The Falling Fortunes of Global Aviation Industry

The Global Airline Industry and its Travails

It is an open secret that airlines all over the world are bleeding due to various reasons. They range from overcapacity and the intense competition or fare wars and price cuts by lower cost airlines to the fact that operational expenses have gone up so much that profits are hard to come by. Added to these factors is the very real aspect of the global economic slowdown taking a toll on the airline industry, which never really recovered from the post 9/11 knock down of its profitability.

The point here is that though the appearances of the airlines and their marketing campaigns seem to suggest that they are doing rather well, the reality is otherwise.

Consider the example of many top-notch airlines like United Airlines, American Airlines, and Air India that have either become bankrupt or had to be rescued by the governments because of humungous losses.

Further, as the case of many airlines like Singapore Airlines shows, the survival strategy is one of trying to scrape through with enough profits so as to not tank into the red.

Apart from this, there are many airlines like Kingfisher and Jet Airways in India that are teetering on the edge and either are entering into alliances with foreign partners or are in the process of liquidation.

Some Examples of the Airlines that are Faltering

The global airline industry has also been hit because of the high price of ATF or Aviation Turbine Fuel. The increase in the price of the oil and its derivative, the ATF has especially hit hard those airlines in Asia and Africa that are dependent on imports paid for in hard currency or dollars.

Of course, the situation in Asia Pacific is no different as airlines like Qantas are struggling with high employee costs and an inability to radically downsize owing to opposition from the government.

Even in the case of European Airlines like Air France, Lufthansa, and KLM, they have been forced to curtail their routes and enter into code share agreements with local airlines wherever possible so that they do not lose landing and flying rights to destinations.

Apart from this, the fact that there has been tremendous overcapacity in the airline sector without corresponding growth in passenger traffic is another reason why the global airline industry is faltering.

The point here is that in anticipation of growth in passenger traffic, demand that was thought would materialize, many airlines added extra capacity, and concomitant with this, there was an expansion of many international airports. When the expected demand did not materialize, the result was that the global airlines were saddled with overcapacity and underutilization of its fleet of aircraft.

The Death Spiral of the Global Airline Industry

The other aspect about the falling fortunes of the global airline industry is that the deliveries of next generation aircraft from manufacturers like Boeing and Airbus are being delayed because of factors that are interlinked to each other. This means that the next evolutionary step for Airlines is not happening in terms of next generation airline travel that was supposed to have revolutionized international business travel.

Further, with most revenues coming from Business Class and First Class passengers, the global airlines are concentrating their energies on providing these passengers with as many benefits as possible and neglecting the economy class passengers which has further eroded the overall demand.

Finally, the airline industry is also beset with several nonperforming partner relationships that were primarily drawn up and entered into as a means of cost cutting.

In other words, the dense and intricate network of relationships between airlines and aviation maintenance companies as well as the suppliers and the other outsourcing partners are not delivering as much value to the airlines as expected. This is another reason why the global airline industry is in what is known as a “death spiral” in industry circles.