Hold on for a bumpy ride

For many of the world's airlines, the terrible events of September 11 and the subsequent US retaliation against Afghanistan has hastened what was probably inevitable. After years of living on the edge, the sharp slowdown in business post 911 has tipped many airlines towards bankruptcy. The International Air Transport Association says that even in good times the industry operates on thin 3-4 percent margins. It has large fixed costs while airline revenues are vulnerable to every little economic and security blip that appears on the radar screen. International passenger growth slowed to 4.3 percent in the first half of 2001, a time when First Class ticket sales fell by more than 17 percent and business travel slowed 5.4 percent. The events of the past few weeks will hasten the consolidation of airlines, and may lead to changes in the 1944 Chicago Convention, which gives governments power to outlaw foreign ownership of international airlines, along with control of landing rights and airport slots. It is the biggest US and UK carriers that have been squealing the loudest since their transatlantic business dropped away (British Airways lost 40 million pounds in the week of September 11) but don't expect them easily to concede the privileges granted them by international conventions BA, which dumped several routes and has cut thousands of staff in the last two weeks, will attempt to hang onto airport slots it no longer uses for fear of them becoming available to low-cost and rival carriers. Lufthansa at Frankfurt, and United Airlines at Chicago's O'Hare airport, are also beneficiaries of the ability of nations to allow a single airline to dominant their airports. The threat of bankruptcy may force airlines into agreeing to give up slots but no-one should hold their breath. Next year will see dramatic changes in the aviation industry as consolidation and open skies head the agenda. Inevitably, airlines in Asia will be drawn into the melting pot. Looking ahead, the good news for passengers may be a more stable airline industry. The bad news is that airlines will be forced to raise fares to sustainable levels. Email Ian

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