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