All eyes are turning towards the US airline industry as the holiday season approaches. JetBlue was pummelled in the press yesterday for its nine hour tarmac delay at Bradley International and its share price suffered but at the end of the day what could the airline do. The real story behind the freak US north east snow storm is the fact that it is so very early in the winter season and we now have to wonder if it is a freak or if we are in for a bad winter which will send heating oil prices rising fast that will also affect jet fuel prices.
We also have to say a big well done to Alan Joyce for taking the fight to the unions and government in the process showing the policy makers in Australia that they have nothing without an airline that can service trade and tourism. With luck the decisive action by Joyce will get the situation with the unions sorted out fast and the airline can drag itself into the 21st Century. Joyce should not hesitate to use the same tactic again in the near future if needed.
Meanwhile very dark clouds continue to gather over Europe. The banks are pulling back from funding across the board and well they should. Is anyone out there truly secure in the knowledge that the EU fudge last week will carry the Euro through this period of significant trouble? No is the answer as the markets finally woke up to the reality of the situation and the Euro fell very heavily in trading yesterday. Everyone now realises that Italy cannot be saved through the agreement on the table and the Italian government will not be able to agree on the required measures. Take, for example, the fact that Italy’s latest bond issuance on Friday last week sold off at a rate of over 6.6% - they cannot carry on like that. The ECB stepped in to buy-up much of the Italian debt but again, they will not be able to do so indefinitely with Italian maturities falling due in 2012 when we all know that the sh*t is going to hit the fan. This together with the speeding up of Basel III requirements will act to ensure that the banks are unable to lend and dollar funding is even harder to come by. News late yesterday that Greece is looking to hold a referendum on the new EU aid package saw the Euro falls gather pace and could be the first sign of a total collapse of plans to save the European single currency as it exists at this time. The watch word remains haircuts. Other than that creating a fiscal union under Germany, it is unclear how to stabilise the Euro but will the other European nations be able to agree to this? We shall see soon. The fact remains that the Euro is a collection of sovereign countries without the ability to print paper to pay debts and then in turn increase interest rates, so the reality remains can the Eurozone raise €1.2tr before the end of November to keep going? Who knows, but you can only kick a can down the road so far before you hit a brick wall.
Over in India it is time that we all accept the absolute truth which is that infrastructure investment is not being approved at a pace which will allow airlines to run services with all those shiny new aircraft due for delivery over the next few years. India must fast track planning approvals to keep pace if airlines are not to suffer significantly in the near future. We are unable to see any action thus far on the matter of foreign ownership of airlines within India even though we here broke the story back in May 2011 that this was high on the agenda in government. In addition the continued problems at Kingfisher are gathering more and more attention from market watchers. Vijay Mallya has tried everything to get investors into Kingfisher but the fundamental problem remains that Kingfisher Airlines has a business model that is not compatible with reality. Kingfisher should have stuck to organic growth from India and local countries to the same, instead Vijay went for the glorious international option for a business model which has fallen flat in such a manner as to now mean that parent company Kingfisher is left pumping money into the airline on a bi-monthly basis almost. Kingfisher Airlines is not able to pay staff on time at all times and is unable to get credit for fuel. It is now time for Vijay to extract himself from Kingfisher by getting a handle on reality. Taking a sword to the airline and its expansion plans is the only way to save the airline now. By scaling the whole operation back to the Deccan regional model with a number of international flights to prime regional hubs as feeders to code share and alliance partner airlines, if Vijay acts now before the year end, he will be able to claim that his hand was not forced.
If this is not done by year end then the problems are set to mount on Kingfisher Airlines in 2012 as leased aircraft on a number of contracts are scheduled to come to term and it is highly unlikely that Kingfisher will get an offer of extension in any event. In fact Vijay knows that he cannot cancel any current lease contracts, even if the opportunity were offered to him as he will not be able to come by aircraft from any other source at this time. Vijay yesterday stating that Kingfisher Airlines debt should be taken in proportion to the size of the company is not a good sign.
The Montreal-based International Air Transport Association said Monday that September’s airline passenger traffic worldwide showed a 5.6% increase from the same period last year, but cargo fell 2.7%. The September drop in cargo comes after a 2.4% decline in August. The cargo indicator further confirms that we are heading for a marked slowdown across the aviation sector.
Also in the news China Southern is said to be fuming after its brand new A380 remained grounded due to a technical fault that happened on Saturday.