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As Ash Clears, Airlines See the Need for Change

22.04.2010
Frost & Sullivan's Commercial Aviation Consulting Analyst, Max Sukkhasantikul, comments on latest developments on volcanic ash impact on the airline industry.

While it may have taken the global economic recession a full year to deprive the airline industry of USD 11 billion, it took a spewing volcano just six days to relieve the industry of USD1.8 billion.

The lifting of the flight ban, controversial, politically divisive and arguably hasty though it may have been, obviously came as an immense relief to everyone and restored an illusion of control. It is armed only with this illusion that we must now answer the very difficult question – what are the short and long term impacts of this unforeseeable situation and how does one prepare for the unknowable?

Unless the aviation industry can better adapt to change, unknowable situations like terrorist attacks, crew strikes, virus outbreaks, recession, spiking fuel costs, and even as we see, acts of nature will continue to wreak havoc on the global economy. “In terms of air traffic management, the highly bureaucratic system was put on display when it took five days for any reaction by European states,” notes Frost & Sullivan’s Commercial Aviation Consulting Analyst, Max Sukkhasantikul. “Unfortunately, most airlines are considered a national asset, bringing politics into play, particularly in the procurement of aircraft and selection of routes. Until this mentality changes, aviation will still continue to suffer. “On the surface, most of Europe may be a borderless continent, but the sky has not changed much since WWII.”

The airline industry has always been overly regulated, and is one of the few industries that are not able to diversify its risks - other industries, like manufacturing, can spread risks geographically, whereas airlines largely have eggs in one basket - their hub airport. Consolidation is one of the solutions to this, but can only happen when the strict borders in the sky are lifted, allowing the aviation industry to compete in a level playing field.

Moreover, airlines in terms of internal management, still operate in a legacy system, in which staff are unwilling to adapt to change as well, which has led to so many cabin crew and pilot strikes in Europe.

“It may take up to three years for the industry to recover fully and some airlines may not make it without government help,” says Sukkhasantikul. Whilst major airlines can absorb the impact on their financials, the smaller and less established carriers will suffer most if they do not have extended borrowing facilities or cash reserves. “Those that do, like Ryanair, should be fine. Lufthansa and Air France-KLM have the upper hand as they have shares – 23.1 per cent and 11.6 per cent respectively – in the multi-billion dollar, global airline distribution company, Amadeus. Approximately half of these shares were announced to be sold by year end, a financial buffer from this crisis of several hundred million dollars. However, airlines like Scandinavian Airlines (SAS) will have difficulties accounting their impact of over US$200 million, at a time when they were at the verge of bankruptcy prior to the volcano eruption. As for British Airways, already reeling from cabin crew strikes, a pension deficit of almost GBP 4 billion, the outbreak of H1N1 virus, and last years’ financial losses, they will have yet another storm to ride out, once this ash clears.”

At least we can find comfort in the fact that the grounding of over 100,000 flights over 6 days has saved 200,000 tonnes of carbon emissions. However, this occasion has proved to the world that aviation cannot be taken for granted, and its growth should not be curbed. “It is a shame that it takes such unfortunate events for people to realise that aviation is, and always has been, an important contributor to the world’s economy,” notes Sukkhasantikul. “On this occasion it has affected up to 8 per cent of global trade.”

For more information, or if you would like to speak directly with Max Sukkhasantikul, please contact Katja Feick, Corporate Communications, at katja.feick@frost.com.

Contact:
Katja Feick
Corporate Communications – Europe
P: +49 (0) 69 7703343
E: katja.feick@frost.com
http://www.frost.com
Twitter: twitter.com/frost_sullivan

Katja Feick | Frost & Sullivan
Further information:
http://www.frost.com

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