FURTHER CONSOLIDATION OF THE INTERNATIONAL AIRLINE INDUSTRY

It has already taken place in America, with now just four legacy airlines still in business, Delta, American, United and Continental. Because every country in the world including tiny Nauru Island in the Pacific (population 13,500) feels it must have its own airline, nationalism has been the major factor, irrespective of the losses/potential losses, that has driven countries to make sure they have a flag carrier. Reality is since the turn of the century, even wealthy countries such as Switzerland, Belgium, New Zealand and Canada have seen the flag carrier go into bankruptcy, some through government assistance to re-emerge, others to disappear altogether.

Now international travel is on a huge decline, the future looks bleak for over half the world’s carriers. Instead of mergers like KLM and Air France, Lufthansa and British Midland most of the terminally ill carriers will simply shut shop. Mojave Desert, already overflowing with unwanted planes will within a couple of years be overflowing with repossessed aircraft from the Asian and African continents. There will be more airline people joining the dole queue than from the auto industry! My thoughts are before this recession is over the number of carriers still operating will be at least halved from the boom times of post 9/11.

Surviving airlines hoping that with less competition they will able to hike the prices will be in for a rude awakening. The western world, especially America will only contemplate travel if the price is right. No more banging a $12,000 family vacation onto the plastic card anymore and spending two years paying it off at 15.99% compounded interest. We will follow the Chinese and all our spending decisions will be based upon three basic considerations; price, price and price.

As for cargo, there may some markets not well serviced by freighters or competing airlines, where the demand will dictate pricing levels, but overall, most passenger carriers will continue to “drop their pants” because they absolutely need the incremental revenue that cargo brings. Some forwarder mentioned to us the other day he received a minus rate into Asia! Believe that! I do because Asian carriers are truly hurting and will for a long time. They can maintain the fuel surcharge at inflated levels but are will to discount that in order to move freight at a zero rate! Talk about how the world has been moving to the lowest common denominator. Who knows, the barter system of the Stone Age may return as the bargaining tool to do business.

Tags: Air France, American, Belgium, British Midland, Canada, Continental, Delta, KLM, Lufthansa, Naura Island, New Zealand, Switzerland, United