“Careful people will not invest in the airline industry”; “Being sustainable as an industry is a pretty low benchmark”; and “There is no end game to remodelling an airline business”.
These were three of the comments from the participants in the CEO Forum at the IATA AGM in Kuala Lumpur. Around the table were Christoph Franz, CEO Swiss; Rob Fyfe, CEO Air New Zealand; James Hogan, CEO Etihad Airways; Robert Milton, CEO ACE Aviation Holdings (parent of Air Canada); and, giving an external view, Lamberto Dini, president Foreign Relations Committee, Italian Senate. The three comments came from Dini, Milton and Fyfe respectively.
Discussing whether or not the airline industry is truly sustainable, Fyfe advocated building a business around flexibility. “Airlines which cannot react at speed will be the ones which get into trouble,” he remarked. Franz agreed, adding, “A high level of flexibility is crucial no matter what size an airline is.”
While earlier in the day, IATA director general Giovanni Bisignani had put forward thoughts about restricting speculation by the market on fuel, those on the panel still believe the market should be left to its own devices. “I don’t think the risk-takers will take on the same levels as last year,” commented Fyfe. “I was sorry it didn’t go to $200 a barrel as it would have cleared out some marginal carriers.”
Moreover, according to Franz, no-one in the meeting room was in a position to do anything about the situation. “Everyone hates it, but we just have to put up with it,” he admitted.
Overcapacity, reported Fyfe, is one reason why fund managers are currently unwilling to invest in airlines. But a question from the floor asked why, if overcapacity is rife, Ryanair can still keep adding routes and continue to make an operating profit?
“By starting from a clean sheet,” responded Robert Milton. “When you don’t have legacy issues such as pensions and union agreements, and you have very low costs, then it works.”
From the audience, JetBlue’s CEO, Dave Barger, reinforced the union point. “We have zero union agreements,” he confirmed, “whereas when Robert was running Air Canada, he had about 47 agreements to deal with.”
Rob Fyfe summed up the challenge for every airline with his comment regarding an ‘end game’. “There isn’t likely to be a single new [business] model and I don’t think there is an end game with regards to remodelling. You need to change constantly to remain ahead of the competition,” he averred.
Bernie Baldwin, editor, Low-Fare & Regional Airlines/LARAnews.net
Kuala Lumpur
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