In a series of personal insights, leading executives with decades of boardroom experience between them offer their views on how the industry has developed over the past 20 years and where it goes from here.Here is what Chew Choon Seng, chief executive ,Singapore airlines had to say:
Over the past three decades I have seen the airline industry go on a wild roller- coaster ride. Battered by forces and events, in part outside the airlines’ control, but also in part self-inflicted, the industry collectively and cumulatively has achieved the dubious feat of losing more money than it ever made. Even the small number of consistently profitable companies, like Singapore Airlines, struggle to create economic value in excess of the market cost of capital.
Yet, there is no denying that the industry has seen healthy growth. Through downturns in the economic cycles, conflicts of war, tragic acts of terrorism, epidemics, and catastrophes wrought by elements of nature, the demand for air travel and transport all over the world has not wavered from a long-term secular uptrend.
Clearly, advancements in aircraft and ancillary technology have made air travel safer, more comfortable and reliable, more affordable and more accessible. The timeless romance of travel has been enjoyed by more and more people, for business and for leisure. And the development of a global economy has seen demand for transport of goods by air grow even faster.
So, fundamentally the airlines provide a service that is desired, in fact needed in today’s world, and for which customers are willing to pay fair market prices, according to options on service and value. The demand side is not in question. The irony is that with the multiplier effect of the airlines on the economies they serve, other businesses in the travel industry chain (like GDSs, oil companies, hotels, credit card issuers, retailers, airport franchises) make profits, but not the airlines themselves.
What is needed on the supply side for the industry as a whole, to achieve sustainable economic viability, is freedom from many man-made shackles. Freedom from government intervention against free market forces, whether by subsidies or bailouts of failed carriers, or by allowing bankrupt carriers unfair advantages under court protection. Freedom from out-of-date air services agreements between states which exchange restrictions and which prohibit trans-national consolidation and rationalisation that have benefited almost every other industry. Freedom to compete in markets which are under-served or which have good potential demand. It is illogical to keep the airlines outside free trade agreements and of the World Trade Organisation framework. Indeed, the structure of dispute resolution under the WTO offers to the international airline industry a workable solution for addressing any unfair practices.
Not least, for the longer-established airlines, we need freedom from legacy cost structures with rigid pay conventions and work rules which are out of line with modern industry at large. On this last point, the success of the low-cost business model has fortunately catalysed changes to close the gap.
For certain, even in a completely free market, regulators still have central roles to play. They have to set safety requirements and operating standards, and ensure that all airlines comply with them. Down the road, environmental protection standards will also have to be determined and administered by regulators. Similarly, airport, air traffic control and air navigation, and other infrastructure service providers, will continue to be crucial to the future well- being of the airline industry. We should be partners in a shared mission rather than be adversaries.
The future for the industry is bright, but only if all the constituents resolve to overcome resistance to change.
Source: Airline Business
