A year ago, when airline leaders gathered in collective misery at IATA's annual meeting in Istanbul, we were asking everyone this question: "What does it take to turn a crisis into a catastrophe?" The crisis was the price of oil accelerating towards $150 a barrel. Demand was slowing too.
Ironically, some Asia-Pacific carriers argued in Istanbul against IATA making such a gloomy forecast on industry losses for the year. The notable exception from the region was Cathay Pacific chief Tony Tyler, who was deeply pessimistic about industry prospects.
His pessimism proved to be well-founded. Carriers from this region will likely bounce back faster than most on the back of economic recovery, when it starts, but a year ago nobody was ready for the crash dive spurred by the banking crisis. This was the point at which the crisis moved into a catastrophe.
So, after six months of living in this new world, what will things look like when airline leaders poke their periscope above the waves? The first look is to see who has survived the crushing pressure of huge revenue drops caused by double-digit traffic falls.
The death-toll is light so far and shows what an incredibly resilient industry this is. Despite the economic storm, relatively few carriers have failed and most of those have been minnows. Many are smaller, and slimming down, but they are alive.
The lens shows a perspective where traffic has fallen by an order of magnitude; more than after the 1991 Gulf War and the terror attacks of 2001. "There is no doubt 2009 is going to be one of the most difficult years for the airline industry that we can remember," says Fernando Conte, Iberia's chief executive. "What is going to be the key in this environment is to react quickly." Across the industry, the reaction time to date has included sharp capacity cuts and extraordinary fare sales to stimulate demand.
Despite urgent promptings from IATA with its Agenda for Freedom, the periscope shows an unchanging view when it come to deregulation. Those who govern this industry have made grindingly slow progress on air transport liberalisation, particularly on cross-border investment.
In the months after the 1991 Gulf War, this magazine observed that then US transportation secretary Sam Skinner was to allow non-US interests to own 49% of a US carrier, although voting rights would still be limited to 25%. And nothing has changed in nearly two decades.The US is not alone in its conservative attitude to airline ownership freedoms. Many other states are stuck in protectionist mode for the airline business while other business sectors run free.
The response to this crisis is depressingly familiar: the spectre of state aid rises and carriers try and circumvent use-it-or-lose-it slot rules at airports. The strategic response is often limited to hanging on for grim death, waiting for the recovery to start.
Before that, everyone is desperately hoping the dive in demand will level out, and soon. That is hard to call, but many forecasters see recovery beginning later this year. What isn't helping is oil prices sneaking up from just over $40 a barrel in February to nearly $60 a barrel by mid-May.
Surely this recession, the worst since the 1930s, will force this industry into big changes? Or is it a case of plus ça change, plus c'est la même chose, or the more things change, the more they stay the same.
Looking back at events after the first Gulf War and the attacks of September 2001, it's hard not to go with this French proverb's view that the status quo will prevail. That is sad and frustrating, but history tells us this industry's track record on big change is dire. We will be glad to be proved wrong.
AIRLINE BUSINESS IN KUALA LUMPUR
Airline Business will be attending the IATA Annual General Meeting in early June in force. We will be producing a daily paper at the event and conducting video interviews which will be featured on the Airlines Channel. Once again our interviewer will be industry veteran Peter Davies.
Source: Airline Business
