It is time to Re-Regulate the Airline Industry?

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Is it time for Re-Regulation of the Airline Industry?
By Mark A. Gardner - August 12, 2009

Most of the Airline Industry is barely staying afloat. Jobs are getting extremely scarce; what jobs do exist may not exist in 6 months. These are trying time in the World of Aviation, indeed in the world, in general.

According to the most recent International Air Transport Association (IATA) data passenger traffic for June 2009 is showing a 7.2% decline in passenger demand compared to the previous year, while cargo demand is also down by 16.5%. The 7.2% drop in international passenger demand was a slight improvement on the 9.3% fall in May. However, a capacity adjustment of -4.3% did not keep pace with the fall in demand, leaving average fares and yields under significant pressure.

Even Fedex, UPS and the other frieght operators are having a tough time. Cargo demand was 16.5% below June 2008 levels. This was a moderate improvement, over May, which was 17.4% below 2008 levels. Some improvement in world trade has occurred and, after adjusting for seasonal fluctuations, freight volumes rose 6% from the low point recorded in December 2008.

Ok, so we have a pretty bleak picture here. The Airlines since 1978 have been eating each other alive. They have merged some many time all we have left are basically Supercarriers, large airlines that can't make money. Let's face it the airlines industry's economic model is broken. The fixed costs of the model isn't the problem, it's the variable costs that is killing these carriers. A big chuck of the profit, witch isn't much in the way of profit margin, is petroleum based.

Jet Fuel costs fluctuate constantly, the airlines try to alleviate the situation by doing what is called "Fuel hedging." Basically, "Fuel Hedging" is a contrractual agreeement between the fuel supplier and the airline where a projected purchase price is fixed to a pre-determined price. This can work in the favor of the airline or, against it depending on what the future fuel price does?

Soutwest Airlines has done very well using the Fuel Hedging technique; Of course, not all airlines have the managment skill of the Southwest Airlines team. United has had a lot of problems over the last 5 years, USAirways has a long way to go before it's going to get it's act together, American and Continental seem to be staying the course but they too are riding rough seas. A lot to time could be spent in the article sorting our way though the trials and tribulations of the airline industry. Those of us in the Aviation Industry know how messed up things are now.

The Industry is broken, the financial models are bad, the safety records over all are the best they've ever been, which is remarkable considering the financial stress these companies have been under: However, the airline companies have to make money, without adequate revenue safety is going to eventually reflect the effects of the financial markets. We don't want to have third world airline operations in the USA, do we?

So, what's the solution?

Should we Re-Regulate the Airline Industry?

Should we subsidize the airlines in order to keep them profitable?

What do you think?

If, you have comments or ideas about this topic drop into the "Icarus Flight Forum" and express your opinion. I would love to have a lively discussion about this interesting topic.

In the near future, I will complete this article and let you know more about the Re-Regulations possiblities.

The BIG QUESTION?

Ist it time to Re-Regulate the Airline Industry?