COMMENT: Very worrying times for the airline industry

Now it can be argued that we have seen it all before, but it is also pretty obvious that the air transport industry is going through its biggest crisis since the airlines, as we know them today, began to develop with safe and sophisticated machinery after World War II.

The Comet disasters of the 1950s were a challenge; nobody knew why the aircraft kept crashing at the time; something along the same lines happened to the early Douglas DC10s with a series of losses.  Collisions in the air and on the ground at various times killed many.  With each disaster the safety of flying was questioned for a short period and clearly the travelling public were scared.   The bookings went down.

Everything stopped as a result of 9/11, followed by the SARS (Severe Acute Respiratory Syndrome) outbreak a couple of years later.  The regular fuel crisis has caused severe headaches in boardrooms.

What is different this time around is that two extremely serious and different problems are hitting, both at the same time.  This has never happened before, not at this scale.  The consequences could be very serious!

Firstly the economic situation and the figures published by IATA for March.  April is bound to be far far worse with dramatic cuts in carryings and capacity.

During March 2009 passenger demand fell to 11.1% below March 2008 levels.  Airlines cut international passenger capacity by 4.4% resulting in an average load factor of 72.1%. This is 5.4 percentage points below the load factor recorded a year ago.

Among the major regions, carriers in Asia Pacific continued to lead the decline with a 14.5% fall in passenger demand, outstripping a 9.3% downward adjustment in capacity.  The region is particularly impacted by the fall-off in long haul travel, which is contracting faster than short haul.  North America was not much better with a decline in international passenger demand of 13.4% as travel was further discouraged by US unemployment reaching 8.5% in March.

European carriers saw their international demand fall by 11.6% where confidence has been dented by unemployment in key markets such as Germany and Spain increasing to 8.6% and 17.4% respectively.  African airlines fared even worse with a fall of 15.6%.  But they did the best job at matching capacity to demand with an aggressive cut of 15.1%.  While cross-border travel within Africa grew during February, African carriers continued to lose market share.

Middle Eastern airlines were the only ones to experience growth in March (4.7%). This is an improvement from the 0.4% growth in February, and represented an expansion of market share.  But this was out of balance with the 13.1% increase in capacity.

All in all a pretty gloomy picture with some of the world’s finest carriers forecasting an operating loss for 2009.

Now add to that picture the effect of swine flu, now called by the World Health Organisation  “influenza A(H1N1)” to help pig farmers who are having a bad time of it although the illness has little to do with pigs.

In itself the numbers are very very small at present.   During the SARS epidemic this flu-like disease resulted in fewer than 9,000 people contracting the illness of whom 870 died.  This figure is minor compared to Malaria which continues to kill over one million per annum or AIDS, which takes out many more.

Yet these terrible figures do not seem to affect the air travel industry as such.  However, continued rolling news regarding a small number of deaths and government health warnings around the world on BBC, Sky, Bloomberg, and in the written media over this flu causes panic!  One hears of nearly empty flights, vacant lounges, and workers being laid off.

It is the combination of the two that has brought us to this state of affairs.

Unfortunately there is little that can be done with the media.  It has a power that it itself does not understand.  But governments can help.

Now is the time to do away with, or at least reduce, APD (Air Passenger Duty), something that AERBT discussed in detail last week. See AERBT 27 April 2009.

The opportunity is there to show that this is no climb-down but a very realistic way of actually developing business and demonstrating a pro-active way out of what could be an impending disaster.

The airlines, for the most part, can take on the chin serious problems.  What will be beyond them is a double whammy!  Unless something is done quickly some a very big players will go.  Every encouragement should be made to an industry that will recover but is very ill.

The chain reaction to the closure of a large airline at this time will be horrendous.  Usually others pick up the bits and pieces including passengers and a workforce.  This time around there are no passengers and no need for the workforce.

And look out for the knock-on effect in the support industries including aircraft engineering, terminal staff, outsourced catering, hotels and even the taxis and trains that take workers and customers to and from the airports.  Pilots, once retired seldom come back.  And it takes at least two years for new recruits to reach an airline’s flight deck.

This COMMENT column makes grim reading.  Times are very grim.  We’ve seen it happen before, but not this serious.  Firm action is needed.


Malcolm Ginsberg

Editor in Chief

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