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Thursday
Sep112008

The Global Airline Industry and Its Interdependencies

It Is Not Just the U.S. Anymore

As this blog approaches its one year anniversary, I have written about many topics. While much of my writing thus far has been US-centric, we have often written about airline happenings around the globe. We have written about the forces of globalization and how US carriers have lost competitive traction when compared to the global elite carriers like AirFrance/KLM, Lufthansa/Swiss, Singapore, Cathay Pacific, Qantas and others. Yesterday, I wrote about the falling price of fuel and concern that announced capacity cuts might not become actual capacity cuts.

When it comes to fuel though, it is global forces that impact its price and they range from demand by rising industrial powers to the relative strength of currencies to market activity. As I do my lunchtime reading, I ran across a must read article written by Derek Sadubin, the Chief Operating Officer of the Centre for Asia Pacific Aviation in The Australian entitled: Deflation in price of oil not all good news for airlines.

Sadubin does a nice job of intertwining economic, competition, currency and oil events from around the globe to discuss the immediate future. He talks about a bear market for oil; business travel stalling; a difficult economic environment proving difficult for the weaker players; competitors rising to challenge incumbents in many parts of the world; a mention of Emirates and their plans to fly through the current difficulties and grow at the expense of other’s weaknesses; and the shift in the relative strength of currencies and the impacts on certain carrier revenues. This references only a few of his points.

But I suppose I liked the article also because he shares my view that the Boeing strike may not be a bad thing for the global industry. In an interview I did with Ted Reed of The Street.com last week, I was quoted as saying that a Boeing strike is not a worse case scenario. You know how it goes in this industry; we order planes in the up cycle and take delivery in a down cycle. It is not the US carriers that hold control over the order book, it is the international carriers. And maybe, the time may not be right for them to expend capital on new equipment to fly to new markets as the global economy slows.

If nothing else, the read reminds us of the global fundamentals that govern this industry and the interdependencies the many forces have that dictate this industry’s successes and failures.

More to come.