Aviation Industry- Survival of the Fittest

The future of the airline industry will see a fundamental shift in tandem with the shift of economic activity from the Atlantic to the Pacific. This fact is a foregone conclusion seen by how countries in the Pacific are emerging from the debris of the financial fallout of 2008/2009. The centre of gravity of air traffic, people and cargoes, will be in the Pacific.

The thrust of many governments will be to promote and enhance trade and tourism rather than protecting the commercial interests of national carriers. Governments may fly into some headwind with such policies of open sky. Airlines can grow only by merging interests through equity swaps or acquisition or simply through routes sharing. Carriers must play in all the segments of the price spectrum - SIA at the high end, Silk Air at the middle and Tiger Airways at the low end.

Bilateral and multilateral route exchanges will be reconfigured and a new aviation framework will emerge with acquisition and merger of airlines. JAL needs to start on a clean slate after its bankruptcy filing by seeking its banks to forgive a hefty debt which will otherwise sink the airline. With a clean slate and new partnerships, JAL may transform itself from a gargantuan outfit of inefficiency and profligacy into a leaner and sharper airline capable of competing in a global airline industry beset by turmoil.

The airline industry has been plagued by several factors such as overcapacity, commoditization of offerings, cutthroat price rivalry exacerbated by the entry of low cost carriers, and occasional bout of terrorism and air disasters that will send the whole industry into tailspin. Oil prices’ wide gyration also added to the unpredictability of the industry and the only certainty is to hedge against movement. Even SIA suffers the brunt when the price of oil goes the other way and that impacted profitability. SIA is positioned as a premium carrier with high levels of innovation and excellent levels of service but the recent crisis saw passengers moving to the back of the plane. SIA has consistently outperformed its competitors throughout its history, in the context of an unforgiving industry environment. However, SIA is not likely to be returning to profitability soon, unless there is a spike in traffic and after it has made some capacity adjustments to certain routes. The premium end of the market offers scant hope of any recovery in yields for all those front-end seats. The low cost carriers are likely to be the bulk carriers bringing passengers to cities from various established hubs and Singapore must thrive to become such a hub point.



The open sky should not be clouded with selfish national interests for carriers to survive.