One of the most essential lessons learnt when managing a business is that you will not survive if your costs exceed your income.
Clearly the airline industry is taking heed of that very lesson. Joining one of the three global alliances – Star Alliance, One World and Sky team – is thought to be high on the list of priorities for any remaining independent operator, as a way of improving their operating efficiencies.
But, is it possible to survive in an economy where the increasing cost of fuel is relentless? Perhaps only those carriers with fuel-efficient aircrafts will be able to maximize their reduced consumption? Who knows? What is clear, though, is that survival extends beyond fuel. Over the past five years, the airlines have separated the fuel costs from the other operating costs, by imposing a levy that allows them to manage the fluctuating fuel costs more effectively. Slashing non-profitable routes seems to be a ‘no-brainer’ and managing the labour forces a pre-requisite. But both of those issues have implications – cutting routes is inclined to upset loyal customers and keeping the people dynamics in balance is inclined to cost.
So, what is required to quell this perfect storm? Probably a price increase, which certainly won’t make the already tax-laden customer very happy. Government-imposed taxes, including airport security and passenger departure taxes, inflate the cost of the ticket, somewhat creating the perception that the total cost of the ticket is the revenue earned by the airline.
In South Africa, the airline industry is not exempt from these issues and we watch with caution as the carriers attempt to surf their way through the angry ‘storm’. Whilst their customers demand better pricing, improved safety and free upgrades, something somewhere has to give, and in a market without passenger protection, I fear the consequences.