November 29, 2007
The financial turnaround at airlines, especially in the United States, would be at risk in 2008 if unions were too aggressive in trying to recoup wages and benefits lost in restructuring, the chief of the industry’s trade group IATA said.
“Unfortunately, as the industry shows even fragile profitability, labor starts to look for a free lunch. Already we’ve seen strikes from France to Japan,” Giovanni Bisignani of the International Air Transport Association told an industry group.
“Several key US contracts will be negotiated next year — if labor pursues an agenda as an irresponsible adversary, our common future is limited,” Bisignani said.
Globally, labor represents 23 percent of airline costs, down 5 percentage points from 2001 — the start of a six-year restructuring accelerated by the 2001 attacks on New York and Washington.
During that period four US carriers, United Airlines parent UAL, US Airways, Delta Air Lines and Northwest Airlines, fell into bankruptcy and AMR, parent of American Airlines, nearly sought protection from creditors.
Bisignani also worries that US carriers could have a hard time upgrading their fleets due to general economic uncertainty and continuing credit woes where debt remains high relative to cash flow.
“Lenders will be cautious and even if orders are placed today, production lines at Boeing and Airbus are virtually full for the next three years,” Bisignani said.
About a third of the US fleet is more than 25 years old, reducing the cost advantages of depreciation and heightening the impact of fuel costs since older jets are less efficient than the newest models.
IATA is poised next month to revise the industry’s outlook to account for oil prices now pushing USD$100 per barrel. In September, the group projected 2008 profits of USD$7.8 billion, but the forecast was based on oil at just under USD$70 a barrel.
International carriers, especially in Europe, worry about US credit market turmoil because of the potential impact on financing conditions and corporate travel. Premium travelers — usually business customers — account for 25 percent of traffic aboard the top five European airlines on transatlantic flights, compared with 15 percent for US carriers, IATA figures show.
“That translates into a 30 percent yield premium for Europe,” Bisignani said.
(Reuters)