09/01/2017

Will rising protectionism hurt the aviation industry?

Will rising protectionism hurt the aviation industry?

Trade data since 2012 points towards a worrying trend. Statistics show that world trade has remained more or less stagnant since 2012, eventually declining by more than 13% in 2015 compared to 2014. Even during the first quarter of 2016, total numbers were down by 2% over the same period in 2015. This drop in trade flows coincides with an increasing level of protectionist measures worldwide.

As per ING, more than 500 protectionist measures were introduced since 2008 compared to around 200 liberalising measures. Globe Trade Alert found out that protectionist policies have spiked by more than 50% alone in 2015.

This could be a concern for aviation investors. Historically there has been a strong positive correlation between international trade and air passengers. If trade flows are stunted this could impact passenger traffic and ultimately affect airline revenues.

The link between air travel growth and trade flows is not very well understood.  The Ishka View is that declining trade flows is unlikely to prompt a sudden decrease in passenger traffic. However, 2017 is likely to continue the trend of further anti-trade policies. Investors may want to factor this when assessing future aviation growth plans.

 

Rising protectionism hurting trade figures

 

As highlighted in an article published by Ishka’s sister company, TXF Limited, “Rising protectionism hampers global trade flows”, trade flows have weakened over the past two years. Ishka’s analysis of the trade figures also shows that global trade has remained virtually stagnant since 2012 ultimately falling by 13.3% in 2015 compared to 2014 and by a further 2% during the first quarter of 2016 compared to the same period in 2015.

 

 

The decline in trade volumes can be attributed to two main factors - the oil price crash since 2014 and the rise of protectionist policies since the financial crisis of 2008 according to research by ING Bank and Global Trade Alert, a private organisation supported by London-based think-tank, the Centre for Economic Policy Research. Globe Trade Alert states that protectionist policies spiked by more than 50% alone in 2015 and that such policies were up more than three times during the first four months of 2016 compared to any equivalent period since 2010.

 

 

Internationalisation and air travel is intertwined

 

Ishka’s analysis shows that there is extremely strong positive correlation between total global exports and air passengers. Ishka used merchandise exports as a proxy for globalisation/international trade. Having looked at data since 1974, merchandise exports shows an extremely high level of correlation of 0.97 with air passengers carried.

 

 

 

The Ishka View


There have been several major political developments in the west during the past two-three years which suggest a paradigm shift in political philosophy. 2016 witnessed two major political upheavals – Brexit and the election of Donald Trump as the president of the US. All these changes point towards a rising sentiment of economic nationalism and anti-globalisation. The question is whether the move away from increasing globalisation could affect the forecasts for air travel growth.

The Ishka View is that the rise of protectionist measures is likely to have a negative impact on trade between certain regions, however it is far less likely that air travel growth will be directly impacted. That being said 2017 is likely to continue the trend of further anti-trade policies. Aviation investors should consider these developments as they assess the potential growth of airlines or passenger traffic.
 
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