Chief executives at the IATA AGM said they are cutting back networks and parking aircraft
Over the past few weeks carriers all over the globe have been taking the scissors to their networks, with the US majors making the most dramatic cuts so far. “It is the first thing to do, we must apply jointly and collectively a discipline [on capacity],” said Jean-Cyril Spinetta, chairman of Air France-KLM, speaking during the IATA Chief Executive Forum in Istanbul. “We at Air France-KLM are looking at adapting capacity for the winter season and summer 2009. But as an industry we have to show strict discipline. If not it will be a disaster for the whole industry.”
British Airways chief executive Willie Walsh echoed the need for cuts. “These are uncharted waters and it is going to require discipline – I see no option but to take capacity out,” he said. BA will begin its cuts this winter. “We were planning 2.8% capacity growth, now we are looking at flat capacity growth this year versus last year.”
In the Asia-Pacific, some carriers, like Qantas and Thai Airways, have already reduced capacity, but it is not yet on the same scale as Europe and the USA. “What we want to do is redeploy capacity rather than cut, flying to where we can maximise our revenue,” said Cathay Pacific chief executive Tony Tyler. “There is no plan for big cuts in capacity – and no grounding of aircraft.”
Emirates is one of the few carriers that is sticking to its growth plan. “In July we take our first A380 and we are in the middle of a stream of 777s,” said the carrier’s president Tim Clark. To slow these deliveries down is an “anathema to our business model”, he added. “We have to make this work. We have to sort out the business streams.”
And with its diverse network, “we are finding markets are incredibly robust at this point in time. It is amazing how robust the global market is,” said Clark. But, he insisted, Emirates is not being complacent. “Of course we’re concernedbut we’ll get through it.” In terms of its reaction to the crisis, Emirates is looking at paring back its financial targets a little, but there will be “little or no contraction of capacity growth”.
Neither Airbus nor Boeing want the industry to panic. “Let’s be careful with this doom and gloom thinking,” said Tom Enders, president of Airbus. “We don’t want a self-fulfilling prophecy.” Boeing Commercial Airplanes president Scott Carson added: “I think we are going through an economic adjustment – the difference this time is the high volatility of the fuel price. But we are not seeing a fundamental structural change [in traffic growth].”
So far, Airbus has not had any trouble placing aircraft that carriers do not want because of deferrals or failures. “I get phone calls immediately from airlines asking if they can have these aircraft,” said Enders. Lessor ILFC has had the same experience, said chairman Steve Udvar-Hazy. It had 12 737-800s on lease to US carrier ATA, which was grounded in April, but has released them at “higher lease rates to airlines in this room”.
Those showing discipline will also be more attractive to financiers. “What we are looking for is a flight to quality,” said Dr Josef Ackermann, board chairman of Deutsche Bank. “Those with strong balance sheets and those adjusting capacity – we are more than happy to support them.”