The major economies can expect the winning combination of steady growth, stable oil prices and few inflationary pressures. While there is a risk of higher interest rates, increases are not expected to be severe.
There will, of course, be some black spots. Mexico's recent financial crisis has already cast its shadow, and political uncertainty continues in Russia and Italy. And who knows what political or economic time bomb lies around the corner?
As far as airlines are concerned, there are two broad questions. Will the gulf between the financial 'haves' and 'have-nots' be narrowed? And as carriers improve their financial performance, will they fritter the benefits away in expansion, uncontrolled expenditure and fare wars? In short, have the bitter lessons of the last five years really been learnt?
Those airlines which have returned to profitability cannot afford to relax. Hardly any carrier is making returns sufficient to secure a long-term future in this cyclical industry. And the next round of cost cuts is always harder than the last, especially when employees see the company is profitable again. Airlines must keep a secure lid on costs, while searching aggressively for new savings. Cutting agency commissions through direct selling and ticketless travel presents the best cost saving opportunity.
Moves to re-engineer corporations by spinning off non-core activities will intensify, as will efforts to turn departments like engineering into profit centres rather than cost centres.
At the same time, the recovery will allow more attention to be paid to the revenue side, as successful carriers spruce up their revenue management and marketing initiatives. But the carefree rapid expansion of the 1980s is unlikely: look for more low-risk codesharing deals instead.
The airlines which continued to lose money in 1994 face a much more difficult task. Many troubled airlines have failed to reorganise into lean, mean companies, and they have built up debts too massive to shoulder. Even with state capital injections, these airlines will still be restructuring while others are reaping the benefits of the economic upturn. Expect more governments to follow countries like Venezuela and Zambia, and allow lossmaking state airlines to fold.
The failure of the Icao air transport conference to agree on reform leaves something of a regulatory vacuum. However, 1995 could be the year when a piecemeal approach gathers pace. The US attempt to open skies with nine smaller European countries, could provoke a heated debate within the European Union. Meanwhile, the US will remain the focus of a string of bilateral negotiations, covering Canada, the UK, France, Japan, Thailand, the Philippines and Hong Kong.
Source: Airline Business
