IATA 2009: Milton bemoans industry lack of profits

Kuala Lumpur
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This story is sourced from Airline Business
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What other industries are there where everyone in the food chain makes money, except the business at the end?" questioned ACE Aviation Holdings chief executive Robert Milton at the IATA AGM.

"The leasing companies make money, the OEMs make money, and everybody makes money, except the airlines," says Milton, who describes airlines as "one lousy business".

He says after Air Canada's related businesses were spun off they thrived and achieved higher market capitalisations.

"Airlines, on the other hand, make poor shareholder returns," he argues, adding: "This is an irrelevant industry in terms of market capitalisation." Investing in airline stocks is "a cyclical play where people both lose and make a lot of money,based on the volatility of the market."

He continues: "The businesses we have spun out of Air Canada have the money to invest in an airline business but are too smart to do that." These businesses were worse off under Air Canada because the problem with being part of the airline is that the ­airline is always constrained for cash, says Milton.

He cites as an example Air Canada's frequent flyer programme Aeroplan which was successfully spun off. Milton says Aeroplan was able to invest in information technology and buy other companies. Today Aeroplan gives more cash to Air Canada than it did before, he says.

Air New Zealand chief, Rob Fyfe, says airline overcapacity is the root cause of airline industry woes because it pushes load factors and yields lower. Fyfe says airlines that cannot afford to purchase or add aircraft should be left to fend for themselves.

But instead government subsidies via export agencies, at the behest of aircraft makers, provide these carriers with easy finance, he says. It just makes the situation worse, he says, adding: "It is like having a drug addict going to a clinic and just feeding him the drug intravenously."