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OVERCAPACITY IS A KEY THREAT TO THE FUTURE OF AVIATION

Dino D'Amore
By Dino D'Amore Nov 30, 2010 3 mins read
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OVERCAPACITY IS A KEY THREAT TO THE FUTURE OF AVIATION

The thorny issue of overcapacity was brought up again and again by speakers on the first day of Marketforce and the IEA’s The Future of Air Transport conference held in London yesterday. Emirates was the target for most of this attack but Gary Chapman, president, group services & Dnata, defended the airline’s strategy well. “We haven’t taken market share, we have created markets where they didn’t exist before,” he said during a panel discussion. In response to accusations that Emirates order for 90 A380s will flood the market with excess capacity it can ill afford, Chapman advised those airlines complaining about this issue to “focus on their business and we will focus on ours. Overcapacity is a subjective statement. They see us as a threat. We offer a superior service and give customers what they want.”

Fellow panellists disagreed with Chapman and identified overcapacity as a key threat to the future prosperity of the airline industry. Christopher Mueller, chief executive officer of Aer Lingus, said overcapacity was simply “part of the game” and that airlines need to look at creating a better business model to perform better as well as liberalising the market further. He said: “The market is not as liberal as I would like to see – even Emirates is struggling to fly to Canada.” Mueller said that the issue of traffic rights was a real problem especially when airlines are being forced to fly empty planes to retain airport slots.

The panellists were also divided on the subject of consolidation. Chapman stated that the only reason for airlines to merge would be if they are not doing well as stand alone airlines, Emirates therefore would not countenance a merger.

Thanos Pascalis, chief operating officer of Olympic Air, which is currently in negotiations to merge with Aegean, obviously denied this was the case and that in some instances mergers made good sense. With the Greek economy problems and passenger traffic down, it is probably unsustainable to have two full service airlines in Greece so consolidation in this case makes sense. However Aegean has not yet made a final decision on any merger and is not expected to before January 12, 2011.

Mueller and Chapman agreed that if consolidation affected consumer choice on frequency and price it is going too far. Mueller said: “I doubt an Olympic-Aegean monopoly will be good for the country. Two carriers serving one market isn’t good for customers or competition.” He also added that he had yet to see one merger deliver on lowering costs in the long run as synergies were often overrun by other costs such as wage agreements. British Airways and Iberia, whose shareholders agreed its merger into the International Airlines Group yesterday morning, would disagree with these points I suspect even as Unite move to reballot workers for another strike over a wage dispute.

Overcapacity is a problem that ironically may be balanced by the early retirement of aircraft in the future. We have entered and are therefore passing through a period that will be looked back upon as one of rebalance. There is no question therefore that we have a period of pain to go through and at this point can only wonder what will be left at the end of it all.

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