The world has already seen national flag carriers in the airline industry being absorbed by operators from other countries and that trend is bound to accelerate as the effects of recession escalate. Losses during 2008 are estimated by Iata at over ten billion dollars and they have just revised their forecast for 2009 in the upward direction.
The Italian flag carrier Alitalia is in administration, and even joining forces is no protection. Air France-KLM are having to cut three thousand jobs.
At the moment the cost of fuel has dropped considerably, though in the UK the weakness of the pound has kept the actual price higher, but it is unlikely that oil prices are going to fall or even stay the same because the planet is not making any more (any that is in production will take millions of years).
Business class is a major earner for the big airlines but it has declined sharply and once finance directors in client companies have achieved cost savings by shifting people back into economy they will want to keep that a one way policy (except perhaps for themselves?).
Even before the recession started to kick in, companies looking at their travel budgets for cost reductions had already started to switch from traditional carriers to low cost operators for lower echelons of their workforce going abroad on business.
The dynamics go much further. Over time the big operators built infrastructures that do not lend themselves to hard times and changing that corporate culture is one heck of a long process. With all the consultation that is required, it is often impossible for big corporate machines in all sectors to be fleet of foot.
The other big ball and chain is the pension situation. Many of the big players have long term commitments to pay for the retirements of their employees and they have invested huge sums of money in the markets to finance such deals. However, when investments come under pressure and interest rates plummet as they have done, those funds demand more and more cash to remain viable.
On the other hand, part of the business model for the low cost operators has been to have a contractural relationship with their staff where they can and leave the pension provision up to the individuals. That is part of the lean philosophy and it makes them less vulnerable.
Like the bankruptcy of General Motors, we can expect to see more of the world’s big names in aviation have hard landings, not as a result of the recession alone but because they were already overloaded and underpowered and the credit crunch has produced the final patch of turbulence.
At the same time, the world community has to make some hard choices. Air travel does gobble up oxygen and push out carbon dioxide in a massive way. It is something that cannot be cured by fancy paperwork, the unreal world of ‘carbon trading’. The only long term solution, if we are to continue enjoying fast trips around the globe, is to find alternatives – perhaps splitting water into hydrogen and oxygen through some source of solar energy and getting the power from burning the two and producing water again. You don’t even need to take the oxygen with you – just the hydrogen in whatever form proves practical.
It is time to accept that aviation using current fuels is an industry in terminal decline. Whatever transpires in terms of corporate failures, injections of public finance are going to be good money after bad. If the UK government wants to spend money on air travel then the investment has to be in researching the alternatives, translating the power of the sun into speed round the world.