Kuala Lumpur (Thomson Financial) - The future for global aviation is "really bleak" unless the industry takes drastic measures including mergers and substantial fare increases, Malaysia Airlines said Friday. The national carrier's managing director and CEO Idris Jala said that with oil prices at unprecedented levels, more airlines would be forced out of business and the majority would sink into the red.
"The prognosis for the industry is really bleak," he said in an open letter. "Change -- and I mean drastic change -- is absolutely vital for our survival. That, and a willingness to reinvent the way we operate, including through mergers and acquisitions," he said. Jala said the flying public must be prepared to face sharply higher prices for air travel "or be prepared to stomach even higher prices later when the number of participants become fewer and competition fizzles out". "Put bluntly, if these adjustments don't take place -- and quickly -- the airline industry will collapse and have a ripple effect throughout the entire world economy," he said.
Malaysia Airlines has slashed staff and routes in a so-far-successful effort to reinvent itself and arrest a series of losses that threatened its viability. Jala said the carrier had "kept our head above water" with a modest profit in the first quarter of this year, but that increases in surcharges were unavoidable -- although it would hold off on domestic routes for now.
"Fares may have to go up -- no longer incrementally -- but by as much as half, capacity cut by a quarter and costs cut even further by a tenth," he said of the global aviation industry. "These have to be done in the face of customer resistance, grounding aircraft, cutting staff and squeezing out virtually all but the most essential costs," he said.
Jala said the industry faced a "perfect storm" with the surging oil price, a slowing global economy, overcapacity and the rapid growth of budget carriers, which are shaving margins to the bone. But he said that if carriers were brave enough to introduce painful reforms, it would lay the ground for a more sustainable industry with enough operators still in business to keep fares fair.
"The good times will return," he said.