A combination of rising oil prices and weakening demand is “hitting the aviation industry harder than virtually every other sector,” according to Eric Heymann of DB Research.
According to International Air Transport Association predictions, the aviation industry will experience “net losses of more than USD 9bn in 2008 and 2009 combined,” reports Heymann in a September paper. Bilateral agreements and the practice of “marrying slots to the national ownership of airlines” also represent a significant obstacle to mergers, he points out.
But the ensuing “presence of poorly capitalised companies in the market” impacts negatively on commercially healthy airlines, claims Heymann, calling for the state to make a “faster and more consistent exit from the aviation market”. He welcomes recent deregulation efforts such as the EU-US Open Sky regulation.
The author warns that “if large sums of public money continue to be spent providing financial support for individual carriers, there is a risk that the worst-case scenario will materialise of efficiently operating airlines being forced out of the market,” stating: “This cannot be in the interest of customers or taxpayers.”
Decades of overcapacity means “further consolidation in the aviation industry is overdue,” concludes Heymann. Yet he does not believe consolidation will result in a “bloodbath” for airlines, mainly because “state aid for perennially loss-making airlines” is slowing things down.