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Passenger demand will continue to be a growth catalyst for these sectors

Global airlines, aircraft lease to boost 2016 transportation sector

NEW YORK, December 8, 2015

Steady passenger demand, continued low oil prices and leading air travel growth in Asia will boost margins in the global airline and aircraft leasing sectors, said Moody's Investors Service, underpinning the rating agency's positive outlook on both sectors.

Passenger demand will continue to be a growth catalyst for these sectors in 2016, particularly in China and Southeast Asia, where an emerging middle class is spurring air travel, despite slowing growth in those markets.

"Trends in Asia-Pacific, the Middle East, the US and Europe will drive passenger growth in the global airline sector," said Jonathan Root, a Moody's vice president and senior credit officer. "Performance of rated carriers in the US will be the main contributors of industry operating profit, but many airlines domiciled outside the US will experience greater growth in profits in 2016 from decreases in fuel hedge volumes."

Fleet growth, led by Asia and the Middle East and by low-cost carriers in Europe, will also result in the aircraft leasing sector increasing its market share of the global fleet in 2016, according to "Transportation -- Global: 2016 Outlook -- Modest global and US economic recovery to constrain growth."

"The need to replace ageing aircraft coupled with the desire to operate the most fuel-efficient models is driving demand for new airplanes," noted Root. "And a higher-than-average percentage of the aircraft delivering into growing emerging markets are financed with operating leases." Moody's expects aircraft leasing's share of the global market to increase to 45 per cent-50 per cent over the next decade.

The rating agency maintains stable outlook on the North American railroad and global shipping sectors, where slowing demand for commodities, slowing growth in China and increases in the global shipping fleet will constrain revenue and earnings growth.

"The North American railroad sector will face continued headwinds such as the decline in crude oil prices, volatility in the global metals market and declining agriculture, all of which will cause freight volumes to decline in 2016," said Root.

Business conditions for the global shipping industry vary by sector, but a key credit risk heading into 2016 is that cost reductions from low oil prices rather than an improvement in industry fundamentals will be more impactful to earnings. – TradeArabia News Service




Tags: transportation | aircraft | Airlines | lease | sector | Moody's |

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