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Friday, April 23, 2010

Blasting the airlines to bits

Ash from the Iceland volcano eruption has cast a further cloud over the air travel industry which is already besieged by tonnes of problems.

IT WAS an event waiting to happen as volcano Eyjafjallajokull had been smouldering for weeks. It finally erupted last week sending tonnes of ash into the skies and closing down the busiest air space in the world – forcing air travel in Europe to a standstill.

On Wednesday, the skies finally cleared or at least cleared enough for planes to fly and millions of passengers began to move again around the world. The knock back effect of the closure of the European skies was felt all around the world in this modern globalised era.

Immediately, the airlines began to count the cost of the lockdown. The International Air Transport Association (IATA) estimated that the crisis cost airlines more than US$1.7bil in lost revenue from the six days of closure.

The association also estimated that 29% of global aviation was impacted by the closure of European air space, affecting 1.2 million passengers a day. In short it was the worst airline industry crisis ever, even eclipsing 9/11 when US airspace was closed for three days.

IATA chief Giovanni Bisignani even predicted that at least five European airlines risked bankruptcy as they had run out of cash, and were hoping that the European Union would help with some handouts.

For an industry that lost US$9.4bil last year and is forecast to lose a further US$2.8bil this year, this crisis is devastating, as it hit carriers that were in their worst financial situation. European carriers were already expected to lose US$2.2bil in 2010.

Volcano Eyjafjallajokull has wiped out whatever hope the European airlines had of increasing revenue this summer season. This is potentially the proverbial last straw that will break the back of the airline industry.

There has not been a good year in the past five years, with the industry making billions in losses each year. Legacy carriers like British Airways, Lufthansa, KLM and our own Malaysia Airlines have been reeling from the left and right punches the globalised world kept throwing at them since 1997.

Many of them face extinction unless they change the way they do business. To make it worse, low-cost carriers like AirAsia stole much of their passengers, and fuel prices rocketed through the roof.

Even the mighty carriers like Singapore Airlines and Cathay Pacific were not spared. Once thought to be invincible and forever profitable, these airlines started grounding their aircraft when the global financial crisis hit last year.

Three years ago, MAS, led by then boss Datuk Seri Idris Jala, showed the way by re-inventing the airline business, turning to a hybrid legacy and low-cost model where passengers were offered as much luxury as the airline could afford while the airline was run as efficiently as a budget carrier.

Many European and American legacy airlines are now following suit, and this had driven their low-cost competitors to become even more efficient.

Three weeks ago, while volcano Eyjafjallajokull was just smouldering, US low-cost airline Spirit Airlines came out with the latest in El Cheapo travel charges – it will charge passengers for carry-on bags from this summer.

The Florida-based Spirit Airlines will be the first American airline to impose a fee for carry-on baggage.

Passengers will still be permitted to bring a small bag aboard free of charge as long as its dimensions are within 16”x14”x12”, but any luggage required to be stored in the overhead compartment will incur a fee that starts at US$20 and rises to as high as US$45.

According to the Wall Street Journal, Spirit Airlines’ Fare Club (which, for US$39.95 per year, gives members access to exclusive fares) will pay its members’ US$20 fee for carry-on baggage.

Passengers who reserve a spot in the overhead bin, but who are not members of the club, will be charged $30. Non-members who pay at the gate will have to fork out US$45.

Spirit Airlines was reported to have said that the new fee would allow the company to keep fares low by giving “customers the option of paying only for the services they want and use, rather than subsidising the choice of others”.

But Spirit Airlines’ scheme is not the most ridiculous, as Irish-owned budget carrier Ryanair had even considered charging for the use of toilets. However, US regulators quickly put paid to the idea.

Nevertheless, Ryanair, considered the king of Europe’s discount carriers, insist passengers check in online and bring along a printout of their boarding pass. Failure to do so will be costly. Any passenger without a printout of the boarding pass can be slapped with a fee of up to ‚40.

According to industry sources, many airlines, both legacy and low-cost, are toying with the idea of charging passengers based on their size. Southwest Airlines already has a policy (although seldom imposed) that obese or huge passengers buy an extra seat.

I can see the day coming when airlines will charge passengers according to their weight because fuel efficiency is based on load – the lighter the load the less fuel a plane will burn.

The future for traditional airlines is bleak and any other pressure like Eyjafjallajokull may see only budget airlines – charging crazy fees for all sorts of things – flying in the skies.

By WONG SAI WAN

> Executive Editor Wong Sai Wan who has gained a few kgs in the past few months now has got an extra reason to go on a diet.

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