Perspectives of 2018: some storm clouds
Despite the optimistic forecasts for 2018 that the International Air Transport Association (IATA) made at the beginning of last December, there are some indications that things could be less favorable than planned.
In the first place, IATA estimated that in 2018 the price of crude oil (Brent) would be quoted at 60 dollars per barrel. But according to the aviation consultancy CAPA, this cost will be $70 per barrel. Already on December 26, 2017 the price reached 67 dollars per barrel and although it was the result of oil pipeline accidents in Libya, the situation in the Middle East is expected much more unstable than in the past ten years, which may cause the price of oil go beyond what was predicted.
It is no secret that the price of crude oil is, perhaps, the most important input in the cost structure of airlines and, according to this consultancy, it is at 80 dollars per barrel the limit at which airlines begin to make adjustments and decide drastic savings and restrictions.
Apart from this, the distortions and peculiarities of the airline industry, which make it unique globally, prevent the competitive adjustments that any other industry achieves and even its economic cycles are diverse. While an industry such as steel is governed by very predictable cycles and - as it is a more or less liberalized global market - it is possible to adjust its growth based on supply and demand.
The case of aviation is very different because of the regime it continues to maintain globally, through bilateral agreements and with strong governmental interests that in each country take different paths, but that ultimately keep air transport services out of the country.
In this sense, we have today new elements that have driven the increase of air traffic. The unprecedented growth of the Chinese market and the Chinese airlines in their international traffic; the emergence of the low cost / wide radio phenomenon is also creating a kind of bubble that does not seem to have a horizon to deflate dramatically, but that can be pressured by the rise in fuel prices and eventually, the increase in the prices of tickets.
In short, we must be attentive to events globally. At the national level, however, we cannot ignore other phenomena that are putting pressure on the entire Mexican economy.
In addition to the electoral issue that always creates uncertainty, but which now seems to be a bit more delicate because of the plausible threat of canceling the new airport, it can distort the market a lot.
But let's not forget another element: Trump's tax reform that will help US airlines have more profits from business trips, and companies' revenues are expected to increase and this will further stimulate the use of air transportation. According to Bank of America, the expectations of the airlines have improved a lot, so much that in recent weeks the prices of shares of American, United and Delta have increased significantly. What will we do in Mexico? This is one of the unknowns that will have to be cleared in the next six months.
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