Fly hard

For the air travel business and aviation industry, the year 2008 will be remembered for all the wrong reasons, and will leave us with many challenges, writes Amirah Ibrahim

---

From a financial point of view, this year was tough for the air travel. The biggest trouble for 2008 was the global financial crisis.

Whereas the meteoric rise and fall of the price of oil was the leading story for the airline industry for much of last year, the main headline that emerged in the final months of the year was the erosion of passenger traffic due to the recession.

While things were bright in the first three-quarters of the year the turn of events in the third quarter resulted in an overall slideof business in the last quarter of the year.

The troubles for airlines in 2008 began when the price of a barrel of oil soared to a record high of $147 in July, causing a major cash crunch for airlines.

Airlines cut jobs, made dramatic reductions in capacity, sold aircraft, raised fares and imposed new fees for checked baggage and other once-free amenities to stem the bleeding from losses.

Global airlines have had to watch themselves like hawks to ensure they are not swallowed up. Small carriers folded or filed for bankruptcy. Even some big carriers were thought to be in danger of bankruptcy before oil prices turned in the opposite direction, plummeting to less than $40 a barrel in the final days of the year.

But instead of rejoicing, airlines faced a new threat in the form of fewer people buying tickets as the global financial crisis took hold.

The global economic downturn will be the major issue facing the travel trade and therefore airlines will continue to focus on controlling costs.

Things got worse as air traffic dropped and so did the number of people flying on each aircraft. IATA's predictions for 2009 are for global losses estimated at $2.5 billion, down from $5 billion in 2008. As the chief of IATA Giovanni Bisignani has put it: "The industry is in intensive care."

The recession expected to hit sales, with more and more people looking to save money and not travel abroad in 2009. Travellers in turn are looking forward to a battle of the airlines.

In fact, it's hard for airlines to raise ticket prices during a recession. During 2008, fares yo-yoed from very high to pretty high but at no point could one see prices lower than those of 2006.

Even if published fares stay the same, there will be fewer cheap seats than ever, as smaller jets are substituted for bigger ones and routes and flights are reduced.

Airliners, particularly low-cost ones, are heading for a price war as they already started slashing fares by 25 per cent in a bid to pull in more passengers as the recession bites.

If oil prices soar again or if travel demand falls dramatically, we may see more airline failures.

The lesson for the air travel trade is that every one in the business should learn to work on calculated risks and learn to anticipate the worst. Airlines have to move forward, work harder and smarter to cross the bridge. Industry partners have had to adjust to the situation and work around it.

The global financial situation will have taught anyone in business that they are never immune. While history has taught us that downturns don't last forever it will be a while before the air travel business starts to hear more positive news.