Not quite blue skies yet

IT looks like the dark clouds are clearing with major airlines reporting improved loads as the global economy shows signs of recovery.

Cathay Pacific Airways becomes one of the first major airlines to announce a return to full-year profit, reporting a net of HK$4.7 billion (US$605 million) for 2009 compared with a loss of HK$8.7 billion (US$1.12 billion) in 2008. (See “Cathay posts HK$4.7 billion full-year profit”, Airways Aviation News, Mar 10, 2010)

Singapore Airlines (SIA) is expected to also report black ink as its financial year closed March 31, 2010.

Even as All Nippon Airways (ANA) expected to lose more than double its earlier estimate of 28 billion yen (US$296 million) for the financial year, it said it would quickly recover, forecasting net profit of five billion yen (US$53 million) for the next fiscal year. With rival Japan Airlines (JAL) under bankruptcy protection, ANA has big plans to become Asia’s largest carrier.

In keeping with the optimism, the International Air Transport Association (Iata) has halved its loss forecast for this year from the previous forecast made in December 2009 to US$2.8 billion. Asia, which experienced a flourish of budget carriers (there are at least 45 low-cost operators from Japan to Pakistan) feeding off full-service airlines in recent times of belt-tightening, is expected to lead the field.

So, it’s time to pop the champagne bottle, yet the message remains one of caution.

Iata’s director-general and chief executive officer Giovanni Bisignani warned: “This is no time for an increase in salaries or in prices for the service that we pay to airports and air navigation service providers, and it’s certainly not the time for strikes.” With reference to that last bit of exhortation, obviously British Airways employees didn’t buy it.

Knowing on which side of the fence Mr Bisignami stands, it is understandable that he failed to mention that it is no time too for airlines to start raising fares. One lesson that the economic crisis has served up for the airlines is that consumers do have a choice.

Budget carriers have become viable alternatives and it would be unwise for full-service airlines to turn their noses up on them. They have made inroads while the big boys reeled from their losses. Even as we constantly hear of some of them dropping out of the competition – Viva Macau being the latest victim, reminiscent of the demise of Oasis Airline – new ones are entering the arena. Garuda president and chief executive Emirsyah Satar has announced that the Indonesian flag carrier will be launching a budget offshoot.

While business class loads are beginning to show signs of improvement for some of the major airlines, the real competition has shifted to the back of the plane. At least, for now. Passengers who become accustomed to flying in economy class may take some time before returning to the front cabin. In recognition of this, Qantas is reducing its first class capacity by some two-thirds to increase economy class seating. Air New Zealand looks to creating a new sub-class – the Skycouch – expanding on the premium economy class concept. Cathay announced plans to launch a similar class.

Time heals and we forget. Airlines that think it is back to business as usual do so to their detriment because the rules of the game have changed considerably.

This article, retitled “Improved loads, caution flying ahead”, was also published on www.airwaysaviationnews.com.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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