The mood was grim when bosses of 30 of the world’s largest airlines gathered early this month in Geneva.
The CEOs, including Air Canada CEO Montie Brewer, sit on the governing board of the International Air Transport Association. In recent years, they have seen their industry bludgeoned by 9/11, SARS and skyrocketing fuel costs.
Now they must face a new dragon: a worldwide economic crisis.
“There were absolutely no optimists in the room,” said IATA’s director general Giovanni Bisignani in an exclusive interview after the meeting. “Optimists must try and see something positive.” Instead the CEOs are watching a deep recession, a freefall in their two bread-and-butter revenue earners – air cargo and business travel – and violence and turmoil threatening leisure travel to such destinations as India and Thailand.
“The only thing ahead is ‘tighten your seatbelts,’” said Bisignani. “There is turbulence coming.”
For travellers, there is one glimmer of hope amid all the gloom. According to Brian Pearce, IATA’s chief economist, the price of air tickets could drop by 5% in 2009 as airlines compete to lure reluctant vacationers. Bisignani, however, stressed that price reductions won’t be across the board, but will depend on the conditions in each market.
Otherwise, there’s little cheer for passengers. Airlines are reacting to the financial crunch by parking planes, cutting flights and entering into mergers. And many are likely to go out of business altogether. As a result there will be less room to spread out on aircraft, fewer choices of departure times and fewer ways of getting to your destination without a change of planes.
At a daylong press briefing this week, Bisignani emphasized the industry’s stark future. “So, the outlook is bleak,” he said, “and the chronic industry crisis continues as we face the toughest revenue environment in 50 years.”
Surprisingly, North American airlines – many of which have been in and out of bankruptcy protection in recent years – are the only ones expected to make even a small profit in 2009. In the case of U.S. carriers it’s partly because they have already made themselves lean and mean. But it’s also because they were too cash-strapped to commit themselves to hedge contracts with fuel suppliers when crude prices soared earlier this year. Now the U.S. carriers are able to take advantage of lower oil costs, while many other international airlines are forced to pay well above the going rate.
Air Canada is one of those facing higher fuel bills because of hedging. But it is still likely to be one of the survivors, says Bisignani. “Air Canada went through a massive transformation in the last four years,” he said. That means the airline is able to face the emergency with a strong overall structure, an effective business plan and a renewed fleet. But he criticized the Canadian government for giving little support to Air Canada and for charging high crown rents to airports, a policy that forces up the cost of air travel.
Overall, IATA is predicting an industry-wide loss of $2.5-billion (U.S.) in 2009. That’s on top of the $5-billion carriers will be in the red this year. Airlines cannot overcome “the industry’s structural sickness” on their own, said Bisignani. He called on labour to understand that jobs will disappear, airports and air navigation systems to improve efficiencies, and for governments “to stop crazy taxation,” fix the infrastructure and do away with archaic restrictions on airline mergers and ownership.
Doug McArthur is the former Globe and Mail assistant Travel Editor and a frequent contributor to TakeOffeh
Photo Credit: Marc Evans
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