AEA studies airline role in supply chain

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European airline chiefs have initiated a study to investigate what it sees as the way the benefits airlines have produced through cost saving efforts in recent years appear to be being reaped by other parts of the industry.

Members of the Association of European Airlines (AEA) met in Brussels last week to discuss a variety of issues facing the industry, including the apparent “discrepancy” between European and US support for their respective industries. It describes as “at best, lukewarm” the reaction by European national and international regulators to the problems facing airlines, in comparison to US action.

AEA chairman, KLM president Leo van Wijk suggests: “When it comes to ‘Europe, Inc’, the position of our administrators is less clear.  For the time being, they cannot come to grips with how essential we are to the functioning of the single market.  If we must abide by our own misfortunes, then we must take our own steps to strengthen our industry, and make it more resilient.”

Consequently the AEA initiated a study analysing the air transport value chain, and airlines’ position within it.

“Over the past decade, AEA airlines have failed to earn the cost of their capital. Our average profit margin between 1993 and 2000 was 2.3%.  Any economies we make ourselves pass straight through to the other parts of the value chain.

“At the same time, our suppliers have been able to raise their prices and maintain good returns on capital.”

The AEA says that during the mid-1990s aircraft manufacturers and lessors averaged returns on capital of around 15%, ground handling services 11-14% catering 9-12%, airports 10% and computer reservations systems 30%.

“These are not outrageous returns, but it is clear that they are being financed, in part, by the airlines’ apparent willingness to act as a cash cow for everybody else - national treasuries included,” van Wijk suggests.

The body is hoping the study could provide a strategic blueprint for the industry, providing sufficient substance and authority to influence policy at airlines, and also its regulators.