That prognosis is basically how one of the bell weather companies FedEx, sees it too. Fred Smith, the eternal optimist, conceded the weak economy will continue to hurt FedEx’s results for some time to come. He did try to suggest there were glimmers of hope though. Inventories, he claimed were getting low. That is not how I view where FedEx is heading. When things do start to pick up, just as has been happening over the past five years 2nd day delivery and road will continue to bite into the highly profitable overnight business. Just like the email/scanner has replaced the fax, only if the package/envelope is a “must deliver by 10.00AM the following day”, second day and time definite trucking service will become the FedEx’s mainstay of domestic business. I believe USPS with their one price up 70lbs “New Priority Mail Box” is a winner and will further erode FedEx’s and UPS’ market share of the domestic express business.

FedEx has already become the best trucking company in America and with Yellow on the brink of bankruptcy they can step in and over the next two years swallow up the lion’s share of both the LTL and FTL business. Fred can start parking up all those gas guzzling DC 10′s and cancel his Boeing orders and put investment into thousands more Freightliner trucks and tens of thousands of 53 foot trailers. If I were him, I would strike a deal with DHL to get out of the international business altogether. As for UPS, they probably need another five years of management meetings to decide what engineering needs to take place to meet the changed business environment. That is why FedEx will pass them by.

With regards to the international operations, Fred Smith will rue the day someone sold him the bill of goods on China. International heavyweight express is history. Excess capacity has seen to that. Every airline in the world, especially the combination carriers are now offering overnight at their standard deferred rates tariffs. Who in the heck is going to listen to a FedEx/UPS/DHL salesman telling the customer he must continue to pay a premium to move his high priority goods? Of course the question is if he has any in the newly evolving economy! Fred, your best bet is to become closer with USPS, cut a deal with them for home delivery and continue to be their line haul operator. Your future is domestic and with many large American corporations bringing their factories back to America, Fred your company has a huge future.

Apart from these low cost airlines that compete with the Greyhound buses, there is not one carrier operating in the black. Never in aviation history have so many modern generation aircraft been parked up, most with little chance of flying another passenger or kilogram of freight ever again. Air N.Z. sent its first 747-400 to the Arizona desert to be broken up for parts! Less than five years ago a 400 series Boeing was considered as high tech as the day the world witnessed its maiden flight in the late eighties. British Airways is down to asking its staff to turn up for work with no pay! Others are moving to four day working weeks. Freight volume to many major destinations is down 40% and rates have never been lower. Some carriers are even dealing on the fuel surcharge in an effort to persuade a forwarder to tender the shipment to them. The airline industry is downsizing because all indications are present passenger travel and airfreight levels may remain with us for years to come, not months.

We can thank China for so much of what we have moved to over the past twenty years and one of the best examples is the airline industry. I call it the lowest common denominator syndrome. The deal is to just keep pricing everything cheaper, then cheaper and then cheaper still, and Elton John’s hit record, “I’m still standing” then takes a special and whole new meaning. This is China’s sinister hope that the west will ultimately capitulate and they will end up owning and controlling everything. So far they haven’t done too badly. Apart from the European Union never allowing British Airways to expand, Europe and America hope the consolidation that has taken place inside their territories will lead to a more viable and stronger industry. Well, you dumb fools who have been behind these changes take a look at where the industry is today. It is totally bankrupt!

Yes, the idiots who have formulated policy over the past twenty five years advocating and creating open skies and total global deregulation are to blame for the almost terminal illness of today’s airline industry, not the present recession. If there is one business that needs government and social oversight (and intervention if needed) it is aviation. Why is there so much safety attached to planes taking off and landing? Because throughout the world air traffic controllers are government employees trained by the government. Who do American carriers fear the most? No, in our litigious society and unlike the health care industry it isn’t the passenger and his ability to sue, it is the FAA. Whenever shortcuts in aircraft maintenance or service standards are discovered, the guilty airline pays a huge price. Remember Value-Jet and the oxygen bottles causing a mid-air explosion of one of their aircraft? Within months the carrier was out of business.

It wasn’t many years ago that a carrier was judged not only by the average age of their fleet, but probably more importantly by the cabin service standards in first class. Those sexily dressed, thirteen year old looking “Singapore Girls” (that’s how Singapore Airlines promoted them as) was the decision-maker for most executives to fly that airline. Most passengers would rather be served by a hot looking Asian girl straight out of high school as opposed to some forty year America Airlines’ and sixty plus year old veteran spilling coffee over you and telling you it was your fault. When the price of a ticket was such that even the back of the bus class would look forward to beautifully presented, appetizing and tasty meals, flying was an awesome experience. Today flying Singapore Airlines is not much different than flying dowdy old Malaysian, a very mediocre experience!

Before China Eastern and Air China take over the world, western governments, just as they have done with the banking industry, have re-regulate the airline industry. Until that takes place, the industry will continue on a downward spiral and eventually will be swallowed up by Beijing, China. Perish the thought!

The merger of British and Qantas makes absolute sense. I would throw Air NZ into the mix too. It looks like BA’s takeover over Iberia maybe a done deal and I see nothing but blue sky should the Qantas-British merger go ahead as well. Sure there will be huge redundancies, particularly in management, but on the other hand maintenance for Qantas will be brought back to Australia, making it a far safer airline. There will be huge economies of scale by in-sourcing so many other parts of the operations that recently have been handed over to outside contractors. Cargo, for instance, is an area where the merging of the terminal operations would be hugely beneficial both cost and service-wise for the new entity.

Unfortunately, there are many regulatory obstacles to overcome and every little tin-pot airline and/or government will be objecting along the European Union. There is no question the merger will be mired in lengthy and costly negotiations that probably will go the same way as the ill-fated BA/KLM (later bought by Air France) merger and the BA/AA alliance. What a crazy world we live in, where an industry that is barely hanging on, cannot lift itself up by the bootstraps to return to viability, because of an emotional issue – nationalism.