Consider some of the good news in this issue of Airline Business. The world's largest 100 airlines just failed to return to a collective net profit last year, but they did achieve record operating profits of nearly $11 billion. In the second quarter of 1995, all the US majors made a profit - that has not happened since the third quarter of 1986. And since our data pages went to press, several international carriers have reported excellent first half or first quarter results, including British Airways, Cathay Pacific, KLM and Austrian. Furthermore, the flotation of 75 per cent of Qantas was oversubscribed.
A fortunate confluence of events underlies many of the improved results. Strong demand is allowing many carriers the highly unusual achievement of an increase in load factors and yields at the same time. Most majors are reaping the benefits of their strategic alliances. Many have completed the toughest round of restructuring ever, and are now taking advantage of the resulting decrease in unit costs. Fuel prices remain low. The only sufferers are those that have been slow to restructure or are vulnerable to the strong yen.
Surely, only a very sour individual would pour cold water on all this wonderful news. Well, this issue of Airline Business also contains some less promising developments. In fact, there are signs of gale-force winds ahead.
Now that cash is flowing positively again for the US majors, President Clinton may be about to reimpose fuel taxes. Traffic growth in Asia-Pacific is lagging behind capacity increases, resulting in falling load factors and the prospect of fare wars. Economic growth seems to be slackening off in the major industrialised countries. And the usual imponderables, from a fuel price shock to a major war in the Balkans, could strike at any time.
But the most worrying threat to the prosperity of the airline business is this year's rapid deterioration in labour relations. Now that profits have returned, airline employees are looking to share the spoils, and have become hostile to management attempts to continue to drive costs down further. This is demonstrated by the collapse of USAir's concessions-for-equity negotiations, rumblings of discontent at American and Delta, strikes at KLM and SAS, and the remarkable suggestion that even Swissair's pilots may take industrial action.
These disagreements are about much more than just pay packets. Most major airlines are seeking to obtain long term efficiency benefits by transferring money-losing routes to subsidiaries, affiliates, franchisees or codeshare partners, and in some cases by using codesharing as a cheap means of growing into new markets. Employees are becoming alarmed.
Many unions are now commissioning studies to enable them to assess management claims about their airline's competitiveness or otherwise. Airlines will have to mobilise their internal relations departments to educate their increasingly knowledgeable employees as to why further streamlining is needed, even though their companies are now profitable. This is much more difficult than persuading the staff of a failing company to make sacrifices to ensure its survival, but it is just as vital. The airline business is a fickle, cyclical one. One good quarter does not imply Nirvana has been reached.
Source: Airline Business
