What is clear however, is that in the long-term, passengers will again fly to one destination or another. This one bright spark on the airline horizon, is the goal for those carriers that survive the industry’s current turmoil.
It is easy to attribute the current upheaval in the industry to the tragic events of 11 September. However, a few smart airlines had already seen a downturn coming; but their pencils were not sharp enough when it mattered most. The US boom faltered and the recession has now begun to bite. Even before 11 September, passengers were falling away at an alarming rate.
The World Trade Center attacks have left an industry in a state of near catastrophe, as carrier after carrier implores government for a bailout.
The effect of the terrorist attacks is bleak – people are simply not flying as much. The surviving airlines will undoubtedly be stronger, but it remains a fact that many will not survive.
The industry as a whole expected last decade’s growth in air traffic to continue unimpeded year on year. Long-term investment has crippled some carriers, but could be what saves those that survive the current crisis. Bailouts, particularly those in the US and Switzerland, followed the attacks very quickly and more are likely, but the real game in town is consolidation.
Those airlines brave enough to be the principals in consolidations will reap long-term rewards. Europe has too many small carriers supported by national interests and the industry will only benefit if consolidation allows three or four main European carriers as well as freedom for cheaper operators. Governments throughout Europe and in the United States must relax the huge restrictions currently placed on the airline industry.
The real winners will be at the top and bottom of the market – the global alliances and the low-cost airlines offering short-haul value to an expanded passenger base and whose appeal will be in the simplicity of what is offered as opposed to the sophistication available elsewhere. Those who are piloting airlines now will need to be brave to be a winner.
Those who crawl back into profitability most quickly will be those enterprises that never forgot the first law of airline survival – cash is king.
Mark McMullen joins the private client services team from Smith & Williamson
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