These sum up the state of the cash-guzzling airline industry across the globe, with profitability being an elusive goal from the very beginning. The industry's high cost structure stems from expensive aviation turbine fuel (ATF); exorbitant fees charged by airports for parking, landing and take-off; and inability to charge the passengers high, among others. The petroleum cartel does not leave scope for expectations of cheaper ATF; most airports are state-sponsored monopolies that do not believe in airline-friendly charges and abundant choice for passengers means flight charges are buyer-driven. Half-a-dozen big traditional airlines in the US, representing nearly half of the global aviation market, lost $27 bn since 2000. Nearly 1,00,000 employees in the sector lost their jobs in the US alone. The crisis called for a major restructuring in terms of human resource, safety concerns and revenue generation for the industry in almost every corner of the world.
Though it is easy to ascribe most of the recent troubles to 9/11 and its aftermath, the fact that this industry is one of the most vulnerable to economic and geo-political turbulences is indisputable. Experts opine that 9/11 only accelerated the impact of the prevailing trends for the industry. With the busting of the dotcom boom, business travel was rapidly declining anyway. The high-cost and high-risk structure of the industry means that it is easily susceptible to the dynamics of the business environment. Be it the Gulf wars or economic slowdowns or spurts in oil prices or terrorist strikes or SARS scare, airlines are one of the chief victims. Bankruptcies, strained employee relations, rising operational costs and bleak prospects characterize most of the airlines. When combined with the fact that historically airlines have been low-margin, highly regulated operations, it is evident that it is easily one of the most volatile businesses to be in.
Luckily, there are innovations within the industry that have helped tide away the blues. In the US, Southwest Airlines' innovative business model in the 1970s triggered a mini-revolution within the aviation industry. It pioneered short-haul, point-to-point no-frills service that has come to be known as low-cost carriers (LCCs). Ryanair and Air Asia, respectively, are the European and Asian success stories of LCCs. Slashing their costs by using minimal types of aircraft, maintaining short turnaround times, using second-rung airports in smaller cities and avoiding free in-flight services such as meals, these airlines are able to offer air connectivity at significantly lesser prices compared to the full-service, traditional carriers. Benefits of such a model are that passengers enjoy cheaper fares, newer segments are brought into the market, utilization of aircraft and personnel is high, aircraft turnaround is faster and savings accrue in training, maintenance and spare parts inventory. Traditional carriers operate in the hub-and-spoke model, to provide connectivity for passengers to different destinations and onward journeys. Flights originating from different destinations converge at a centralized hub from where onward connectivity is provided to passengers. This calls for effective coordination, logistics and in many cases long turnaround times for aircraft. Such airlines also believe in providing options of economy and business class travel, with value-added services charged for the latter. All passengers are also provided free in-flight entertainment and comfort, like exotic food and beverages. Provision of these frills and the hub-and-spoke model means that the carriers have little leeway in reducing their flight charges, for the long-haul connectivity provided by them. |
