Think Again: Airlines

Bankruptcies, terrorism, and high oil prices have rocked the airline industry. Customers complain about bad service and long lines. Are airlines doomed? Not a chance. The global economy cannot function without air travel. But the industry that emerges from the coming shakeout will need a whole new set of wings.

BY GIOVANNI BISIGNANI | JANUARY 4, 2006

"The Airline Industry Is Going to Collapse"

Never. Given the headlines of the past few years, it's not surprising that people think airlines are on the brink of disaster. Household names such as Canadian, Swissair, and TWA have disappeared. During the past five years, the industry has hemorrhaged more than $1 million an hour, racking up losses in excess of $43 billion. But total collapse is not on the horizon. More than 2 billion people fly each year, a number that grows by nearly 6 percent annually. More than $3.2 trillion worth of cargo is transported by air each year. Simply put, globalization, as we know it, would cease without the airline industry.

It is true, however, that many airlines are limping along. Today, 50 percent of the U.S. airline industry has filed for bankruptcy, including major players such as Delta, Northwest, and United Airlines. Last year alone, North American carriers lost well in excess of $8 billion. But the rest of the world doesn't have it so bad. European airlines are breaking even, with some even turning a profit. And Asian carriers are actually enjoying their fifth consecutive year in the black, with $1 billion in profits in 2005. To be sure, in a competitive industry with tight profit margins, every airline faces challenges staying aloft. But U.S. airlines have it far worse than most, because of hypercompetitive domestic markets and a labor force that is reluctant to change with the industry.

Countless businesses have been buoyed by the lowering of trade barriers, but airlines suffer because they still face enormous hurdles. The airline industry was among the first to operate globally, but it is still waiting for the benefits of globalization. Do we purchase cars or medications based on the nationality of a company’s shareholders? If an Egyptian can spend a night at a Singaporean hotel in Hamburg, why can't an Australian fly a Brazilian airline from Mexico City to Miami? Airlines support 29 million jobs and $2.9 trillion worth of economic activity worldwide. Few industries so vital to the health of the global economy remain so restricted by archaic ownership rules.

 SUBJECTS: GLOBALIZATION, BUSINESS
 

Giovanni Bisignani is director general and CEO of the International Air Transport Association, a trade organization that represents 265 commercial airlines, including most major carriers.