Airline industry faces grim future

The global aviation body, the International Air Transport Association (Iata) has warned the international airline industry faces a "grim" outlook as soaring fuel costs and economic turmoil hit passenger numbers.

According to Giovanni Bisignani, Director General and CEO, International Air Transport Association (IATA), the aviation industry would suffer a loss of $6.1 billion (Dh22.4bn) this year if oil prices continued to hover around $135 a barrel.

"Every dollar increase in the price of a barrel of oil pushes industry costs up by $1.6bn. Oil is now in the $135 range. If this price holds for the next 12 months – as the futures markets tell us – the added burden will be a staggering $99bn. Losses in 2008 could reach $6.1bn," Bisignani said.

High oil price is the main factor spoiling the party but there is a huge element of taxation of governments to make matters worse. It has become unsustainable and tax relief from the government along with rational thinking and pricing can alone provide relief, said Bisignani. Governments must stop crazy taxation, regulate monopolies effectively, ensure the cost of energy reflects its true value, fix the infrastructure and change the rules of the game, added Bisignani.

"Governments must focus on risk management, harmonise global standards, use technology and intelligence effectively and take responsibility for the bill.

"We also have an unregulated mess with monopoly suppliers such as airports. Airport charges increased $1.5bn in 2007. Governments have failed to regulate airport monopolies. Too many airports are isolated from commercial discipline. It is time for governments to get serious about regulating monopolies that abuse their position."

Holding the governments responsible for various ills plaguing the industry, Bisignani, said the prudent thing for states would be to do away with irrational economic measures. "Unfortunately, governments remain fixated on punitive economic measures. Travellers in Europe will have to absorb the €6.4bn cost of including aviation in Europe's emissions trading scheme. But politicians are failing to take the measures that will actually save CO2. They have been talking for 19 years about a 'Single European Sky' for air traffic management with no progress. This measure alone would deliver 12 million tonnes of CO2 savings."

"Instead, governments must implement positive economic measures to stimulate innovation from bio-fuels to radical new aircraft designs," he said.

"Let's rip up the 3,500 bilateral agreements and replace them with a clean sheet without any reference to commercial regulation. Airlines would be free to innovate, free to compete, free to grow, free to disappear, and free to become financially healthy. On that same sheet the role of governments should be clearly outlined – ensuring a level playing field, bringing commercial discipline to monopolies and regulating global standards for safety, security and environmental performance. These are basic business freedoms that almost every other industry takes for granted.

"The oil crisis is also highlighting a desperate need to modernise the 60 year-old bilateral rules governing the industry. Reregulation or re-nationalisation is not the right answer. We must redefine the structure of the industry. Airlines fight crisis after crisis with their hands tied because national flags, not brands define our business. Airlines cannot serve passengers in new markets without an international agreement. And, we cannot look beyond national borders to try new ideas, grow our business, access global capital, or merge and consolidate. It's time to change," he added.

To cope with the situation international carriers are doing all that it takes to remain in business. For example, American Airlines Inc, Qantas Airways Ltd and Korean Airlines Co are cutting routes, issuing e-tickets and charging for items such as snacks and checked luggage to stem their losses.

"To recover, enormous changes followed. Fuel efficiency improved 19 per cent. Sales and marketing unit costs plunged 25 per cent. Non-fuel unit costs dropped 18 per cent. And airlines rolled out e-ticketing to every corner of the planet," said Bisignani.

Labour also plays an important part in sustaining the industry and they too should pitch in their own ways to help in these times of distress.

"Other parts of the industry must also change. Labour must understand that jobs disappear if costs don't come down. And our partners across the industry value chain must recognise that this is an industry crisis – and everyone must participate in the solutions.

"Our responsibility is to work together with common goals to build a sustainable future."

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