Airline Industry in transition through the global financial crisis
The global financial crisis which hit the world from 2008 has effectively put most of the world in recession. Countries like Spain and Greece have unemployment rates in excess of 20%; many countries have huge financial deficits whilst thousands of people have lost their homes.
There are many victims in a financial downturn and casualties are felt across the board. Tourism and business travel are cut backs made as people struggle to make the numbers add up. In my own situation I saw my employer cut back significantly on air travel. Either we didn’t travel at all or most long distance routes were in economy class as opposed to the traditional business class.
These challenges along with the volatile price of oil created life threatening challenges for the airline industries players, irrespective of reputation or size.
In fact the publicised effects on the airlines are far too numerous to mention, but here are just some of the headline items:-
-The bulk carriers in the US have been halved in number
-American Airlines entered into bankruptcy protection and are to cut 13,000 jobs
-Singapore Airlines recent profits showed a drop by 50%
-Airline industry body IATA says air cargo is down 2.8% in the first seven months of 2012
-CSA Czech Airlines is undergoing a 5 year restructuring plan plus a state loan of $130m
-International Airlines Group formed with the merger of British Airways and Iberia
-Numerous takeovers, mergers and Chapter 11s filed within the US
-Numerous bankruptcies of airlines since 2008 including Flyglobespan, ATA, EOS, Silverjet, XL plus many more
-Japan Airlines were pulled then recently re-listed on the Japanese Stock Exchange
It goes without further explanation as to why many of the wise investors of the 20th and 21st century say never to invest in an airline stock. In Richard Branson’s autobiography “Losing my Virginity” he clearly explained how an airline could effectively go out of business within a week. All it takes is a small chain of events and the cash flow can be wiped out.
The travel industry is dependent upon the wealth and requirements of its customers. If the customers have no money or the trip is not essential then the trip is more than likely not to happen.
Airlines have cut back on routes in a method to fill fewer planes, but have more full planes. This equals more profitable routes since supply is less likely to exceed demand. Particularly in American airports I now see extensive waiting lists of passengers at the gate. The airline staff are often seeking volunteers to give up their seat for compensation and a later flight. Planes now rarely have an array of empty seats.
These are only some of the steps taken by airlines to cope in a financially challenging world. I’m not sure if we’ll ever return to the extensive comfort and generosity of airlines in the past. However I do know that the airlines global financial crisis is far from over.
It is fair to say that the Airline Industry in transition still has a long way to go.