So that was 2008 then

2008 has been year a tumultuous year for the airline industry. First its record high oil prices, then its what IATA chief Giovanni Bisignani terms the even bigger threat of global recession. Inevitably this has seen a year punctuated with high profile airline collapses, restructuring and consolidation moves. So as the year draws to a close, the Airline Business team takes a look at back at some of the stories that dominated the last 12 months, and look ahead to the stories that.

 


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Airline Business features editor, Kerry Ezard

“My story of the year would have to be the build-up to, colossal failure at the time of opening, and subsequent recovery of London Heathrow’s Terminal 5.

I followed this story through from start to finish, through the highs and lows, and eventually got to use the terminal as a passenger for the first time in December.



While T5 was still under construction, I was lucky enough to be taken on a tour of the facility by a BAA representative to help with my research for a feature I was writing on the transformation of Heathrow.

Donning my hard hat and workman’s boots, I entered the construction site and was immediately struck by the sheer size of the project. I was led around the facility and told how to envision what everything would eventually look like once it was complete. I blogged about my tour here.

Not long after my tour, I attended a press conference at British Airways’ headquarters, where BA and BAA representatives told the assembled group of journalists how all the complex IT systems at the mammoth new terminal would work. I was struck at the time by how supremely confident BAA was that everything would go smoothly, without any hitches.

In fact, in a blog I wrote after the briefing I highlighted a boast made by BAA director of business critical systems and IT, Nick Gaines, that T5 would “not have any system integration problems”.

I pointed out at the time that “it takes a brave person to make such a bold claim to a group of reporters, pens in hand to take note of the comment so that if things do not go as smoothly as predicted, the comment can be thrown back at its source along with a barrage of whys and wherefores”. Oh, if only he had known.

The over-optimistic build-up to the opening of T5 continued when I visited the terminal again, shortly before its opening, to interview BA chief executive Willie Walsh for the Airline Business March cover.

The facility had come a long way since my last visit, and we did the interview in one of BA’s opulent lounges.

Walsh seemed as proud as punch as he guided our photographer and I around the terminal after the interview. He told me T5 represented a “once-in-a-lifetime opportunity” for BA. Oh, if only he had known.

I’m sure I don’t need to tell you what followed. T5′s chaotic opening on 27 March turned into a complete PR disaster for BA and BAA.

Problems with the baggage-handling system led to an enormous backlog of bags and the cancellation of hundreds of flights.

Over the next few days and weeks the newspapers and television stations were full of pictures of lines and lines of disgruntled passengers, as BA and BAA were torn to pieces for bringing shame and embarrassment on the UK.

Heads eventually rolled, with the sacking of operations director Gareth Kirkwood and customer services director David Noyes, and BA was forced to delay transferring its long-haul flights to T5.

And some clever soul with lots of time on their hands even devised an online game entitled “Wee Willie Walsh in Terminal Panic“, where players could direct a sweating and flustered Walsh to move the mounting piles of baggage around the terminal.

Since its disastrous opening, things at T5 have improved dramatically. But it will probably take a long time for BA to win back passenger trust and to convince them that the terminal does actually work. I used T5 as a passenger for the first time in December and I can testify that everything was running smoothly. I even blogged about my experience to prove to a BA executive I’d met at an event a few days earlier that we journalists do sometimes report when things are going well, as opposed to focusing on when things go drastically wrong.

 

 


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Airline Busines Americas editor, David Field

The big story, the big, big story: it’s a short word and it’s oil. It was the big story of ’08 and it will be central to the thinking of airline executives through 2009. 

In the summer of 2008, oil hit an all-time record price of just over $147 a barrel, spurred by high demand and, to hear the airlines and others tell the story, speculators. (With the so-called ‘crack spread,’ airlines were paying about $25 more per barrel.)

We were never too sure who these speculators were, but the airlines must have done one heck of a job complaining about them because by the week before Christmas, oil was going for just under $38 a barrel. That was its lowest since the summer of 2004.

