Wednesday, June 4, 2008

IATA on the Present Airline Crisis

The International Air Transport Association’s 64th Annual General Meeting and World Air Transport Summit held in Istanbul, Turkey brought little in the way of good news for the troubled airline industry.  With “optimistic” projections of a worldwide U.S.$2.3 billion loss the airlines in 2008 ($6.1 billion if the price of oil remains at $135 per barrel) and a 2% decrease in overall growth from 2007, IATA Director General and CEO Giovanni Bisignani called upon governments worldwide to “stop crazy taxation, change the rules of the game and fix the infrastructure.”  He went on further to iterate that “[r]e-regulation or re-nationalisation is not the right answer. . . . The Chicago Convention is not the problem. It’s the bilateral system that was designed for another age. The Freedoms of the Air are only restrictions on our business. Airlines cannot look beyond national borders to manage risk, access global capital or consolidate. To fight crises effectively, brands not flags must define our business.”

This call, while in some sense obvious to both airlines and analysts, may have a hard time finding resonance at the international level.  Though it is surely too early to make final predictions, the first round of second stage “Open Skies” negotiations between the U.S. and EU yielded little more than a continuing recognition that removing ownership and control rules would be a “hard sell” in the U.S.  Further, if any progress is made on this issue, it will still be a matter of years before the airlines can begin taking due advantage.  The hard question which must be asked is: Do the airlines have enough time?  Should progress towards a workable and, more importantly, effective second stage of “Open Skies” find itself hindered by policies of a new U.S. administration after November, no carrier in the U.S. may be safe from bankruptcy or worse.

In addition to Bisignani’s call, the airlines themselves unanimously adopted a six-point declaration on steps which must be taken by governments, airports, and labor if the airlines are going to survive the present financial crisis.  The declaration states:

  • Governments must eliminate archaic rules that prevent airlines from restructuring across borders.
  • In view of existing fees and charges, governments must refrain from imposing multiple and additional punitive taxes and other measures that will only deepen the crisis.
  • State service providers must invest to modernise air transport infrastructure urgently, eliminating wasteful fuel consumption and emissions.
  • Business partners, in particular monopoly service providers, must become as efficient as airlines are now.  If not, regulators must restrain their appetite with tougher regulation.
  • Labour unions must refrain from making irresponsible claims and join the effort to secure jobs in aviation and indeed in other industries.
  • In the interest of the global economy and the flying public, we urge authorities to enforce the integrity of markets so that the cost of energy reflects its true value.

On an interesting side note, despite the obvious sign of airline unity contained in the IATA declaration, Irish low-cost carrier Ryanair has held fast to its “only the strong survive” mentality.  Coming off of reports of a 481 million euro profit jump, Ryanair confidently believes that it can weather the current storm while its competitors crumble under the financial pressure.  Should oil prices remain at $135 per barrel, Ryanair’s CEO Michael O’Leary still believes the carrier would be able to break even.  When pressed whether the days of Ryanair’s cheap fares were numbered, he simply replied, “Bullshit.”

June 4, 2008 | Permalink | Comments (1) | TrackBack (0)