'Sky-high costs must come down'

The aviation industry will have to cut costs and reform business structures to defray billions of dollars in losses from soaring fuel prices, the world’s air transport bosses warned last week at their annual summit in Singapore.

The International Air Transport Association (Iata) promised to introduce electronic ticketing by 2007 and proposed barcode technology on boarding passes, radio-frequency baggage tags and sharing self-service check-in kiosks. It also wants to re-align employee attitudes.

Iata called on governments to improve airport infrastructure and pay for airport security, and demanded accelerated deregulation of routes.

“In 2003 the industry survived the four horsemen of the apocalypse: severe acute respiratory syndrome; conflict in Iraq; terrorism; and the economy,’’ said Iata director general Giovanni Bisignani. “Now a fifth horseman — the price of oil — could add up to $1-billion a month to our costs and deny us profitability yet again.” Bisignani, former head of Alitalia, said that even if airlines introduced fuel surcharges, an average oil price of $36 a barrel for the year would cost the industry $3,2-billion, while the break-even mark is $33 a barrel.

Iata, which claims to represent 275 airlines and more than 98% of the world’s scheduled air traffic, estimates that the “four horsemen’’ have cost the industry £16,4-billion since 2001.

Converting all seat sales to e-tickets would save £1,64-billion a year, Bisignani said.
“Paper costs money; a paper ticket is $9 more expensive than an e-ticket. Iata distributes 300-million paper tickets each year and the airlines another 75-million.’’

At present only 12% of all tickets are e-tickets. Outside the United States, where the figure is more than 90%, the number [of paper tickets] is much lower.

The executives’ biggest complaint was that, except in the US, customers have to pay for security at airports while passengers on trains and other forms of transport do not. Airlines paid £2,7-billion in security measures last year, according to Iata data.

European and US bureaucrats came in for criticism. “It is high time that European Union [EU] regulators took the trouble to learn about the industry they are busy misregulating,’’ Bisignani said. “We don’t need rules on seat pitch. We need vision and we need policy. The US cannot even implement a meaningless increase in foreign ownership from 25% to 49%.’‘

British Airways boss Rod Eddington took aim at European governments and singled out Britain for failing to improve infrastructure. “If you do deregulate markets, to really ensure that the opportunities exist for airlines to exploit that opportunity, you need better infrastructure,’’ he said.

“I think we have been poor stewards of the business model,’’ said United Airlines boss Glen Tilton. “I think we have accumulated legacy costs over time. We need to rethink our model in order to compete. We need to look at the business from the perspective of the consumer and not the industry.’‘

Cost reduction is not going to be easy because many airlines’ costs are out of their control, according to Chris Tarry, CEO of Ctaira aviation consultancy. “They’re either determined by world markets, like fuel, or by others, like air traffic systems or airports,’’ he said.

Bisignani said the key to cutting costs in the long term was an attitude shift. “The term ‘low-cost carrier’ is absolutely wrong. “Our future structure is a low-cost industry, with some airlines offering network services at a premium the consumer is willing to pay for.’’ — Â

Client Media Releases

NWU consistently among top SA universities in rankings
MTN gears up for Black Friday sale promotion
Software licensing should be getting simpler, but it's not
Utility outages: looking at the big picture
UKZN scientists get L'Or'eal-UNESCO Women in Science grants