The ups and downs of the airline industry

Aviation has had an eventful 12 months. Violet Holloway gives you a bird's eye view
Commercial awareness
Business analysis

In April this year, a series of volcanic eruptions on an unpronounceable glacier in Iceland sent clouds of ash into the atmosphere, grounding flights across Europe. Thousands of travellers were left stranded at a cost to the global airline industry of approximately £2.2 billion, which was already down in the dumps.

Lows and highs for BA

In 2010 strikes, continuing terrorist threats, government intervention in prices and the recent engine problems experienced by A380s, part of the Airbus fleet, have all thrown a spotlight on the business, and the past 12 months have been tough - in particular for British Airways.

The airline has found itself engaged in a drawn-out battle with BASSA (the branch of the Transport & General Worker's Union exclusively for BA cabin crew) since 2009, with a great deal of boardroom debate doing nothing to resolve the dispute. The disagreement began when the carrier posted record losses and entered into talks with Spanish national airline Iberia over a merger, which was eventually agreed in April of this year. BA declared that in order to meet the conditions of the deal and to avoid crippling losses they would have to implement cost-cutting measures including freezing the wages of cabin crew, and reducing the numbers of cabin crew on board. Unions argued that the money could be saved through part-time working or voluntary unpaid holidays, but the airline refused to countenance their suggestions, setting in motion a chain of proposals, refutations and legal wrangling which has resulted in a series of strikes (at an estimated cost of over £154 million). And still no deal has been reached.

What perhaps came as a surprise is that despite industrial unrest and Eyjafjallajökull, BA recently posted profits of £158 million, putting them back in the black for the first time in two years. It is an impressive rise from last year's disastrous figures, and chief executive Willie Walsh has received a pat on the back to the tune of £1.65 million and a 12 per cent pay rise.

Down to earth

However, statements made directly after these shareholder-pleasing tidings highlighted a another problem for BA, this time faced by the industry as a whole. Following the profit announcement, Walsh aired his views on the government's recent increase to Air Passenger Duty. Ostensibly intended to act as an environmental levy, it has drawn howls of complaint from airlines and travel agents, despite starting at a modest £12 for flights to the UK and Europe, (although it could rises to £170 for longer journeys). Walsh called the increase an "attack on business", and said that it would also cause damage to tourist-dependent economies such as those of the Caribbean.

In general, 2010 has seen an ongoing stream of disputes between airlines and a wide range of other parties, from staff to governments - and in September the budget carrier Ryanair added Belfast airport to the list, pulling its custom entirely from it after a long-running argument about a proposed runway extension. They also threatened to withdraw their business from Shannon airport unless a 33 per cent increase in passenger charges was reversed. This move was seen as rather hypocritical in the light of Ryanair's own price hikes, particularly their vilified "toilet tax", which will see customers paying £1 to use the facilities on flights when it is introduced next year. Chief executive Michael O'Leary defended the move on the grounds that it will fund new "standing seats", which will be available for a cost of £5 on short-haul flights.

Oiling the wheels

It must be remembered that the factor which probably affects the profits of the airline industry more than any other is the price of oil. Airlines suffered during 2008 as oil prices rocketed, while their subsequent crash reduced BA's costs more than all of Walsh's belt-tightening measures put together. Airlines' fortunes in the future will depend in no small part on the often volatile prices at which they can acquire this often volatile commodity.

Fears for flying

On top of these commercial trials and tribulations, airlines have also have the ongoing issue of passenger safety to consider. Travellers from Singapore to Sydney had a frightening moment in early November when one of the four engines on Qantas Flight QT32 exploded. After an emergency landing, the airline immediately grounded all six of its Airbus A380 superjumbos for a series of rigorous checks, which eventually found the fault in a component of the Rolls-Royce-built Trent 900 engine.

Despite this scare, fears over potential mechanical failure have this year taken a backseat to concerns over the vulnerability of commercial aircraft to terrorist attacks. Nearly ten years on from the events of September 11, 2001, the prospect of similar incidents stills loom large and airport security measures have increased year-on-year. On October 29, packages containing explosives were discovered in the hold of two cargo planes bound for the US, one in Dubai and one in the East Midlands, which sparked a fresh wave of security measures.

However, only three days earlier, British Aviation Authority chief Colin Matthews backed BA chairman Martin Broughton's comments criticising the levels of scrutiny faced by passengers every day. Calling some of the measures "redundant", Broughton said there was no need to "kowtow to the Americans every time they wanted something done." Perhaps surprisingly, their calls for an end to "redundant" safety checks were also echoed by passenger groups across the Atlantic. Geoff Freeman of the US Travel Association said that what was needed was "a long-term vision for aviation security screening rather than an endless reaction to yesterday's threat."

Back on the up

Yet despite oil price volatility, strikes, volcanoes, disputes, wearisome security processes and the rise in APD, travellers continue to take to the air. Over the last ten years demand for air travel increased over 50 per cent, although there was a noticeable dip in 2009 when the recession bit into holiday spending. In America, the numbers flying have increased steadily since 2002, and in Britain, according to statistics from the Air Transport Association, a strong recovery in passenger figures took place this year. It seems that the fortunes of commercial aviation are on the rise again - after all, it peddles a service that, despite the efforts of environmental campaigners, individuals and businesses in today's world look unlikely to be willing to forgo.

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