When the world began to emerge from the wreckage of the last recession, the air transport industry promised that it had learned its lesson - that it would do better next time around. This year those promises could start to be put to the test.
At least one of the promises has already been broken, with Boeing once more announcing a massive round of redundancies. Yet, as familiar as that may sound, that arguably has as much to do with an ultimately ill-judged market share contest as it does with the state of the industry.
On most measures, the industry is relatively sound. Most important, the world economy is in different shape from a decade ago. The worst pessimists are expecting slowdown rather than slump for the big industrial economies, while there are signs in Asia that the worst may be over and even some patches of recovery showing through for the chastened former tigers.
That is a far cry from 1991 when the bubble burst after a decade of unrestrained growth and most of the world was unceremoniously dumped into outright recession - with the Gulf War and the collapse of Communism just for good measure. This time there are no surprises. If and when the recession finally arrives in the West it will have been among the most well signposted and heavily analysed downturns on record. The crisis in Asia was itself a timely preview.
All such predictions come with the usual health warnings. Whatever else forecasts may be, they are never quite right: too optimistic in the good times, too pessimistic in the bad and too inconstant in-between. Neither, by definition, are they good at predicting surprises. It could yet be that a relapse in Asia, a sudden currency collapse or military conflict sends the world reeling.
But barring disaster, it looks as though economic growth will ease, at worst stagnate, but not collapse. The boom has not been as hard or long as in the last decade, and if theory holds, the readjustment should be milder too.
Neither does the airline industry find itself as overcommitted as it did in 1990. During the recent upturn, orders have not begun to approach the frenzied levels of a decade ago. And despite the highly ambitious Boeing ramp-up, aircraft deliveries have been more modest over the cycle and the brakes applied early, thanks in part to the wake-up call from Asia.
Through a mix of good luck or good judgement, there remains a sizeable chunk of elderly capacity ready to be jettisoned if traffic falters. Close to 30% of the North American narrowbody fleet is made up of noisy old aircraft and even more widebodies are ageing classics. Many of those aircraft are ready for well-earned retirement rather than storage.
A less tangible, but no less fundamental, change has been in attitude. Quite apart from the sobering effects of the last recession, a mix of deregulation, privatisation and financial constraint has forced the industry to act more like a grown-up commercial business. The industry may still only be as smart as its dumbest competitor (to borrow an observation from Mr Crandall) But perhaps the dumbest has got a little smarter.
Deregulation can, of course, create its own insanities. It was deregulation of global financial markets that helped the world to reach the ill-advised heights of the last boom. And it was deregulation in the US air market that led to the near-suicidal fares war that followed.
But this first flush of madness aside, the evidence is that freer markets create leaner, sharper competitors than regulation ever did. Global alliances too are a first step towards a more rational world market - though not necessarily a less competitive one. Although not yet fully formed, they should ease the temptation to grab at market share.
But just because this downturn is likely to be less dramatic does not mean it is without risks. A shallow but inconclusive decline may provide a shrewder test of skill and endurance than the clearer messages of a short, sharp, shock. While the last recession was a question of traffic and capacity, there are already signs that the game has moved on to a finer balance of yield and unit cost. And this time there are few government safety nets.
In short, there is every possibility that the downturn in prospect will lengthen the gap between leaders and laggards just as much as previous downturns. Who knows, it may even do more.
Source: Airline Business
