| The biggest danger facing the global
airline industry is not the effects of terrorism, war, SARS and economic
downturn. It is that these blows, which have helped ground three national flag
carriers and force two American airlines into bankruptcy, will divert attention
from the inherent weaknesses of aviation, which they have exacerbated. As in the
crisis that attended the first Gulf War, many airlines hope that traffic
will soon bounce back, and a few catastrophic years will be followed by
fuller planes, happier passengers and a return to profitability. Yet the
industry's problems are deeper--and older--than the trauma of the past two years
implies. As the centenary of the first powered flight approaches in December, the industry it launched is still remarkably primitive. The car industry, created not long after the Wright Brothers made history, is now a global industry dominated by a dozen firms, at least half of which make good profits. Yet commercial aviation consists of 267 international carriers and another 500-plus domestic ones. The world's biggest carrier, American Airlines, has barely 7% of the global market, whereas the world's biggest carmaker, General Motors, has (with its associated firms) about a quarter of the world's automobile market. Aviation has been incompletely deregulated, and in only two markets: America and Europe. Everywhere else, governments dictate who flies under what rules. These aim to preserve state-owned national flag-carriers, run for prestige rather than profit. And numerous restrictions on foreign ownership impede cross-border airline mergers. In America, the big network carriers face barriers to exit, which have kept their route networks too large. Trade unions resisting job cuts and Congressmen opposing route closures in their territory conspire to block change. In Europe, liberalization is limited by bilateral deals that prevent, for instance, British Airways (BA) flying to America from Frankfurt or Paris, or Lufthansa offering transatlantic flights from London's Heathrow. To use the car industry analogy, it is as if only Renaults were allowed to drive on French motorways. In airlines, the optimists are those who think that things are now so had that the industry has no option but to evolve. Frederick Reid, president of Delta Air Lines, said earlier this year that events since the September 11th attacks are the equivalent of a meteor strike, changing the climate, creating a sort of nuclear winter and leading to a "compressed evolutionary cycle". So how, looking on the bright side, might the industry look after five years of accelerated development? |