Andrew Charlton Apr 24, 2020
Andrew Charlton Contributor Aerospace & Defense I am an opinionated observer of the aviation industry’s foibles.
The pandemic has been rough for IATA, the lobbying body for international airlines. It has taken its fair share of opprobrium for the way it is defending its members’ interests but it deserves praise for telling the truth on one point. Its Director General has said the unsayable: In the post Covid-19 world, airfares will go up.
Of course they will. Welcome to the new world.
IATA is yet to put its name to a number of other truths, and has helped spread a number of other fantasies, including that one where they encourage you to pretend things will get back to “normal” at the end of this, but on airfares, at last, they are right.
Why will airfares go up? Because in the new world, we will be in a new world of airline economics. Currently, all around the world, governments unable to face the unpalatable truth that we will never get back to normal, have been pouring money into airlines. The apogee of this stupidity is in the U.S., where the airlines are being supported until September if they continue to operate to a certain degree “as normal,” maintaining a minimum level of air service nationwide. The U.S. Treasury can afford this folly, in that it has a freehold title over some very well used printing presses. Whether Italy, Portugal, Romania and indeed Denmark and Sweden can afford their decisions to keep on bailing until we repair the hole is another matter. Because the hole is below the waterline.
So we can throw as much money as we want at the issue, all we will do is stave off the inevitable.
To date the thinking has been that this is a liquidity issue, so hope keeps clinging on in our psyches. We will not be able to see our future clearly until we stop that. We must rid ourselves of hope so that we can build a new industry. Apart from the incumbents, does anyone really want to go back to the ‘good old days’?
One of the slides IATA is currently using to describe how much the industry needs more and more of your money, clinging to wreckage and hoping against hope, shows that there were 30 profitable airlines in the world before Covid-19 hit.
The fundamental folly of aviation economics is clear to see. Any ill-disciplined, poorly-managed or desperate airline can put fares into the market priced at marginal, rather than fully-costed, rates and the rest of the industry is obliged to follow. Passengers, trained for years to look only to price, will look only to price. In the U.S., after 40 years of this folly, the industry finally found a place where four airlines controlled 90% of the market. Airfares went up, and airlines became dependably profitable. Then, in a stroke of genius, the airlines trained their passengers to absorb misery and saved huge amounts of money by making the flight as uncomfortable as possible. Social distancing will not be all bad if it puts an end to that.
We have the hundreds of unprofitable airlines we do because we have a regulatory framework that comes straight out of 1944. Nationality is everything. There is no such thing as an international airline, only airlines which sometimes fly to other countries. If we had 30 global airlines, competing globally, imagine how much better the world would be.
Fares are going up, and in the short term the hundreds of erroneously bailed-out airlines will desperately give us another real life example of the flaw of aviation economics, but then they will finally disappear. And then, finally, we might be ready to have a modern aviation industry.
And what a sight that would be. The European Union’s single aviation market has shown us what getting rid of national restrictions can do to unleash commercially minded and innovative airlines in one region. We need to take that global. Airlines should be allowed to offer integrated customer service, linking their operations between airports in their networks to distinguish their services from their competitors. Airlines operating hubs in America, Europe, the Middle East and Asia, can offer customers the opportunity to travel the globe on one airline.
We need modern air traffic control systems that span national borders and use digital technology. Currently we control aircraft with technology that existed before 1944 in a fragmented hotchpotch of systems and processes. Airports would compete to get those airlines to fly to their location by offering services that make the airlines’ offerings even more attractive to their passengers.
The current regulatory structure puts the state at the heart of the aviation system, and to the extent we need clear, coordinated and rigorous safety, security and operational standards, that is correct. But we now have the chance to put the passengers in the centre of aviation by requiring international airlines to genuinely compete, offering commercially competitive services that are not just about price but also about service delivery, airport access and operational excellence.
For that to happen we need to be honest. IATA has made a good start.
