Is the aviation industry imploding?

[Justchecking]

Well the past week has seen a lot of news about airlines cutting routes, shutting down, in financial strife. Nothing new really except that it's happening at an accelerated rate lately. Is it a case that aviation expanded beyond it's reasonable market? Or has the market shifted? 15yrs ago you had national carriers that flew lots of long routes as well as their domestic network. The biggest and brightest had global reach albeit via a limited number of major airports. Now the flag carriers are pulling back their reach faster than you'd recoil from placing your hand on the hot stove. Are we seeing an industry that went for expansion at all costs and reached the limits of it's market?

It seems lately it's all about alliances and if you're in one of them you can pull back to home turf and maybe one stop beyond, before you hand your passengers over to the next airline. Share the profits and benefit from not flying aircraft and crew to every major destination on the globe. Lower costs, greater destination choices and focus on investing in your home market with lounges and all the other bells and whistles.

Which brings me naturally to Virgin, our once LCC who's decided to play in a bigger pond. Although there hasn't been much international expansion at this stage, do you think we will see a bigger VA offshore presence or will they play it safe like their partners and competitors and limit their international network to the hubs of their alliance partners? If so, does that cap VA's international presence at SIN, AUH, LAX?

And whoops! I've posted this in the wrong forum. If a mod would be so kind....

 

[ermen]

It's all about competitive advantage. Sad as it would be (and I would be sad to see Qantas shrink its international presence), globalization means that on international routes, the Middle Eastern / Asian carriers have their competitive advantage because of higher productivity per unit (whatever that may be). Having a flag carrier always acted as a symbol to the world on the country's progress but it is really not economically rationale. So some thoughts on the subject

1. You don't see places like Hong Kong, Dubai etc attempt to setup say a big cattle industry?
2. Governments should subsidize their international flag carriers (just like how their Navy's and Airforce, or space program) due to some national interest or national pride arguments
3. Strategically, DJ seems to have got it right by operating its own fleet domestically (where it can compete), and virtualizing its international routes with people who are competitive there
4. In any case, I think the Qantas KL solution is half past six - you either do it properly or don't do it at all

 

[The Rok]

National Flag carrying airlines (BA, QF, IB, EI) were all propped up with state funding meaning they could afford to provide loss making routes.

Two things have happened in recent years that have affected that.

1. Low Cost Carriers, LCC's have emerged the provide the same point to point transport without the frills. This has badly damaged full service carriers as the difference in fares can be massive in some cases.

2. Governments have stopped funding these carriers, making them stand on their own two feet. Unfortunately as a result of Govt support over the years they are for the most part burdened with high staff costs, pension deficits, and other impeding overheads that mean they are unable to compete with the newer LCC which have much lower overheads.

The difference in service is not that much really. Checked luggage, FF points, Meals, TV, it really doesn't cost THAT much, but when you combine it with the legacy costs it all adds up. Most full service carriers globally have had to fully restructure just to stay afloat. That usually means redundancies, lower pays and lower conditions. In 10 years all that will be left is a handful of global carriers all combined and very little legacy costs.

It will be an interesting time.

 

[dajop]

Manufacturing moves to China. Call centres, IT and accounts payable move to India. Air services moves to Middle East (and indeed China), or to start up carriers with much much lower cost structures and renumeration of employees. I would hardly say the aviation industry is imploding, merely reflecting what is happening in the broader economy, with jobs shifting to places of the most competitive advantage.

Just because a few secondary European carriers are going to the wall, and AA goes to chapter 11 (the only?? US legacy carrier not to have done so yet), I don't think it's the end of the world.

 

[Justchecking]

Just because a few secondary European carriers are going to the wall, and AA goes to chapter 11 (the only?? US legacy carrier not to have done so yet), I don't think it's the end of the world.

Wasnt implying 'end times' more a natural collapsing of an unsustainable system at work in aviation. In the golden years it seems every airline went for growth, growth and more growth. To the point where there are so many airlines on a single route that not all seats can be filled.

 

[Major]

Airbus are forcasting a huge need for new aircraft up to 2030 and beyond. With expansion in China and India I don't think the industry is imploding but simply reacting to a change in market forces. Economic and financial problems in Europe and a stagnant US economy. An extract from their website shown below

[h=1]Global Market Forecast 2011-2030[/h]

The latest Airbus Global Market Forecast provides an industry outlook through 2030, with an emphasis on such drivers and factors as fleet growth, aircraft size, emerging markets, innovation and environmental impact.
During this period, Airbus foresees the need for more than 26,900 passenger airliners with seating capacities of 100 seats and above, along with over 900 new factory-built freighter aircraft. In the same timeframe, the world’s overall passenger aircraft inventory will more than double from today’s 15,000 to more than 31,500 by 2030.