More airlines to fall into the abyss

THE global airline crisis predates the attacks in New York on September 11 which had the effect of throwing the airline industry into chaos, according to Rigas Doganis, visiting professor at Cranfield College of Aeronautics in the UK and a top aviation consultant. Professor Doganis was one of the guest speakers at the 31st conference and agm of Airlines Association of Southern Africa (AASA) held at Livingstone Zambia this weekend. No one expected Swissair, one of the world's most respected airlines to collapse, so what does that herald for other airlines. According to Doganis, Olympic Airways is on the verge of collapse and others are on the precipice. He mentioned that Virgin Atlantic Airways, which has already been cutting back on staff, generated two thirds of its business on trans Atlantic routes and the Far East. Although British Airways is a vast global network, he said the airline gained most of its profit from its north Atlantic routes. Doganis predicted more airline collapses in Europe although he would not mention names. However, it emerged at congress that TAP Air Portugal and Alitalia were in precarious financial positions. According to top British publication The Economist other "once-proud flag carriers - such as KLM Royal Dutch Airlines - may be weeks away from oblivion. The publication (in an article in a SA newspaper) said the weakest US carriers financially are America West, Northwest, Continental and US Airways. With or without September 11, the world's airlines are terminally ill. For instance, Doganis said US carriers posted losses of US$800m in the second quarter of 2001 yet carried a profit of US$1,7bn the same quarter a year ago. The causes include overcapacity on long haul routes, increased competition among the alliances and declining yields, the increased impact of low-cost carriers (the two largest in Europe carry 17 million passengers a year) and an escalation in fuel costs. Underlying all this is slow-down of the US economy and Japan now coupled to the September 11 crisis. For instance the latter cost SAA R21m in the first week on trans Atlantic routes and, for all airlines, an escalation in insurance premiums. Although Doganis did not specifically mention this, it is axiomatic that the massive retrenchments that followed September 11 (now estimated to be 120 000 globally) reflect the structural problems of airlines and are not directly related to September 11. Now there is greater uncertainty as the US and UK start reprisals in Afghanistan against World Trade Centre attacks. Doganis said economies - particularly the US - will now go into recession and long haul corporate business will drop dramatically. He said the Gulf War of 1991 lasted 40 days and was also conducted on the back of a recession and it took nine months for economies to recover. However, the airline industry took a US$15bn knock and it took them four years to recover. Now Iata predicts an US$11bn loss for this year alone. The US is prepared to grant its airlines R5bn upfront and another R10bn in loans (that's R15bn in one not four years). Doganis believes the short-term prognosis is dismal but long-term forecasts are good because - excluding the US crisis - the industry is undergoing one of its periodic cycles with an expected upturn in 2003. The airlines immediate reaction is to cut frequencies, capacity, staff, put off deliveries and increase fares which is illogical as seats go empty (airlines need to stimulate the market with special deals). He said long term requirements are to cut costs and that means structural retrenchments coupled to improved productivity. He encouraged disintermediation. He believes there will be more alliance consolidation with mergers enabling them to move away from the constraints of national economies. (Mark Gray)