Bleak days for airlines

Johannesburg, 04 Sep 2008

The global airline industry is likely to post losses of $5.2 billion this year, says the International Air Transport Association (IATA). This is despite every effort to cut costs and better leverage ICT because of the "poisonous" effect of the global oil price.

"The situation remains bleak," says IATA CEO and DG Giovanni Bisignani.

"The toxic combination of high oil prices and falling demand continues to poison the industry's profitability. Fuel is expected to rise to 36% of operating costs, up from 13% in 2002."

Bisignani has been pushing the better use of ICT in the airline industry. Airlines this year phased out paper tickets and are also in the process of making airfreight paperless. In addition, IATA is pushing them to adopt self-service and online check-in as part of a global drive to simplify the business.

However, better efficiencies are often stumped by governments, air navigation services and airport authorities, who Bisignani believes are not taking the situation seriously. In addition, the IATA CEO earlier this year had harsh words for IT vendors that were making good returns off high mark-ups on work done for struggling airlines.

Bisignani says the fuel crisis "is re-shaping the industry in more severe ways than the demand shocks of SARS [flu scare of 2003] or 9.11 [the al Qaeda terror attacks of 2001]".

"When fuel goes from 13% of your costs to 40% in seven years, with an increased cost implication of $183 billion, you simply cannot continue to do business in the same way. Fundamental change is needed.

"Airlines have reduced non-fuel unit costs by 18% since 2001. Airports and air navigation service providers must join the effort. Efficiency gains are critical, but cannot fully absorb the impact of skyrocketing fuel prices," notes Bisignani, who is to host a "global dialogue on an Agenda for Freedom" in Istanbul, Turkey, next month.

The conference will seek to commit governments to liberalise the skies, change airline ownership rules, integrate the patchwork of air navigation networks that bedevil flying, especially in Europe, and cut back on the security red tape at airports.

"Simply weathering the current storm is not an option. We must take the opportunity of these extraordinary times to facilitate extraordinary change to strengthen the industry with normal commercial freedoms," says Bisignani.