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Comment: Missed the boat

So things are finally getting better. For the first time in two-and-a-half years IATA has been able to issue an improved outlook on its previous forecast. The industry is set to lose less than $3 billion this year. That's not great. But it is a drop in the ocean compared with the $26 million deficit racked up in the last two years.

IATA chief Giovanni Bisignani cautions it is not yet time for a party and nowhere is that more true than in Europe. However hard you look, you will not find a national carrier in Europe in any mood to celebrate.

The airline sector's close dependence on GDP fortunes means European network carriers face a long road ahead in line with the region's painful progress out of the economic mire. IATA estimates the European airline sector will incur the largest losses of any region this year, only slightly down on 2009 at $2.2 billion. So while last year was bad for many airlines in the region, 2010 is crunch time.

 missed the boat (200) Rex Features
Already this year it is clear more action is necessary for European network carriers to ensure their longer-term survival and that difficult decisions must be taken. Owners, be they private shareholders or governments, are taking action.

In Greece the two main carriers, Aegean Airlines and the privatised Olympic successor, have come to the conclusion that they are better off working together and are embarking on a merger strategy. Italian carriers Meridiana and Eurofly have just completed their merger.

The Hungarian government has retaken control of its national carrier Malev, three years after its privatisation, with an end goal of selling a restructured carrier. In Russia plans have been shelved to create a major airline grouping around Rosavia and to reinforce Aeroflot instead. In Scandinavia the respective Governments are now pondering the sale of their stakes in beleaguered SAS. In Serbia flag carrier Jat is courting Turkish Airlines as an investor. The terrain is gloomy.

Look around elsewhere and labour relations are under high stress. British Airways and its face-off with cabin crew is attracting headlines, but it is far from alone. Lufthansa has veered close to a strike with some of its unions, Iberia is facing a hostile labour battle over its bold proposals to create a new short-haul feed carrier while Aer Lingus has won concessions from its pilots but is still working with cabin crew unions on a deal. Everywhere management is taking a hard line as they seek to repair battered balance sheets and emerge from the crisis in a better shape than when they went in.

But in an ironic twist, could the recovery be coming a little too fast? Now that the first green shoots are appearing, and outside of Europe at a pace that has surprised many, will the pressure on making the tough decisions ease? Unions will recognise a subtle shift that plays in their favour. Management at several carriers - BA, SAS, Iberia - know they must continue with a robust stance. As this comment column observed in the September issue: "This environment is the best chance in a generation to reshape labour productivity and flexibility and rebase labour costs."

Can, and will, these carriers and others facing similar situations make the cost breakthrough? The climate has certainly got tougher and the seductive return of traffic growth will tempt many to take their foot off the pedal for change. There is a need to take a hard line and make meaningful changes today to avoid a return to the status quo.

The danger is that the sentiment for change could quickly evaporate, creating a missed opportunity. The bottom line is that unless the major change programme is well underway, and probably advanced to the point of no return, the chances of starting now are receding fast.

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