Airlines attending the June IATA annual meeting in Istanbul faced up to the realisation that their industry is in crisis amid record oil prices and slowing economies. Now it is a game of survival to see who will stay alive to book their seat at the 2009 gathering
After a dizzy few years of flamboyant expansion, the leaders of the world's greatest carriers, excluding of course the great low-cost players, were in a much more sombre mood at their annual meeting in Turkey in early June. And with oil prices racing past $130 a barrel as IATA delegates wove their way through the hectic Istanbul traffic to the banks of the River Bosphorus, a little camaraderie was a welcome tonic. "It's a case of misery loving company," joked Mark Dunkerley, chief executive of Hawaiian Airlines.
Few carriers, of any persuasion, will be profitable if $130 a barrel oil persists this year. Some will simply perish. Many delegates left Turkey wondering whether they would even need a seat at the 2009 meeting in Kuala Lumpur. As one chief executive commented: "It will be interesting to see what size of room they will hold the meeting in."
Idris Jala, the head of Malaysia Airlines, summed up what he got from brushing shoulders with his peers at this tough time: "It's good to know we are not alone. When you're on your own in your own backyard and you look at what you are doing, sometimes you despair. But when you look [and see] the problem is shared across the room you feel a little more courageous to make some bold steps."
Virgin Atlantic chief Steve Ridgway gave his take on events. "We all arrived here knowing that suddenly the reality of what has happened drew home to everybody: $135 fuel, economic slowdown, it's pretty scary. And there are a lot of airlines that are really going to struggle," he told Peter Davies in a video interview for Airline Business.
Davies, the former head of Caribbean Airlines and SN Brussels, asked what it takes to turn a crisis into a catastrophe. He received an almost unanimous verdict from the 20 or so chief executives he interviewed. Hawaiian's Dunkerley put it best when he said: "I think we're there already."
And like it or not, few would be well advised to bet on oil prices dropping back quickly. "One of the slightly discouraging things about our entire industry at the moment, and indeed the way many airlines are looking at this situation, is that there is this sort of underlying hope that what we're looking at with today's fuel price is an aberration," said Dunkerley.
It is against this background that IATA director general Giovanni Bisignani described the climate as "another perfect storm". Few thought his grim assessment of an industry plunging into the red was an exaggeration. "This is not a panic, it is a reality," said Turkish Airlines chief Temel Kotil.
High fuel prices affect all, but the effects of shrinking demand are different in different continents. The picture is the worst in the USA, followed by Europe and then Asia-Pacific. In fact, some Asia-Pacific carriers argued against IATA issuing such deep loss forecasts for 2008. But they toed the line, reluctant to stem the tide.
Some argue that what is taking place this year is a necessary correction for a business that is over-extended. This has not been helped by what Cathay Pacific Airways chief Tony Tyler described as the availability of "reckless financing" for aircraft. But those days are over. Now the banks are taking the "flight to quality", as Deutsche Bank chairman Josef Ackermann put it. Some of the larger players, a touch triumphantly, see the blood flowing among the low-cost fraternity. There is no charity even for the upstarts that did them a big favour.
Then there is the environmental challenge, which could have been cast well into the long grass. It wasn't because slashing fuel burn equals lower costs, which equals a good green story. Airlines are disappointed new generation types like Boeing's 787 aren't arriving on time because they have engines that offer fuel efficiencies and lower emissions, which equals lower costs and green taxes.
Whether it is in green taxes or high fuel prices, the industry has to plan for and live with a cost base that will be structurally higher, by orders of magnitude. The task for industry leaders is to make sure they can get through this emergency to be there to deal with it. As Cathay's Tyler said: "It's going to be extremely tough. When we're sitting together in this meeting in a year's time we are going to bear some scars."
Listen to what Walsh, Conte, Goyal, Jala, Savy, Ridgway and others said about the crisis during the recent IATA AGM at: flightglobal.com/iatavideos
Source: Airline Business
