A watershed where airlines will be grounded - opportunities for LCCs - CAPA
Opening the fifth annual LCC Summit in Singapore today, CAPA Chairman, Peter Harbison addressed the threat of government protectionism, calling on " governments to avoid shooting themselves in the foot by resorting to protectionism. Preventing market access simply to protect an airline which may not be sustainable is to do just that."
He stressed that, "Now more than ever, enlightened attitudes are essential. That way we can focus on the opportunities for the future - and not get strangled by history."
He argued that the government reflex to protect incumbents can only be self-destructive at a time like this. and, moreover, "This is not simply another downturn and, good grief, this industry knows a lot about them. No, today we are poised on the brink of a watershed in aviation.
When we hear of 20%-plus falls in premium traffic, that is more than just another statistic. It is ripping the guts out of the legacy model. If this persists another six months, airlines will be grounded."
See full speech below.
LCCs in a dark age. Beware the ogre of protectionism
Introductory remarks, Peter Harbison,
LCC Summit, Singapore, 11-Feb-09
This is a nostalgic moment for me.
It is five years to the day since CAPA held our first LCC conference here in Singapore.
In February 2004 there was no shortage of experts to explain to us why the low cost airline phenomenon would not translate to Asia. It was alien to Asian tastes, there were no secondary airports as there are in Europe, Asian network airlines already were low cost operations and - importantly too - it would simply be too difficult to apply internationally, with a mass of regulatory constraints on entry.
At that first conference, Tony Fernandes was the proud operator of a handful of aircraft operating in Malaysia and David Huttner came along from the already well-established Virgin Blue. Nok Air was about to start in Thailand and Patee Sarasin made his first public appearance. That was the list of local LCC executives, along with a couple of Europeans. And a very senior recently retired Asian network airline executive felt moved to address the audience from the floor to explain again why we were all misguided.
What a lot of water has passed under the bridge since then.
Low cost carriers have transformed the face of aviation in this region. And, were it not for the dead hand of regulation, the impact would have been much greater.
Fortunately, with a handful of governments like Singapore and Malaysia to show the way, liberalisation has progressively moved through Southeast Asia and beyond. The ASEAN multilateral agreement is now about to start biting - unless...
Some very substantial pockets of protectionism still remain, where rigid application of old bilateral restrictions prevent market expansion.
And, as we sink deeper into economic gloom, the teeth of protectionism may be bared again. That ogre, not the economy, will be the greatest threat to this industry in the months to come.
Protectionism, almost a reflex action when economic conditions start to hurt, will achieve only negative outcomes. First of all it is repercussive; other states retaliate. And the big loser is tourism and travel, along with business activity.
This LCC Summit comes at a time just as important as the first, back in 2004. This is not simply another downturn and, good grief, this industry knows a lot about them. No, today we are poised on the brink of a watershed in aviation.
When we hear of 20%-plus falls in premium traffic, that is more than just another statistic. It is ripping the guts out of the legacy model. If this persists another six months, airlines will be grounded.
I am not here to retail doom and gloom. It is vital to diagnose the problem, not to avoid it. That is the only way we can identify opportunities.
For example, the new and ugly economic conditions can be fertile territory for low cost operators. Not for all, but those with genuinely low costs and a balance sheet that lends some confidence to nervous lenders are well positioned, not only to survive, but also to prosper.
I look forward to hearing those signs of optimism (and realism) here over the next two days.
I also invite you to join me in supporting for my call to governments to avoid shooting themselves in the foot by resorting to protectionism. That is almost a reflex action in these conditions. Preventing market access to protect an airline which may not be sustainable is simply self destructive.
Now more than ever, enlightened attitudes are essential. That way we can focus on the opportunities for the future - and not get strangled by history.