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Do Airlines Have a Future? IATA Gets ToughJune 25, 2010 By: George Dooley
Have the world's airlines declared war against the costs of global distribution systems (GDS), obsolescent air traffic control system, big labor and high tax governments? Just maybe. A recent speech by Giovanni Bisignani, the director general and CEO of the International Air Transport Association (IATA), suggests IATA will take a much tougher stance against the forces he believes are weakening the airline industry.
“Today there is some cautious optimism,” Bisignani told airline executives in his forecast and report on the state of the airline industry. “Global traffic is back to pre-recession levels with load factors nearing 80 percent and the bottom line is improving. Asia-Pacific is powering the upturn with $2.2 billion in profit. North American carriers will move into the black at $1.9 billion. Latin American airlines will return $900 million, the only region with two consecutive profitable years.
“Middle Eastern and African carriers will each deliver profits of $100 million. But not all regions are recovering equally,” Bisignani continued. “Europe with its weak economy will be the only region in the red, with a $2.8 billion loss. But today we are upgrading our global industry forecast to a full-year profit of $2.5 billion. This is the first global profit since 2007. It is a reason to celebrate. But with a margin of 0.5 percent, it will be a modest party. And we face real downside risks.”
Among the risks Bisignani cites are excess capacity, labor costs that he believes are “out of touch with reality,” the costs of redundant national air navigation/traffic control systems, profit gouging airports and GDS. Adding to the airlines woes are high taxes and the volatility of oil prices as well as the ongoing challenge of meeting environmental goals. It's a formidable line up of risks and battles to be fought. Or as Bisignani said, "Basta": enough, stop.
What does Bisignani want? Essentially that airlines stop chasing market share and achieve consistent profitability and greater cooperation from all involved in air transportation,” he said. “Our resilience has been tested by disease, war, terrorism, spiking oil prices and even a volcano. The worst economic recession in 80 years saw revenues drop by $81 billion and losses of almost $10 billion in 2009.” It isn’t a pretty picture, including $217 billion in debt.
Surprising many, Bisignani singled out GDS costs for special mention “And this year we have a special place on the Wall (IATA’s Wall of Shame) for the Western GDSs,” he said. “They are leeches charging at least $4 per transaction when China Travel Sky does it for just $1.20. On top of that, they sell you your data with a seven-digit price tag. That is pure profit. Basta. We will break their monopoly on your (airline) data with a cost-effective solution.”
Bisignani’s pessimism is offset by his hopes for the airline industry. Citing the impact of the volcanic ash crisis that shut down Europe. “The message was clear: without air connectivity, modern life is not possible,” Bisignani said. “Aviation is vital. Our duty is to work together to define a vision and build a sustainable future.” He urges greater cooperation, warns against excess capacity, and cautions against government excess taxation and profiteering oil speculation.
Looking to the future, Bisignani sees tough challenges ahead and big questions. “Can we serve passengers effectively if building a runway takes decades of debate?” he asked. “Should we continue to grow hubs, develop infrastructure for more direct services, or do something completely different? How will our networks connect to future land transport systems? Will centers of production relocate to more business friendly regimes? Will the manufacturers of today build the eco-efficient aircraft that can also fly without pilots? How can we safely manage more crowded skies? And what will be the role of governments? The questions are endless and we will not find the answers in isolation.”
One clear and promising solution is IATA’s “Vision 2050—Shaping Aviation’s Future.” Bisignani sees the initiative looking ahead four decades and help build an industry that is even more successful at serving its customers. Included will be leaders from airlines, partners, stakeholders, governments and –perhaps most important – customers, who Bisagnani sees as advocates of change in the industry.
“Now is the time to bring governments and partners on board to join us in building our future,” Bisignani concluded. We can wish him and IATA well. The admittedly controversial battle lines he draws seem worth debating and fighting for. The stakes are huge not only for the airlines and the travel industry but for the world economy.