When we launched Airline Business magazine 13 years ago, Carl Icahn had just taken over TWA; People Express was looking at acquisitions; Japan Airlines was losing its international monopoly; British Airways, Singapore Airlines and Malaysia Airlines were about to be privatised; Britain and France had signed a new air services agreement; and Dragonair was gearing up to compete against Cathay.
In our first issue, Frank Borman talked about plans to make Eastern Airlines a global company, and Europe's airlines were fighting a rearguard action against deregulation.
Many aspects of the airline industry have changed beyond recognition in the last 13 years. A host of famous enterprises, including Eastern, Pan Am, People Express, Braniff and British Caledonian, have vanished into the ether. Carl Icahn has sold out, Fokker has died, McDonnell Douglas has been acquired, and Bob Crandall has retired.
Europe's airline industry has indeed been deregulated, as have most national markets. Nearly all government-owned airlines of any size are now operating in the private sector. The industry is moving towards globalisation by creating mega-alliance groups.
Relative minnow Southwest Airlines has become an industry leader. Emirates and Virgin Atlantic have been transformed from humble startups to highly successful niche players. Many startup airlines have failed, but several, like AirTran, Ryanair, EasyJet and Jet Airways, have thrived. The package carriers have taken over the US air cargo industry.
Almost every airline has conducted the radical internal overhaul made necessary by economic reality, aided in Europe by some large state-aid handouts. The result? Most of today's airlines are leaner, fitter, more productive, and closer to the market than their managers could have dreamed of in the mid-1980s.
Strong growth has transformed the scale of the business. In 1984, revenue passenger km hit the 1,000 billion barrier. Now, we are nudging 2,500 billion. Revenues have tripled to $300 billion.
In short, the 1980s and 1990s have seen the airline industry complete its transformation from an immature, cossetted 'special case' industry into a global business which can hold its head high.
Of course, some things have not changed at all. Airlines are every bit as vulnerable to the industry cycle as they were before, and political and economic ructions have not lost their ability to wreak havoc. Few airlines are profitable enough to justify the capital investment required to run them. Airline pilots are still the most expensive production workers in the world. The balance of load factors, yields and unit costs remains as fine as it ever was.
This airline revolution is not quite over yet. Soon we will see the first collapse of a state-owned European airline. The remaining major privatisations will take place, and large numbers of airports will enter the private sector. Alliances will stay fluid as new airlines join and existing ones change allegiances.
Three or four alliance groups will assume dominance, and we will move towards a global regulatory system in which the outdated concept of airline nationality becomes an irrelevance. This process will begin with an open skies deal between the European Union and the US. Global regulation will allow cross-border airline mergers, which will bring about the efficiencies that alliances cannot.
The debate about how to regulate airlines shows no signs of going away. The US Department of Transportation has made a valiant effort to define predatory behaviour and stamp it out. It deserves credit for this, yet re-regulation cannot and will not happen. The real answer to the regulatory dilemma is to create an environment in which the mega-alliances compete aggressively against each other in all markets, while ensuring sufficient access for new entrants.
The E-business revolution will continue. Airlines will sell most of their tickets - paperless, of course - on-line or by phone, cutting distribution costs. Sophisticated data mining techniques will help carriers to tailor customer offers individually, while raising yields. Smart cards and other advanced technologies will cut airport queues and increase terminal capacity.
Further key issues include labour, pressures on airports and ATC, the so-called 'millennium bug', and the introduction of the euro.
Running an airline will never be easy. Airlines are highly complex, and the slightest error or economic shift can spell financial doom. Yet this is what provides the satisfaction and the 'buzz' which are unique to this business.
Source: Airline Business