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Phrases such as ”roll up the sleeves,” ”hang on” and ”ready for a bumpy ride” formed the bones of most speakers” presentations on the opening day of the IEA and Marketforce 3rd Annual Low Cost Air Transport Summit, held at the Waldorf Hilton in London last week.
Hardly surprising. Aviation has enjoyed a period of relative stability, but the question now seems to be, how bad can it get? Who can survive?
Delegates were reminded of sobering realities, such as the fact very few low cost carriers around the world actually generate a return greater than the cost of their capital. It”s a tough business flying folk around the globe, and the industry gets little thanks for it ” just flak, mostly.
What with the extraordinarily sudden rise in the oil price ”a $12 leap within a week recently ” it looks like airlines are being funnelled into a mincer, and seems inevitable they will reappear radically altered, if at all.
The industry has the capacity to lose frightening sums of money if oil remains at $130 a barrel this year. That would raise the fuel bill by something like $70bn on last year, which according to the chairman of aviation consultancy CTAIRA Chris Tarry, would mean airlines would need to generate an additional $32 per passenger for every journey.
It was interesting to hear what measures are being taken when every kilo on an aircraft can cost around $500 a year in fuel burn. Zoom Airlines managing director Jonathan Hinkles explained how two of its fleet were sent to the hangar to be stripped of 400kg of surplus bar trolleys (78kg) and such like ” immediately saving it a neat $200,000 a year.
Consolidation may be on the cards for some carriers, but Tarry pointed out this isn”t always the magic fix many imagine, likening it to ”two drunks supporting each other on the way back from the pub ” they hold each other up for a bit, but then both fall in the gutter.” There is great risk for the acquirer in these cases. Following the Delta-Northwest tie-up, many people expected similar announcements to follow, but none has yet.
Certainly passengers should get ready to see capacity and route reductions ” in the US, it”s reckoned around 60 communities have lost air links this year, which may rise to 100 by 2009.
Although not present at the Conference, the ghost of Ryanair”s outspoken chief Michael O”Leary nonetheless permeated several delegates” presentations. And indeed O”Leary went on record a week before quoting the carriers he thought might not survive the year. It”s fair to say that those with good liquidity ” and Ryanair has plenty of cash on its balance books ” stand a much better chance of survival, but can the actual low cost model remain?
If you believe O”Leary, yes. He was typically bullish in pronouncing that it isn”t the low-cost model in danger but the high- cost one ” and pointed to the corpses of Eos, Maxjet and Silverjet (although the latter now seems to have risen, Lazarus-like).
In an economic downturn, consumers will become more price- sensitive and will flock to the budgets is his view.
Ryanair has already welcomed more corporate travellers as a result, and this was a big talking point at the summit ” led by Flybe, which has done remarkably well by targeting the business sector since 2002, with higher frequencies on routes, a specific Economy Plus product and lounges, among other attractions.
Norwegian Air Shuttle is another doing well with corporates, which make up around 50% of its passengers ” and much more on some routes. Both of these airlines distribute via GDS, and it will be interesting to see which others follow suit, and how easyJet”s troubled relationship with TMCs regarding its surcharge pans out.
So, even if fewer leisure travellers come their way if short-haul weekend breaks and second holidays are off many people”s menus, could it be that business travellers come to the rescue of the low costs as companies tighten travel budgets? There are signs it is happening.
One other thing these carriers have in their sights is a reworked Air Passenger Duty (APD) for 2009. If low-costs can get a fixed duty per flight, paid not per passenger but by take-off weight divided by the number of seats, it would save them a lot of cash.
Zoom”s Hinkles told delegates how he went and banged on the Treasury”s door to point out how the current scheme penalises it for carrying passengers more efficiently than legacy carriers - a full Zoom Boeing 767 flight pays around double - ”13,320 ” the APD of a full legacy 767, he said.
This is just another factor which will shape-shift the industry. Interesting times, indeed.
” Ryanair”s calls for aviation regulator Dr Harry Bush to resign tend to flow from the airline”s communications office as regularly as rain from the British spring skies.
Boss Michael O”Leary at least put a new twist on this well-worn practice of regulator-bashing at Ryanair”s annual results press conference. Asked about plans for Stansted”s second terminal, he said: ”Presently BAA proposes to spend just more than ”2bn, of which ”1bn will be spent on earth-moving and landscaping ” we think we don”t need plants, we”ve enough plants in the CAA who are regulating this operation.”
Passengers can decide whether they agree with O”Leary when it comes to terminal needs: ”Stop the BAA monopoly building mausoleums to inefficiency like [Heathrow] Terminal 5 ” you don”t need St Paul”s Cathedral, you just need elegant boxes where people don”t get stuck for 24hrs. Airports are simple buildings.”
Harry GlassSenior ReporterABTN