Secular Café: Airline problems

Secular Café For serious discussion of politics, political news, policy, political theory and economics and events happening round the world

Airline problems Aug 28th 2012, 12:15 The Economist has a tale of woe. http://www.economist.com/node/21560866 This article is all about the fight between the airlines and the GDS ("global distribution systems") I found it nigh on impossible to select quotes without losing the story, so please read the whole article. This article looks at threats to the airlines. http://www.economist.com/node/21556960 Quote: The euro zone's troubles have already pushed many European carriers into the red. IATA predicts that there is a "serious risk" of bankruptcies. Indeed, Malev and Spainair, two fair-sized European airlines, have already gone bust. Several big airline groups, notably Air France-KLM, are trying to make deep cuts. The global industry's after-tax profits are forecast to fall from $7.9 billion in 2011 to $3 billion this year; that is just 0.5% of revenue (see chart). And if the euro collapses? "It would be worse than 9/11," says Willie Walsh, the boss of IAG, which owns British Airways and Iberia... ...the industry faces three risks besides a European meltdown. First, an oil-supply shock—resulting from an Iranian crisis, say—would send fuel prices sharply up again and wipe out profits. Some airlines, including KLM, are investing in biofuels, but full commercialisation looks a decade away. Others use financial hedges, but these are pricey and can backfire if oil prices drop. Delta is even now finalising a deal to buy an oil refinery. The second risk arises from the flood of new planes due to be delivered shortly. Production snags at both Airbus and Boeing have kept capacity tighter than planned. If everyone uses their new planes to expand capacity, rather than to replace clunkers, there could be a lot of empty seats. The final threat pits ghost against host. The European Commission's inclusion of greenhouse gases from aviation in its emissions-trading scheme (ETS) is opposed by over 30 countries, of which China is the most defiant. If a compromise is not found, European countries must levy hefty fines on offenders and may seize aircraft—which could set off a trade war. On June 12th the China Air Transport Association, which represents Chinese carriers, said that China would retaliate with similar measures.

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