MONTREAL — The skies are filled with too many airplanes and a long-overdue consolidation of the airline industry can't happen unless national governments loosen restrictive trade rules, says the head of the global air carriers' association.
"There are far too many airlines. We have over 1,000 airlines," Giovanni Bisignani, director general and chief executive officer of the International Air Transport Association, said in an exclusive interview with The Globe and Mail.
Despite steps in the right direction toward truly "open skies," most governments remain overly protectionist and there is a high degree of misplaced antitrust sentiment against much-needed mergers and partnerships, Mr. Bisignani said at his Montreal office.
"The flags on the tail are killing our industry, because this flag that represents a country doesn't allow us to be able to run this industry economically," he said.
Restrictive foreign-ownership rules and lack of progress in reaching an open skies agreement between Europe and the United States are seriously hindering the ability of the struggling airline industry to slash overcapacity and reshape itself as a healthy business with sustainable profit margins, he added.
A Europe-U.S. open skies deal would set the stage for a global liberalization of air transport that would generate an estimated annual profit of $12-billion (U.S.), according to IATA research.
IATA is forecasting that the airline sector's losses in 2006 will narrow to $1.7-billion from $3.2-billion last year and swing to a modest profit of $1-billion to $2-billion in 2007.
Revenues are in the $400-billion to $500-billion range.
According to IATA figures, it would take airline profit of more than $25-billion for investors to get what is considered an acceptable return on capital of 7 to 8 per cent.
Cyclical factors such as high fuel prices and the cost of heightened security measures in a post-Sept. 11, 2001, context have of course played havoc with air carriers' attempts to return to stability.
But beyond those cyclical issues are structural concerns that include the incomplete deregulation of the airline industry and thus a lack of progress in longer-term restructuring efforts, Mr. Bisignani said.
He cited as an example the New Zealand High Court's nixing two years ago of a proposed capacity-cutting partnership between Qantas Airways Ltd. and Air New Zealand Ltd.
But Mr. Bisignani stopped short of calling for the outright liquidation of airlines that run into financial difficulties.
Some critics have said the U.S. industry won't really bounce back until some of the competition is taken out for good, rather than repeatedly resorting to Chapter 11 bankruptcy protection when things go wrong.
Four of the six top U.S. airlines have taken cover under Chapter 11 over the past few years, one of the carriers twice in a two-year span.
"Certain airlines have been successful re-engineering themselves under Chapter 11," he said, citing Montreal-based Air Canada, which emerged from bankruptcy protection two years ago.
"It's a case study in how an airline can be re-engineered and reinvented in a very effective way with a very effective return to profitable service," he said.
Robert Milton, head of Air Canada's parent ACE Aviation Holdings Inc., is the outgoing chairman of IATA.
Among other issues underscored by Mr. Bisignani are the need for greater international harmonization of global air travel rules and for governments to assume their share of the costs for airport security.
The airline sector has been struggling to cope with the fallout from the impact of a host of tumultuous events over the past few years, including an economic downturn, Sept. 11, instability in the Middle East and the soaring cost of oil, the SARS outbreak and breakthrough of upstart low-cost carriers.
Cost-cutting and efficiency efforts in the air carrier sector continue apace and every little bit helps, Mr. Bisignani said.
The negotiation last year of 300 new, more efficient air routes has resulted in a $1.2-billion cut in fuel costs, he said.
Electronic ticketing is being rolled out and is on track for the elimination of paper tickets by the end of next year, which will result in annual savings of $3.5-billion a year, he said.
http://www.globeinvestor.com/servlet...ata18/GIStory/
"There are far too many airlines. We have over 1,000 airlines," Giovanni Bisignani, director general and chief executive officer of the International Air Transport Association, said in an exclusive interview with The Globe and Mail.
Despite steps in the right direction toward truly "open skies," most governments remain overly protectionist and there is a high degree of misplaced antitrust sentiment against much-needed mergers and partnerships, Mr. Bisignani said at his Montreal office.
"The flags on the tail are killing our industry, because this flag that represents a country doesn't allow us to be able to run this industry economically," he said.
Restrictive foreign-ownership rules and lack of progress in reaching an open skies agreement between Europe and the United States are seriously hindering the ability of the struggling airline industry to slash overcapacity and reshape itself as a healthy business with sustainable profit margins, he added.
A Europe-U.S. open skies deal would set the stage for a global liberalization of air transport that would generate an estimated annual profit of $12-billion (U.S.), according to IATA research.
IATA is forecasting that the airline sector's losses in 2006 will narrow to $1.7-billion from $3.2-billion last year and swing to a modest profit of $1-billion to $2-billion in 2007.
Revenues are in the $400-billion to $500-billion range.
According to IATA figures, it would take airline profit of more than $25-billion for investors to get what is considered an acceptable return on capital of 7 to 8 per cent.
Cyclical factors such as high fuel prices and the cost of heightened security measures in a post-Sept. 11, 2001, context have of course played havoc with air carriers' attempts to return to stability.
But beyond those cyclical issues are structural concerns that include the incomplete deregulation of the airline industry and thus a lack of progress in longer-term restructuring efforts, Mr. Bisignani said.
He cited as an example the New Zealand High Court's nixing two years ago of a proposed capacity-cutting partnership between Qantas Airways Ltd. and Air New Zealand Ltd.
But Mr. Bisignani stopped short of calling for the outright liquidation of airlines that run into financial difficulties.
Some critics have said the U.S. industry won't really bounce back until some of the competition is taken out for good, rather than repeatedly resorting to Chapter 11 bankruptcy protection when things go wrong.
Four of the six top U.S. airlines have taken cover under Chapter 11 over the past few years, one of the carriers twice in a two-year span.
"Certain airlines have been successful re-engineering themselves under Chapter 11," he said, citing Montreal-based Air Canada, which emerged from bankruptcy protection two years ago.
"It's a case study in how an airline can be re-engineered and reinvented in a very effective way with a very effective return to profitable service," he said.
Robert Milton, head of Air Canada's parent ACE Aviation Holdings Inc., is the outgoing chairman of IATA.
Among other issues underscored by Mr. Bisignani are the need for greater international harmonization of global air travel rules and for governments to assume their share of the costs for airport security.
The airline sector has been struggling to cope with the fallout from the impact of a host of tumultuous events over the past few years, including an economic downturn, Sept. 11, instability in the Middle East and the soaring cost of oil, the SARS outbreak and breakthrough of upstart low-cost carriers.
Cost-cutting and efficiency efforts in the air carrier sector continue apace and every little bit helps, Mr. Bisignani said.
The negotiation last year of 300 new, more efficient air routes has resulted in a $1.2-billion cut in fuel costs, he said.
Electronic ticketing is being rolled out and is on track for the elimination of paper tickets by the end of next year, which will result in annual savings of $3.5-billion a year, he said.
http://www.globeinvestor.com/servlet...ata18/GIStory/
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