Having survived from the attack of the four horseman of the apocalypse, the aviation industry is now been hit by a fifth, according to Giovanni Bisignani, Director General and Chief Executive Officer of the International Air Transport Association (IATA). Speaking at the organisation's annual general meeting in Singapore last week, he claimed that although the industry had survived SARS (Severe Acute Respiratory Syndrome), conflict in Iraq, terrorism and the economy, a fifth horseman - the price of oil - would make a recovery even harder. "This could add up to one billion dollars a month to our costs and deny us profitability again," he said. Although traffic figures are certainly more positive Bisignani warned that further change was urgently needed in the industry to overcome two years of lost growth. ”We must move from fighting fires to designing new industry structures. We must drive rigidity and complexity from our business. Cost flexibility has never been more critical”and this includes labour. And let”s remember that consumers pay for value not complexity,” he said.
IATA has generated a new agenda for building new industry structures and simplify the business. This agenda for change includes simplified commercial processes and more effective approaches to safety, security, relationships with industry partners and the role of governments. One way this simplification can be achieved is through e-ticketing and IATA reinforced its position to 100 percent implementation of e-ticketing by the end of 2007, driving paper tickets out of the system and thus reducing airline costs and at the same time improving customer service. This move alone could save the industry around US$3 billion in direct costs alone, according to IATA. Further measures to develop an industry standard and implementation plan for common use check-in terminals worldwide, achieve an industry standard and implementation plan to replace magnetic stripes with bar codes on boarding passes and achieve an industry standard to replace bar coded baggage tags with auto-identifying RFID and work together with the airports to exploit this technology for baggage handling, will bring further cost savings. According to Bisignani the growth in traffic over the past years has been boosted by the rise in the low-cost sector. The industry and the media were quick to herald its arrival, and the introduction of much cheaper air fares but it could be these same people that are now putting the first nails into its coffin. The term low-cost carriers continues to be one of the buzz words in the industry, but people have been quick to jump on the back of these airlines now the sector is beginning to slow. All sectors of the business world will witness some company failures but with easyJet and Ryanair suggesting that profits this year will not be a strong as previously, the media has been quick to question the future of the low-cost market.
When UK regional operator Duo Airways ceased operations last month the headlines began. However, Duo was not, and never had planned to be, a low-cost carrier. Although the airline was offering flights at competitive prices, it was offering a full business service on board its fleet of regional jet aircraft. The airline had a good business plan and was beginning to see a rise in passenger numbers but simply did not have the cash resources to continue to operate. In the past week a number of stories have been written about the crisis in the industry, following comments by Ryanair chief Michael O'Leary that the industry was facing an impending bloodbath, and now various stories have been written about the failure of Now Airlines, a proposed London-based start-up.
What these stories have done for public perception of the industry is not clear but would suggest that the end for the low-cost sector is nigh. However, despite the concerns the sector continues to grow and almost a week does not go by without an announcement that another new airline is being formed. This past week has been no exception with three full-service airlines announcing plans to form new low-cost subsidiaries. Air India will launch Air India Express in April next year, flying 14 Boeing 737-800s for services from the capital New Delhi, the financial hub of India Mumbai and the southern states of Tamil Nadu and Kerala. Elsewhere All Nippon Airways plans to form a new brand to serve short-hop domestic routes in Japan while in Poland national carrier LOT has revealed plans to establish a new low-cost arm at Krakow to serve destinations in both Eastern and Western Europe with three to five Boeing 737-300s. Other private operators are also being established, BlueStar Airlines in Greece and Al Jazeera Airways in Kuwait being just two of them. The strong results from this first tier of low-cost operators in Europe and the US have resulted in many more new entrants joining the market, and others are set to follow. Discussions are known to be taking place in boardrooms all over the world as companies attempt to realign their activities in view of the changing market conditions. Some consolidation is inevitable following such a vibrant period of growth. The first signs of this became apparent earlier last year when easyJet announced its acquisition of Go and its plans to purchase German operator Deutsche BA. Similar rationalisation was seen with Ryanair's takeover of Buzz. At present, the low-cost sector is still seeing growth, however, like all markets, there is no guarantee of success and the low-cost bubble must ultimately burst.