18 July 2008

Reflections on 500 Blog posts - THE USA Market Editoria

OK so we are celebrating 500 blog posts for The Professor. I was searching for something pithy to dive into. Professor Dingley sent me a suggestion but I will concentrate on one issue that I think affects the general health of the Aviation Travel and Tourism ecosystem in general. The USA market and the legacy airline playerss. So for the celebration of our 500th Blog here is my take.

We are experiencing a fundamental shift in the center of the Universe. The US market has reached a level of maturity where growth is no longer guaranteed. The stunning growth in China. India and the Middle East/North Africa markets coupled with the resurgence of markets such as even in old Europe need to be factored into the success or failure of the market sector and industry as a whole. The more jaded amongst us would say that the US market and its players are finally getting their comeuppance. However an isolationism type attitude will not benefit anyone. We live in a society and its attendant economy that is now inextricably linked. One commentator called it a “continuum” rather than a whole homogenous environment. These are still lessons that are lost on airlines and other businesses based in the USA. Clearly we have seen the fundamentally broken model of the US legacy/network carrier fail to fix itself following 9/11 and the billions in losses and aid that was poured into the market. A chance to right the wrongs under the then lenient terms of the US Chapter 11 rules was clearly – in hindsight – missed. Distribution saw the collapse of the US off-line travel agency model and the attendant fall in value of the GDS. Yet the strive to control the market vs addressing the broken internal model structure of these businesses seems to be the defining characteristic of the US legacy airlines. What makes Ryanair tick so profitably? What makes Southwest the world’s largest airline by passengers? What enables consistent profits at the Asian powerhouses of SQ and CX? Why cannot the US airlines achieve these fundamentally sound commercial bases of their operations? Rather than fundamentally changing the way they do business, the US airlines have shown themselves to be inept and instead only good at copying the characteristics of the successful players. It seems that Lemmings still rule.

If we examine the success of Boeing and Airbus – over 500 aircraft orders in 5 days at the just concluded Farnborough 2008, we can see that there is still a good model at one end of the value chain. Perhaps now they too need to get into the game and address some of the ills of the USA market. Both companies have sources to capital that in the past have been used to stimulate sales. Now perhaps they should go to the well again and find ways to help the US industry to re-equip. Average fleet age for the US legacy carriers is not looking too pretty. With the so called Boeing Lock up commitments made by CO, DL and AA still over 2/3rds of their life to run – perhaps this is a time to open up some competition and get the new planes into the US market. But this is not the only fundamental element that is broken. For example the responsible emissions policies and scarce resource policies are not there in the US market. I am not a fan of the heavy hand of regulation but aviation is by definition a regulated and scarce resource. Perish the thought that I would be supporting Bob Crandall’s re-regulation calls. It is clear that the Bush Administration’s policy on commercial passenger aviation will go down as one of the stunning failures of its tenancy of the recent past. The new administration whoever that maybe needs to rethink the ground rules for commercial aviation policy – and fast. Not least of which is to open up the US Market to international competition starting with full NAFTA unilaterally and a removal of the ownership regulations. Full Open Skies with 5/6/7/8/9 Freedoms would be too radical but for the downtrodden US based consumer – there needs to be better usage of resources and a better mechanism to stimulate competition.

So we are clear – I do not believe that oil is the core problem affecting the US Airlines market sector. Rather the failure of successive managements to address the facts that:

1. That oil is a resource – that it is scarce
2. There needs to be a full accounting for the environmental cost of the services
3. Airways and Airports are a scarce resource
4. Transportation is a critical part of the eco-system of commerce
5. That the structure of the airline pricing has to change to match the reality of the economics of airlines
6. The need to educate the consumer on how to purchase in that environment
7. And yes the ability to manage the complexity is well within the capability of airline managers, they are not victims here

I hope that everyone reading this will use the opportunity to reflect. A wise person once said “Plus Ca Change” lets hope the people who need to deal with this can wise up and provide a way out of here.
Right now I am not optimistic. But I have seen many people be resilient and recover from disastrous situations. There is a crisis in the industry but stop whining and start doing would be the right way to deal with it.

Best of luck to all concerned. I wonder what my 1000th post will be!


The Professor.

1 comment:

David said...

a tip o' the hat for your kind mention! You rightly deal with a more central issue!