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From France to the Philippines, from Austria to Australia, from Sri Lanka to Singapore and the US to the UK, the airline industry is in crisis.
More than 25 airlines have fallen into bankruptcy so far. In the US the three big domestic airlines, American, Delta and United, are slicing their services dramatically.
The implications of the recent failures of such airlines as Aloha and American Trans Air, and struggles of airline manufacturers such as Airbus or Boeing could have far-reaching consequences for the industry. Depending on the length and depth of this downturn or recession, there could be a failure of one of the major airlines.
The current crisis affecting the aviation industry is a recent one. Over the past half-decade there has been a vast increase in international travel and airline operators have rapidly expanded to meet the inexhaustible demand. More recently, however, rising oil prices and recession are hampering growth, resulting in too many planes fighting for a dwindling number of passengers and struggling with soaring costs.
Aviation fuel prices are up 216 per cent since 2000, but the average fare to fly 1,000 miles is down 0.5 per cent over the same time span. Aviation fuel now accounts for around 40 per cent of airline costs, up from 13 per cent five years ago.
Indian and Chinese airlines have been among the hardest hit. In 2006, India's airlines made headlines when they ordered 400 new planes but these ambitious plans have been worn down; the financial figures for India's airline industry released for the financial year ending March 2008, show losses totalling $938 million. Similarly China's aviation industry posted a 23 per cent decline in its first-half profits for 2008 and saw a slower travel demand in what is the world's second-biggest air-travel market.
While times are hard for the industry, aircraft manufacturers such as Boeing and Airbus remain upbeat citing growing demand, mainly from the Middle East. Two aircraft types, more fuel-efficient ones - for which the demand is high - are the Airbus A320 and Boeing 737; both are up to 40 per cent cheaper to run than the vintage planes some American airlines still use.
The Middle East is always different, even if it looks more positive. Gulf airlines may be affected by the global downturn but are still maintaining high seat factors and securing profits. Gulf airlines may be less experienced than many of their long-standing international competitors, but unlike many such competitors, have no major stumbling blocks that could put serious threat to their business. Gulf carriers are picking up traffic and expanding their fleets, backed by booming oil economies and new breeds of airlines. The Gulf economies continue to boom and there is now more demand for travel within the region, not less and with this a need for more aircraft and airports to serve growing markets.
Despite this, many airlines in the region are still taking precautionary measures by cutting capacity, travel agent commissions, increasing prices and some by injecting more capital, but these cautionary moves should be seen against the rapid expansion of the Gulf airlines in recent years and a healthy respect for the changed economic climate. Here in the Gulf, we must continue to closely monitor global trends to best adapt to the ever-changing nature of the airline industry.
- The writer is board member and chief executive officer, Air Arabia.
Are you worried about the increased costs of travel? Do you think the fuel price hike will translate into increased ticket prices?
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