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Predictions for 2003
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| 24 December 2002 |
By Philip Butterworth-Hayes
Few of the voters who elected President Bush could have possibly realised his socialist leanings. Yet his willingness to allocate government funds to prop up the ailing US airline industry - admittedly in somewhat unusual circumstances - is unheralded in even European states, where centre-left governments have for the past 20 years been shedding government control of national airlines at a rate of knots.
The key question for the US airline industry is: just how much of a socialist is President Bush? Could he, would he, be prepared to nationalise the industry to protect it from imminent collapse?
This possibility was raised by US Air Transport Association President Carol Hallett in late November, when she said that unless some sort of drastic action is taken to rebalance the airline industry it would witness during the next few years a spiral of bankruptcies. Pre-tax US airline losses for 2002 would be more than US$9 billion with the nine largest US carriers carrying more than US$100 billion in debt, but with a combined market capitalisation of only US$15 billion.
It looks like 2003 could turn out to be a do or die year for some US airlines - whereas outside the USA, a generally strong recovery is underway.
Broadly, there are four types of airlines: into the abyss, severely challenged, coping and thriving. The two extremes are easy to identify; in the USA, United Airlines and US Airways are in chapter 11 and if and when they emerge they will be much smaller and leaner. At the other extreme, Lufthansa, Ryanair, Emirates and Japan Airlines are on track for huge profits, again, in 2003. The real trick is to identify which of the world's airlines facing one crisis or another will have profitable options in 2003 (the "coping" airlines) and which carriers have little room to manoeuvre themselves out of a continuing or further crisis ("severely challenged").
The key to success, it seems, is to control costs. The effectiveness of these programmes can turn around an airline, like British Airways, in a few months; without proper controls events can soon conspire to push costs higher than forecast - such as Swiss.
* On 18 December 2002, SAS signalled its intention to target private travellers with its announcement of entry into the low-price market. The airline will form a new business unit with its own identity and livery. Flights will be undertaken by existing SAS aircraft and crews. The new unit will fly on some of SAS's existing low-frequency routes as well as new destinations in Europe.
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