Industry overview: Rising costs, weakening world trade, new technologies and disruptive innovation from tech giants
In June 2019, The International Air Transport Association (IATA) cut its forecast for earnings across the industry this year by more than a fifth. Profits in 2019 are now expected to reach $28Bn IATA said, down from the $35.5Bn forecast last December.
Nevertheless, this will still be the 10th consecutive year of profits for the industry, despite stiff competition between airlines, international trade disputes and rising costs – with oil prices this year expected to be 27.5 percent higher than in 2017.
- North America will be the most profitable region, with post-tax earnings expected to increase by $500M to $15Bn for 2019
- Profits are expected to fall in Europe and the Asia-Pacific region, with the latter particularly exposed to weaker trade
IATA has heavily criticized “the proliferation of protectionist measures and the escalation of trade wars,” and expects the impact of tariffs to suppress growth in demand for cargo transport for during this year. This negative impact is likely to spill over into passenger volumes if worsening trade relations affect confidence. However, passenger numbers are still expected to rise by 5 percent year-on-year to 4.6Bn, albeit more slowly than the 7.4 percent growth rate seen in 2018.
The industry faces a growing threat as retail giant Amazon continues to build up its air delivery operations. By the end of 2019, Amazon’s Prime logistics will have all the pieces of a major integrator, like UPS and FedEx. As a technology company it brings a different perspective to the business, using algorithms, robotics, machine learning and other technologies to increase delivery speeds for its customers and, if it finds opportunities to leverage those technologies to bolster its overall revenue, it will grow that area of its company beyond servicing existing customers.
In May of 2019 Amazon ramped up its efforts by investing $1.5Bn and breaking ground on a three million square-foot cargo facility and 250,000 square-foot loading dock at Cincinnati/Northern Kentucky International Airport. As many as 100 Prime Air planes will use the facility when it opens in 2021.
With 40 767 aircraft currently flying to over 20 airports, and 20 new 737-800 cargo aircraft on lease, Amazon is clearly setting itself up as a disruptor to the Air Cargo sector.
Digitization is the key to strategic foresight in aviation
The aviation industry needs to be aware of all potential threats and have a rigorous set of plans in place to deal with each and every scenario. The digital era will deliver improvements across the aviation supply chain as data-driven insights resulting from Industry 4.0 technologies fuel strategic foresight.
Aviation 4.0, technologies have the potential to help improve all key performance areas of air transport. 3D Printing technology, which allows bespoke parts to be printed more quickly and cheaply, is already making its mark on the aviation and aerospace sector. At the same time, in an industry where safety levels are high, and margins for improvement are extremely tight, the visibility across product lifecycle offered by the digital thread will potentially have huge benefits for operating models, revenue stream and relationships in the future.
Integrated supply chain optimization is a critical success factor
Ground operations, flight operations and technical operations are all undergoing significant change in the aviation industry and the need for ever more complex supply chains are increasing the need for greater collaboration in order to reduce cost per available seat mile (CASM). With labor being the largest percentage, followed by ‘other costs’ and fuel, the aviation industry must find ways to create greater leverage within their supply chains while simultaneously increasing efficiency and on-time performance. All of these critical areas have one thing in common – collaborative, digitally integrated & synchronized supply chain and operations.
Digital transformation is not just a technology fix
Many executives remain confused about the business case for the “digital supply chain.” The most important point to remember is it isn’t just a technology fix. It’s about leveraging the technology, along with the right processes, people and appropriate company culture, to drive consistent value across the end-to-end supply chain, not just for your company but for your suppliers and customers as well. From a Maine Pointe perspective we see the digital supply chain as a natural evolution of performance as organizations move up the five maturity levels of the Total Value Optimization Pyramid.
What we do
Our unique Total Value Optimization™ (TVO) approach to supply chain transformation helps drive self-funding operational momentum through the triple effect of driving cost out, releasing cash and fueling growth. We thrive in joint team environments with our clients to deliver the measurable change needed in today’s fast-paced world.
A results-driven approach
Total Value Optimization™(TVO) is achieved when an organization is dynamically able to anticipate and meet demand through the synchronization of its buy-make-move-fulfill digital supply chain to deliver the greatest value to customers and stakeholders at the lowest cost to business. Calculate the value potential for your business today and take our 10-minute assessment.
How we do it
Our clients are continuously focusing on improving EBITDA, cash and growth for existing and new markets. Our hands-on implementation experts work with executives and their teams to rapidly move up the Total Value Optimization (TVO) Maturity Curve™ and enable growth by:
- Identifying and quantifying the real opportunity
- Identifying current constraints and barriers
- Creating a robust and measurable business case with a clear ROI
- Developing a pragmatic roadmap for accelerated results
- Working closely with clients to implement and track measurable improvements
- Infusing best practice and delivering a quantifiable ROI
- Training, mentoring and enhancing internal teams for sustainable performance
Who we are
Maine Pointe, a member of the SGS Group, is a global, implementation-focused professional services firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics, operations and data analytics. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill digital supply chain to deliver the greatest value to customers and stakeholders at the lowest cost to business. We call this Total Value Optimization (TVO)™.