Leading off 1995 will be attempts to salvage the near-bankrupt and the bankrupt. In the USA, TWA's first task is to survive the slow demand winter months by putting off lease payments on aircraft for up to six months. USAir, meanwhile, begins the new year with low cash reserves, labour-management relations strained and the potential of seeing its troubles disaffect alliance partner British Airways, which has threatened not to invest any more money in the beleaguered US airline.
In Mexico, government officials and a cadre of banks are looking for ways to recover from the disastrous Aeromexico-Mexicana partnership that last year saw both carriers stop paying creditors. Mexicana, many believe, will not survive, and its demise would resolve the issue of domestic overcapacity.
For US and Canadian carriers, the meagre recovery seen in 1994 (a 0.5 per cent profit margin has been estimated) may be a prelude to a profitable year. Conversely, however, the industry may already have missed the knock-on benefits of an economy in recovery - more traffic at higher yields. Instead, higher interest rates put in place by the US Federal Reserve to slow broad economic growth suggest that traffic growth - and ensuing profits - could suffer.
Hopes of imitating Southwest's low-fare, short-haul strategy may yet prove to be shortlived, especially with the founding father showing the first signs of profit decline. Restructuring of Continental Airlines' Continental Lite could produce break-even by the second quarter - or it may not. United's Shuttle in California may see limits to its growth against Southwest.
Aeropolitically, 1995 could prove to be a banner year. The US-Canada accord, one of the world's most restrictive aviation bilaterals, may be on the fast-track for approval of open skies between the two countries. US-European Union relations have the potential of being altered as the Washington begins negotiating nine bilateral agreements with smaller European countries with an eye towards establishing open skies relationships by midyear.
But a breakthrough in relations with Asian countries is unlikely, despite the US engaging Thailand, Hong Kong and China in bilateral discussions. A major impediment to establishing new liberalised bilaterals - third country complaints over codesharing - should be addressed this year.
Finally, domestic policy-making by the US Depart ment of Transportation will have a major impact. This will be seen most readily in the restructuring of the DOT that will lead to the corporatisation or even privatisation of the Federal Aviation Administration's air traffic control system. With regional airline safety dominating the agenda, the DOT will also aim to revamp the FAA's safety oversight. More inconspicuous decisions will also impact commercial aviation, like the potential of rescinding the airlines' two-year fuel tax exemption.
Source: Airline Business
