CIT Executive Insights Examines the Changing
Global Commercial Airline Landscape
- Airlines Coming to Terms with the
Prospect of Higher Rates and Oil Prices
- Aircraft Leasing Is an Effective Tool
to Meet Growing Demand and Optimize Fleet Strategy
- Consolidation Expected to Increase in
the European and Asian Market
- Traditional Hedging Strategies Are
Costly
While the global airline industry is in the midst of a relative
boon, industry insiders see headwinds ahead posed by a convergence
of rising rates and oil prices, and changes to the competitive
landscape, according to Steve Mason, Vice President of Aircraft
Evaluation and Strategy for CIT Aerospace at CIT Group Inc.
(NYSE:CIT), a global leader in aircraft finance. These views and
others are presented in “Clouds on the Horizon? Airlines Look for
Best Flight Path Through Rising Interest Rates, Fuel Prices”
(cit.com/mason), the latest piece of market intelligence to be
featured in the CIT Executive Insights series.
This Smart News Release features multimedia.
View the full release here:
http://www.businesswire.com/news/home/20151005005286/en/
Steve Mason, Vice President of Aircraft
Evaluation and Strategy for CIT Aerospace (Photo: Business
Wire)
Long-term Industry Risk Rising
A recent CIT Aerospace survey of more than 100 global airline
fleet and finance executives found that most executives expect both
interest rates and fuel prices to rise, potentially adding risk for
the sector.
“Airlines could see operating cost headwinds with the retreat of
favorable oil prices and rates, combined with a shifting market
landscape,” said Mason. “Some of these market changes include the
continued growth of low-cost carriers and currency weakness in
Europe and Asia.”
Financing Costs Impacted by Volatility
With clouds looming over the industry – including the certainty
of rate hikes – executives surveyed indicated that they anticipate
their airlines will increase the percentage of leased aircraft in
their fleets.
“As the Federal Reserve continues to show support for a rate
increase in the very near future, companies are looking for
alternatives to finance their aircraft,” said Mason. “While markets
like Europe are sluggish, other markets such as China are
under-ordered in terms of their aircraft requirements and will look
to continue growing their fleets despite the added turbulence. They
will seek options such as leasing to meet those needs.”
Fuel a Cause for Concern
The cost of fuel is a top concern for airline executives, half
of which indicated that they believe fuel costs will increase in
the next 18 months, and more than 80 percent believe they will see
an increase in the next three to five years.
Mason commented that historic hedging strategies may not be
suitable, indicating, “Hedges represent a more costly solution in
the wake of fuel price volatility. New, more fuel-efficient
technology is the only truly long-term hedge against fuel price
increase.”
Sector Consolidation to Increase
Consolidation is beginning to change the face of the European
airline market as pressure mounts on the legacy airline model.
Among the European airline executives polled, more than half see
mounting competition from different types of carriers as their most
significant challenge in the next two years. This pressure is
coming in the form of low cost carriers (LCCs) and Middle Eastern
carriers continuing to make headway into the European market.
“European airline consolidation is likely to intensify, and we
will continue to see the ‘conglomerate style’ alignment in which
operating companies combine, but the airlines fly and market as
separate brands,” said Mason. “With LCCs growing their market share
in Asia, we may see similar trends begin to rise there as
well.”
The Need for Newer Aircraft
These issues put into sharp relief the need for airlines to keep
costs low and improve customer service by incorporating more
efficient aircraft into their fleets. The survey found that more
than 90 percent of industry executives expect improved and more
efficient aircraft designs in the coming years, and nearly
three-fourths are leaning on that technology to remain
competitive.
Mason ends with this final thought. “At CIT, our expertise and
history as an aircraft lessor give us unique insight on the
shifting conditions of the market. We understand the need for
flexibility in lease arrangements with our airline partners, and
pride ourselves in being quick and efficient in order to help our
customers navigate rapid changes in the sector.”
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About CIT Aerospace
As one of the world’s leading aircraft leasing organizations,
CIT Aerospace provides leasing and financing packages, including
operating leases, and structuring and advisory services, for
commercial airlines worldwide. CIT Aerospace owns, finances and
manages a fleet of more than 350 commercial aircraft serving
approximately 100 customers in 50 countries. cit.com/aerospace
About CIT
Founded in 1908, CIT (NYSE:CIT) is a financial holding company
with more than $65 billion in assets. Its principal bank
subsidiary, CIT Bank, N.A. (Member FDIC, Equal Housing Lender), has
more than $30 billion of deposits and more than $40 billion of
assets. It provides financing, leasing and advisory services
principally to middle market companies across more than 30
industries primarily in North America, and equipment financing
and leasing solutions to the transportation sector. It also offers
products and services to consumers through its Internet bank
franchise and a network of retail branches in Southern California,
operating as OneWest Bank, a division of CIT Bank, N.A.
cit.com.
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