(Sum's take on global economic slowdown and airline industry scenario)
“So where the bloody hell are you” (slogan of Tourism Australia) aptly applies to the situation of the airline industry these days as it scouts for airline passengers in an era of global slowdown and dwindling airline numbers. According to some industry experts it never has been this bad and the economic forecasts are not looking any good either. Part of the blame can be attributed to the usual business cycles as the sudden slowdown and adjustments made by airline industry post 9/11 followed a period of recovery which lasted another couple of years. This was the time the airlines across the world were shaken by increased security and insurance cover charges which was in turn levied on the passengers in terms of insurance surcharge and thus started the regime of surcharges, levies and taxes which at present are accounting for more than the fare component, if not the same (at least in the international travel). The period of peak and plateau for the global airline industry was fairly short and buoyed by GDP growth figures of world economy coupled with emerging economies of BRIC countries, airlines put their best foot forward and aircraft orders came in thick and plenty.
The decline was even stepper as the credit and housing credit crisis in US triggered fears of a slowdown. China’s economy showed signs of overheating and slowdown fears soon translated in to a real time situation. Although the global slowdown is not as bad as the feared previous ones, but as per analysts and experts it is expected to last much longer. Add to these slowdown figures increasing inflation on account of rising food and commodity prices worldwide and crude shock which came in light of fears of invasion of Iran by US, dwindling supplies from Iraq and speculation in oil futures, you’ve got a perfect recipe for a blockbuster aviation industry downturn story.
But as industry and business the world over are expected to go through such down turns and slow down, it is important to see and evaluate how the airline industry is handling such a situation. Every airline is making a huge hue and cry over rising crude and resultant accumulated losses, but such a thing easily could have been averted by hedging fuel and this situation is clearly a case of failed planning and forecasting rather than an unforeseen situation. Even a simple management graduate could have guessed a global slow down after a period of rally and stage of plateau. Failure to plan for a slow down, when planning aircraft purchases and not cutting down costs and hedging fuel should be seen as a case of lost opportunity in this industry.
The situation is still not as bad as viewed and portrayed by many. There may be job losses and cut in schedules but such measures are in concurrence with a slowdown in any industry. There may also be consolidation in the industry, but that is need of the hour and only big global players and alliances can create core competencies and bring effectiveness in operations to reduce cost and increase viability for an airline in a global recession.
There is a big opportunity awaiting the airline industry in the future, but there is an urgent need to plan and the entire industry to work together for solutions of a problem which will confront them more often than not in the future – the problem of fuel. The business of airline is based on a non renewable source of energy and pressures like the current oil shock will be more visible and sudden in the future years when the supplies of fuel will dwindle. Huge investments are at stake and delivery orders are placed for the next 10 years. Boeing and Airbus will be working at full capacity to full fill the orders but is any one taking leaf from the current situation and thinking about how to fuel these aircrafts.
One possible opportunity wasted is the effectiveness, organization, composition and working of global airline alliances, which I shall discuss in the next blog.
The decline was even stepper as the credit and housing credit crisis in US triggered fears of a slowdown. China’s economy showed signs of overheating and slowdown fears soon translated in to a real time situation. Although the global slowdown is not as bad as the feared previous ones, but as per analysts and experts it is expected to last much longer. Add to these slowdown figures increasing inflation on account of rising food and commodity prices worldwide and crude shock which came in light of fears of invasion of Iran by US, dwindling supplies from Iraq and speculation in oil futures, you’ve got a perfect recipe for a blockbuster aviation industry downturn story.
But as industry and business the world over are expected to go through such down turns and slow down, it is important to see and evaluate how the airline industry is handling such a situation. Every airline is making a huge hue and cry over rising crude and resultant accumulated losses, but such a thing easily could have been averted by hedging fuel and this situation is clearly a case of failed planning and forecasting rather than an unforeseen situation. Even a simple management graduate could have guessed a global slow down after a period of rally and stage of plateau. Failure to plan for a slow down, when planning aircraft purchases and not cutting down costs and hedging fuel should be seen as a case of lost opportunity in this industry.
The situation is still not as bad as viewed and portrayed by many. There may be job losses and cut in schedules but such measures are in concurrence with a slowdown in any industry. There may also be consolidation in the industry, but that is need of the hour and only big global players and alliances can create core competencies and bring effectiveness in operations to reduce cost and increase viability for an airline in a global recession.
There is a big opportunity awaiting the airline industry in the future, but there is an urgent need to plan and the entire industry to work together for solutions of a problem which will confront them more often than not in the future – the problem of fuel. The business of airline is based on a non renewable source of energy and pressures like the current oil shock will be more visible and sudden in the future years when the supplies of fuel will dwindle. Huge investments are at stake and delivery orders are placed for the next 10 years. Boeing and Airbus will be working at full capacity to full fill the orders but is any one taking leaf from the current situation and thinking about how to fuel these aircrafts.
One possible opportunity wasted is the effectiveness, organization, composition and working of global airline alliances, which I shall discuss in the next blog.
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