Governments to change policy – or see airlines fold

Press Release

(SYDNEY: 9 March 2005) International controls on airline ownership threaten to drive a number of Asia Pacific carriers into bankruptcy or government ownership within the next five years, a leading industry consultant warns ahead of a major industry conference.

Mr Peter Harbison, the Managing Director of the Centre for Asia Pacific Aviation, says that governments should move to relax regulatory structures and allow airline consolidation – or face the consequences.

Mr Harbison will discuss this and other key issues confronting the aviation industry at the Australian Aviation Council’s summit, the Shape of Things to Come, in Melbourne on 13 March.

 “In this industry, there are far too many airlines operating today,” he says.

“However, the highly nationalistic attitude towards national flag carriers means that the prospect of cross border merger is near-impossible. So they can’t merge.

“As we have seen recently in New Zealand, countries are highly reluctant to let their flag airlines disappear. So, as the economics of having too many producers makes itself felt, governments will watch in awe as their flag carriers decline into bankruptcy.”

Mr Harbison says that an airline outcome of this nature is difficult to identify and, as a result, governments are very slow to react – “meaning that things will have to get very bad before they get fixed”.

In the short to medium term, high traffic growth in Asia will allow the existing airlines to grow. “But those airlines have grown and prospered in a tightly regulated environment which has virtually guaranteed their survival,” he says.

“As liberalisation and deregulation spreads through the region, these protective barriers are progressively removed, creating a marketplace which is much more open. That means that new, lower cost airlines are coming onto short haul routes. For any other industry, the first thing that happens in this more open environment is that “rationalisation” occurs; that is, companies merge or go out of business.”

Mr Harbison says that this collision between liberalisation and airline nationalism “is a true collision between an immovable object and an irresistible force”. “Something is going to have to give. Whether this takes three years or five or more years depends solely on the rate of deregulation. Right now the force of regulatory change has gathered a massive momentum, which suggests that it will be almost impossible to stop.”

AUSAC “Aviation Summit: The Shape of Things to Come”, Carlton Crest Hotel, Melbourne, 13 March, 8.30 AM. The Summit will hear views from all sectors of the aviation industry on how the industry will evolve over the next 5 to 10 years. For further information contact Gary Lawson-Smith at:
garylawsonsmith@asfa.org.au or +613 5282 0514.