Analyst Says Possible Industry Bailout Clouds The Horizon
Max Sukkhasantikul, Commercial Aviation Consulting Analyst at
Frost & Sullivan contends that airline "test flights" for
operation in volcanic ash are more of a publicity stunt - as the
flights do not have any testing equipment and they needed to be
flown on those segments regardless.
The European aviation industry has become crippled by the
volcanic ash blown across from Iceland on 15 April, resulting in
the cancellation of thousands of incoming, outgoing, and flights
within Europe. The safety precaution carried out immediately
affected the European airline industry and the traveling public,
and because it is something the industry has never been prepared
for, airlines involved collectively are losing over $200 million
per day, as estimated by IATA. Sukkhasantikul believes the
estimate by IATA is less than reality, as British Airways alone is
losing approximately $40 million per day, and even airlines outside
Europe such as Emirates, losing $10 million per day. The 5
U.S. carriers operating to Europe are also losing a daily rate of
approximately $20 million collectively.
It was a safety precaution to ground flights as the volcanic ash
can jeopardize the safety of a flight, with the possibility of
engine malfunction as well as flight instruments reading inaccurate
data, causing pilots to make decisions based on incorrect
data. Sukkhasantikul assesses that the immediate effect when
air travel restrictions came in, Europe saw 27 per cent of its
flights grounded, mostly in Scandinavia and the United
Kingdom. Since then, the numbers of cancelled flights
increased to 84 per cent on its fourth day, across 24 European
countries. Conditions are slowly improving, with up to 50 per cent
of flights operating, but the effect will still be similar to the
effect on its second day, 16 April, when up to 60 per cent of the
flights were cancelled.
The lift in travel restrictions Monday came as airlines were
increasingly pressuring governments to allow flights to operate as
normal. Sukkhasantikul contends that the public are being
deceived, as airlines such as KLM, Lufthansa, and British Airways
have conducted so-called "test flights" of which they claim the
volcanic ash has not jeopardized flight safety. These
flights, in reality, are far from test flights - more of a
publicity stunt - as the flights do not have any testing equipment
and they needed to be flown on those segments anyways - for example
the British Airways flight to Cardiff needed to be flown regardless
as the aircraft needed to conduct maintenance there. The
Lufthansa and KLM "test flights" were merely repositioning of
aircraft to best resolve the crisis once the flight ban is
lifted.
Flying laboratories have been conducted by scientists with
results that are still worrying, justifying the continued flight
ban. Sukkhasantikul points out that the legacy, bureaucratic
system in place to handle such a situation is still up to the
relative governments whether a flight ban should be imposed or not,
questioning the possibility of governments lifting flight bans for
political purposes, given public outcry based on so called "test
flights," is of great concern as it could jeopardize public
safety. A new risk assessment system based on factual,
scientific data, rather than publicity stunts by the airlines,
should be considered to mitigate the problem.
NLR Test Flight Photo
It goes without mention that the effect on the airline industry
is real, and it is severe. While major airlines are able to take
the impact on their financials, it is the smaller ones and less
established carriers that will suffer the most as they do not have
the luxury of extended borrowing facilities and cash as the
others. Sukkhasantikul claims that airlines such as Lufthansa
and Air France-KLM have the upper hand as they have shares - 23.1
per cent and 11.6 per cent, respectively - in the multi-billion
dollar, global airline distribution company, Amadeus. They have had
intentions to sell those shares this year, enabling them to have a
financial buffer from the volcano impact of several hundred million
dollars.
While airlines have arranged special flights where possible,
European governments are cooperating to have a short term
solution. The United Kingdom, for example, has agreed with
the Spanish Government to have its incoming/outgoing passengers and
freight channeled through Spain, followed by road/rail
transport. Amidst the chaos, the aviation industry is
pursuing the possibility of governmental bailouts similar to the
financial sector in recent times. Sukkhasantikul clarifies
that the reality of such a bailout is feasible; however, it may be
difficult to justify as it is not only the aviation industry being
affected - almost the entire economy of Europe, with other
industries which may also need bailout. On the bright side,
this occasion has proved to activists trying to curb the growth of
the airline industry that the aviation industry will continue to
have a significant impact on the global economy.