The recent massive rises in aviation fuel have already resulted in the failure of some smaller carriers.  For example, the failure of business only models of Eos, Maxjet and Silverjet resulted from their model becoming unsustainable due to the cost of the fuel. 

Even for larger carriers, trading is extremely difficult at the present time.  BA explained these times as the most challenging conditions ever, when announcing a profit slump of 88% for its first quarter.  The Air France/KLM Group announced a slump of 44% for its 2008 first quarter.  Doom and gloom merchants in the airline sector predict a series of consolidations between airlines as a method of survival, as well as insolvencies, particularly of some airlines who are only continuing with the support of their own domestic governments by the state aid they receive.  Smaller less specialist airlines are identified as unlikely to survive.

Air Mergers and Alliances

BA has begun merger talks with Iberia, which could create Europe’s largest airline.  Some competitors argue that this could give BA even more control over landing slots at Heathrow by increasing its present 42% share to 44.5% and distort fair competition by creating a new more powerful dominant player.  At the same time, BA is in talks with American Airlines to see whether a more formal partnership is possible.  Earlier attempts at a relationship fell foul of competition regulators, particularly in connection with the transatlantic routes which they would dominate, before those routes became the subject of the open skies policy when the US/UK Bilateral Agreement was dismantled by the EU.  Since Open Skies, there may be a more positive negotiation with the regulators given the real competition that now exists.

The BA/AA alliance could also include Iberia if the merger proceeds.

There is no doubt there will be further consolidations within the market, particularly between some smaller airlines who have less ability to manage a downturn in demand and increased cost due to rising ticket prices.  Larger airlines can consider downsizing by pulling out of routes and grounding aircraft.

For the business passenger these radical changes may give rise to the following areas of concern: -

Scheduled airline failure

The Air Travel Insolvency Protection Advisory Committee (ATIPAC) advises the Civil Aviation Authority and has again voiced “significant concern” over the lack of any financial protection for passengers booking with a scheduled airline – particularly those not using a credit card.  This compares unfavourably with ATOL protected tour operator airfares where pre-payments for tickets are protected.  Many TMC’s are offering protection to their customers by offering scheduled airline failure insurance.  Many offer this as part of the financial services they offer to corporate clients.  There could be big losers in the event of a series of airline insolvencies.

Competition Law Issues The consolidation of the airline sector must raise concerns about ticket pricing and charges where there are likely to be fewer but larger competitors and some with considerable dominance in certain airline markets.  We have already seen collusion uncovered and unlawful price fixing exposed, and every effort must be made to ensure that prices remain competitive and transparent. 

Airlines that go down the consolidation route will be able to make significant savings on overheads and staff costs.  However, tougher economic times must not lead to any compromise of aircraft maintenance and safety issues and reliability of scheduled services should be maintained.

PNR Data Disclosure Data protection, and the general protection of personal data is enshrined in European law and is part of our culture.  However, the continuing terrorist threat seems to have resulted in a dilution of these rights where data is required by Government agencies, when dealing with organised crime and terrorists.  The Government Immigration Minister is to recommend the disclosure of passenger details to Government agencies for this purpose, whether by aircraft, ferries or Eurostar, and for wider purposes.  The data is to be made available to Government agencies dealing with a wider range of crime and administration issues, including immigration, customs and Inland Revenue.  It is also proposed that the ability to scrutinise PNR’s and other data on passengers be extended beyond international journeys to also include passengers travelling within the UK on domestic flights. 

Given the Government’s record of losing personal data on a grand scale, business travellers must wonder how secure their personal data will be.