Best business hotels & airlines

Global Finance, Jun 2003 by Beasley-Murray, Benjamin

SECOND ANNUAL GLOBAL FINANCE AWARDS

Just when you thought it couldn't get worse, it did.

Tough times continue for the world's airlines. With their business model already under attack from no-frills carriers on short-haul and domestic routes, traditional airlines then took a series of hits on the more lucrative long-haul business. The September 11 attacks, the wars in Afghanistan and Iraq, and now the flu-like illness SARS have sent the industry reeling.

Of these, the most punishing has been SARS, which has reduced air travel (and particularly business travel) by more than the combination of the September 11 terror attacks, the war in Iraq and foot and mouth disease in the United Kingdom combined.

SARS has inevitably hit far-eastern routes much more than others, but since these routes tend to rake in more for airlines than, say, European flights, the impact has been disproportionately hard. The Association of Asia Pacific Airlines (AAPA) reckons the total cost to the world's airlines to be around $10 billion.

That's hitting an industry that already sports significant pockets of overcapacity. In Europe, for example, the fate of Swiss Air (and the struggles of its successor, Swiss) have given the lie to the belief that flagship carriers will be supported by their governments at almost any cost.

Once, business travellers were kings of the airline sector, defining what carriers saw as a high-service level industry. High margins on executive class business kept many airlines aloft. But the relentless rise of the leisure traveller has switched management attention to coach class. Now at last traditional airlines are taking note of this, and have devoted themselves to cutting costs in earnest and learning how to woo the budget traveller.

British Airways for instance has finally abandoned its long-term strategy of trying to turn a profit simply by catering to the business flyer. For BA, such moves include reducing all European fares and moving more bookings online. The company now takes approximately 20% of its bookings online and, with other carriers, is introducing 'e' check-ins and other ultimately cost-cutting technologies.

With the war in Iraq effectively ended and with panic over SARS subsiding, passenger numbers may start to climb again. What is clear, however, is that the industry has undergone a seismic shift and only those airlines that have been quick enough to roll with these punches will have the opportunity to be major players in the future-the days of an easy ride for any airline are over.

A period of austerity may be necessary in the industry to weed out those carriers whose accounts simply do not add up, and to kick-start an overdue streamlining process. That's not going to be easy. Efficiency may be improved but much also depends on the regulatory environment in which the industry operates. Regulators have blocked some code-sharing agreements; the pursuit of open-sky agreements between the US and Europe has been marked by pratfalls and bust-ups.

For some, Concorde's final grounding, set for later this year, may spell the end for this generation's ability to fly at supersonic speed as well as mark the end of an age of relentless pursuit of luxury in top-end air travel.

Corporate cost-cutting and advances in key technologies such as video-conferencing may mean those days never return. But for the industry as a whole, the outlook is still one of growth. In Britain, Heathrow's Terminal Five is at last under construction, and new runways are under negotiation across the country. Five years from now, congested runways and flightpaths are as likely to be exercising the minds of airline managers as empty seats are now.