Despite their victory over the speculators, the airlines were hardly celebrating. As John Heimlich, the Air Transport Association’s chief economist, put it, “it is indeed the era of volatility. How can a labour-intensive, capital-intensive industry conduct multi-year planning amid such economic uncertainty?” Or to quote a non-economist, AirTran chief executive Bob Fornaro, “we just don’t know what’s going to happen next year.”

 


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Airline Business managing editor, Graham Dunn

“My story of the year for 2008 is the seemingly endless ups and downs in Italy’s attempts to save Alitalia. I say seemingly, but in fact there was nothing seemingly about it. It was endless. And there were plenty of ups and downs.

Okay to some people it might have appeared Alitalia was on some kind groundhog day-style loop along the lines of…”Alitalia facing crisis”; “Alitalia in last minute reprieve”; “Alitalia facing new crisis”.

But journalistically it was a pleasure and a nightmare. An endless stream of twists and turns to report (most of them happening well into the evening after I was meant to have stopped working!).

At one point in October I think I had written 21 stories on Alitalia inside eight days for our ATI newswire service. And the rollercoaster went on.

And as a story it had everything; drama and passion, political intrigue, knife-edge negotiations going right down to the wire and beyond. It touched on this year’s key themes of battling financial crisis and consolidation.

And in Italy it dominated the front as well as the business pages as one of the key issue dominating Italy’s election and the early months of Silvio Berlusconi’s government, not to mention the human cost of job losses.

The story even has an ending; the new carrier takes flight in January. But I suspect we’ll be hearing a whole lot more about Alitalia in 2009.

Read our analysis of the challenges facing the newly merged Alitalia and Air One operation, the subject in the just published January issue of the magazine.

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Asia/Pacific editor, Nicholas Ionides

I’m going to cheat and claim two – albeit linked – stories of the year: China and India.

These are the two powerhouse economies that the pundits had said would help the rest of the industry avoid a severe downturn, as no matter what happened elsewhere they would keep growing at phenomenal rates.

How wrong the analysts have been, as these two markets have seen their fair share of difficulty in 2008 and their airlines are now begging for help.

In China, demand for air travel had been growing at strong double-digit percentage rates for years, but that changed by the middle of 2008.

Demand was solid in the first half but things weakened after natural disasters in parts of the country followed by the introduction of strict visa restrictions by the Chinese government for security reasons ahead of the Olympic Games in Beijing in August.

While domestic traffic has since picked up, many foreign visitors are still staying away and the country’s largest carriers have been reporting declines of around 20% in international passenger numbers for the past few months.

So much for the hoped-for Olympic Games jump in demand. As a result the country’s airlines are struggling and several are seeking bailouts from the government.

Cash bailouts are indeed being given out, but expect there to be conditions attached that will lead to consolidation in 2009. India is a similar story, although traffic has been depressed for different reasons.

The country’s air transport market started booming in 2003 when new airlines launched and until this year domestic passenger traffic was growing at strong double-digit percentage rates.

Since around the middle of the year demand has fallen substantially, however, after many of the airlines that were growing so rapidly in the fight for market share used up their cash reserves.

Being such a price-sensitive market, fare hikes that followed in an attempt to boost revenues and cope with high fuel prices had a major impact on demand, and passenger numbers are still falling each month.

The airlines are now begging for help in the form of tax breaks and other concessions but little action has been taken by the government, leading to much-needed consolidation among the airlines.

Arch-rivals Jet Airways and Kingfisher Airlines have already announced plans for a wide-ranging tie-up, for example, and one of the more memorable pictures of 2008 was that of rival billionaires Naresh Goyal of Jet and Vijay Mallya of Kingfisher hugging for the news cameras after announcing their partnership.

China and India will of course return to strength as there is still enormous growth to be had once the current downturn is behind us.

But tough operating conditions in 2008 gave their airlines an ugly dose of reality and they will no doubt keep us busy in 2009 reporting on the latest surprises in those emerging markets.

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Airline Business editor, Mark Pilling 

Click here for Mark’s review of 2008

 

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One Response to So that was 2008 then

  1. Anita Kasting 20 February, 2010 at 10:00 am #

    Ha! I hust tweeted about this..

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