Industry overview

The airline industry is characterized by intense competition with strong price pressure that entails a continuous requirement to enhance efficiency. In parallel, this is an industry that continues to grow with more passengers who travel more often.

Global growth, increased productivity and intense competition

Since the start of commercial air traffic, the airline industry has been marked by high growth compared to the GNP trend and continuous productivity increases. The industry has been gradually liberalized, which has contributed to new business models, such as low cost carriers (LCCs), arising since the 1990s. Even if a number of new LCCs have contributed to total market growth, existing network airlines have continued to fly with unchanged or slightly rising volumes. Technical developments, new business models and efficiency enhancements have helped absorb inflation which, in combination with raised living standards, have enabled more people to fly. Average annual traffic growth was 5.8% from 1980 to 2014. Globally, more than 3 billion passengers are expected to travel with commercial airlines in 2014. IATA expects global traffic to grow during the year by slightly more than 6% and capacity to increase by about 5.5%. Growth is expected to continue moving forward and the aircraft manufacturer Airbus forecasts continued healthy annual traffic growth until 2023 of about 5.2% and annual traffic growth of 4.2% from 2023 to 2033.

Europe – outsourcing of short-haul routes to LCCs

The profitability of traffic within Europe has come under pressure from increased competition and overcapacity. In 2012 to 2014, IATA estimates that the combined earnings after tax of airlines in Europe will total about USD 1.2 billion per year. To improve profitability and compete more successfully with LCCs, network airline companies are streamlining operations in parallel with outsourcing an increasing share of shorthaul operations to proprietary LCCs or production companies. In 2013 and 2014, Lufthansa and Air France decided to transfer a larger portion of short-haul traffic to Germanwings and Transavia respectively, even if Air France has temporarily paused the transfer following extensive pilot strikes. This trend is expected to continue. External production models, proprietary LCCs and the use of staffing agencies are increasingly becoming the established industry standard and are changing competitive conditions for European aviation from the ground up. According to IATA, capacity increased in Europe by about 5% in 2014. IATA forecasts that enhanced efficiency and a slightly more stable European economy meant that earnings per passenger for airlines in Europe will improve from SEK 3.80 to 21.50 in 2014.

The Nordic region – a significant market

In relation to its population, the Nordic air travel market is relatively large compared with the rest of Europe. In the Nordic region, each person flies an average of four to five times per year compared with about two times per year in the rest of Europe. In 2014, the Scandinavian air travel market alone is expected to turnover approximately SEK 70 billion. In particular, it is the short-haul routes that people in Scandinavia choose to fly to a greater extent than people in other parts of Europe and the world. Key reasons for this are the relatively long distances, difficult topography, relatively small towns and the fact that Scandinavia is largely surrounded by sea, which makes other forms of transport time-consuming. Accordingly, short-haul flights are the core business and main focus for SAS. Leisure travel in particular has increased since the turn of the century. IATA expects close to 80% of market growth until 2020 to stem from leisure travel. At the start of this century, new LCCs contributed to increasing leisure travel. As network airlines have increased their operational efficiency, LCCs share of market capacity has stabilized and, in 2014, amounted to about 35% in Scandinavia. Even if leisure travel accounts for the greatest growth, a high correlation exists between airline traffic trends and national economic trends in terms of GNP and export indices, since their trends influence demand for business and leisure air travel.