Quite a few events are combining to suggest that, even at the peak of the economic cycle, the troubles of many major airlines may be far from over. These include the potential breakup of certain alliances, a rash of startup carriers, increasing fuel costs, and labour problems.
Even though it did not go through with the idea, United Airlines' statement that it might bid for USAir threw the cat among the pigeons as far as transatlantic alliances are concerned. British Airways could have lost its trans-atlantic partner overnight, resulting in the loss of $100 million in annual benefits. KLM has begun to worry about its Northwest alliance, touted as the most successful. What if a USAir purchase triggered off a wave of mega-mergers? Could KLM lose its transatlantic jewel? Northwest's new poison pill confirmed KLM's worst fear - that it really has little say in the future of its US partner. The result? A legal clash which is tarnishing the alliance, and a rumour that KLM, BA and American are discussing a combination.
Major alliances can only be permanent if they include complete corporate integration. Much can be achieved in the marketplace given similar corporate objectives, skilful management and a willing workforce. But this is not enough if an airline is to link a significant part of its global network to the destiny of another company.
Unfortunately, this is where the current regulatory system is hopelessly inadequate. The system of national ownership and control of airlines looks more antiquated and irrelevant every day. As carriers try to forge global strategies, they are hobbled by a system which is based on narrow nationalism. It is time for truly global megacarriers to be sanctioned - stateless companies or conglomerates which can offer worldwide service at the behest of customers and markets. The alternative is a fragmented airline business, linked by a hotchpotch of alliances which may change quite frequently, confusing customers and employees.
A second concern for the majors is intensifying competition. While the US carriers are used to upstarts, European majors are getting a rude shock, and Asian operators are by no means immune from the phenomenon. In the UK and Irish markets carriers like EasyJet, Ryanair, Air Belfast and AB Shannon have added to competition. More carriers, such as World Airlines and Eurowest, are planned.
But more surprising - and significant - events are happening in Continental Europe, long the bastion of the flag carriers. In Italy, a miraculous opening up of slots at Milan/Linate has led to one new entrant on Milan-Rome. Belgium's EBA is expanding. Richard Branson is expected to launch Virgin Europe in 1996, probably based in Brussels. From France's Fairlines to Skybus in Greece, investors are rushing into Europe's airline business.
There are plenty of startups in Asia, too. Most of them, from China Hong Kong to Air Macau, and from Saeaga Airlines to GrandAir, are starting on domestic and regional routes, but their ambitions are unlikely to stop there.
Shifting alliances and new competitors ought to represent business as usual in a deregulated airline industry. But these developments coincide with other difficulties. It is too early to tell whether recent increases in jet-fuel prices are seasonal or a more permanent trend. But spot-price increases of 20 per cent or more, combined with the reimposition of the fuel tax in the US, hardly bode well.
Finally, there is labour. Many carriers are suffering damaging strikes as labour groups resist restructuring efforts. In some cases, years of austerity have created fatigue, and in others unions are demanding a share of the spoils now that their employers are profitable again. Intensified competition and an inability to contain costs could prove to be a damaging combination. Airline managers are treading a dangerous path. The only approach they can adopt in dealing with union troubles is a mixture of carrot and stick.
The carrot has to be a share in the company's profits; the stick having the courage to take a strike if necessary. But the overriding factor is communication. Somehow, employees and their leaders have to be persuaded there will be profits to share, and that management is doing much more than just asking for labour concessions.
Source: Airline Business
