Branson predicts "Spectacular Casualties in the Airline Industry"

[K.Whyjelly]

Virgin boss Sir RB predicts a high profile casualty in the US......any takers??? And what future for big players in Europe with this 'perfect storm' scenario quoted in his article?





LONDON (Reuters) - There will be "spectacular casualties" in the airline (http://uk.news.yahoo.com/fc/airlines.html) industry over the next 12 months, billionaire Richard Branson, the owner of Britain's No. 2 long-haul airline Virgin Atlantic, was quoted as saying on Saturday.

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The U.S. airline industry -- including Virgin America -- has been battered by soaring fuel costs that are pinching even the healthiest airlines.
"The financial state of the world is just about the worst I've ever known it," Branson told The Times newspaper in an interview. "It's getting perilously close to being worse than the 1990s.
"You have the perfect storm -- you've not only got the banking crisis and the housing crisis, you've got the soaring fuel prices as well. One of the big American carriers will almost definitely go."
Branson confirmed Virgin was interested in buying British airline bmi, 50 percent plus one share owned by entrepreneur Sir Michael Bishop.
The carrier has long been expected to change ownership in 2009 due to a private agreement between Bishop and 30 percent minus one share co-owner Lufthansa.
Despite barely making a profit in 2007 -- and with the outlook far worse for 2008 -- bmi's value is in its control of 11 percent of the highly prized airline slots at Heathrow.
The billionaire also called for an end to BAA's monopoly of Britain's major airports.
Part of Spain's Ferrovial since 2006, BAA has owned the three main airports serving London -- Heathrow, Gatwick and Stansted -- as well as Scotland's Edinburgh and Glasgow airports since it floated over 20 years ago.
"It's been embarrassing to be British looking at foreigners queuing up to come into the country," said Branson.
"I certainly think that BAA should be broken up. Each individual terminal at Heathrow should be privatised so they can compete against each other. BAA just creams off more and more every year."
Britain's Competition Commission is investigating whether problems faced by airline travellers through Britain, as highlighted by the chequered opening of Heathrow's Terminal 5, are caused or exacerbated by BAA's monopoly.

[CHINOOKER]

If i were a betting man,it would be US Airways!!....They are within the Star Alliance group,but a smaller airline globally than fellow member United.

[sevenstrokeroll]

actually, I think United is in a much worse condition than USAirways right now.

United just grounded or will ground 100 planes...that's alot. USAirways, having been battered for so long, is in a decent position.

And Branson has been wrong once or twice.

The industry in the US is shrinking...to the tune of one major airline...but spread out amongst all the lines.

[Poof in Boots]

VIRGIN could be a casualty itself.

How Beardy must regret getting those A340-600's. Four Engines For Longhaul!!

[CHINOOKER]

sevenstrokeroll, Whilst i see the reasoning behind your post and the fact that United are grounding over 100 airframes soon,i still believe that as a "founder member" of the Star Alliance,it puts it in a better position than US Airways. Also if you look at the current composition of all the fleets within this particular alliance and the route networks served,US Airways does seem to be in a weaker position than United!.....I suppose time will tell,but i think all airlines,wether US based or not,are in for a very rough ride over the next few years. As a current BA employee,it seems that our bosses are working harder than ever at present in order to get a full alliance with American up and running....Why have two airlines who currently code share across the pond flying in tandem,so to speak....Consolidation of both routes/services and fleets is probably going to be the best way to survive.

[PAXboy]

This thread will be off to A.A. & R. to join all the other threads deciding who should die first.

By the way, there will not be a global airline. As the protectionist laws are slowly unpicked over the next five to ten years, you will find that we have a few multinational airlines and you already know their names:

One World
Star Alliance
Sky Team
etcetera

[sevenstrokeroll]

chinooker

I'm not sure what the Star alliance has to do with this subject...it was not in the original post, just yours. (i even checked with "FIND" function...correct me if I'm wrong)

having said that, having seen how BA and USAIR failed to gel many moon ago, I can see why you might not thing USAIR will make it.

But, there is something unique about surviving industry shake outs that USAIR has. It has scared pilots who were most adversely effected by 911(economically)...with the closure for KDCA. Its pay scale is on the low end and there is a hunger to survive that United just might not have.

AS to American and BA...well we have seen that in the works for many years and it isn't a solution, just a new set of problems.

We shall see.

[nich-av]

With fuel prices and airline tickets where they are, US is the least likely to go:

On TATL flights, they offer the most competitive rates and I can testify about their excellent service.
US has announced the smallest cuts of all U.S. airlines and will definitely be the last to go down with CO, Delta.

I think that United and Northwest are the most likely to go and I see NW going down before the merger with Delta completes, around December maybe.

AA is a mistery to me, can't really judge.

[CHINOOKER]

sevenstrokeroll

Yes you are quite right about "Star Alliance" not being part of the original posting.....What i was alluding to was the fact that these global alliances will probably only continue to work if there is only one "main player" from each continent/country!. The question put was regarding which US based airline the "ginger whinger" was probably talking about!. In my own opinion it will be US Airways that succumbs (within the Star Alliance group),as i personally think it to be the weaker airline "globally", of the two US based airlines in that group.

[Passenger 07]

My ten cents to this thread:
It is not the first Oil crisis I have been witnessing.
Obviously, geopolitics has to do something with the current one (War in Iraq, Iran nuclear uncertainty, …). In US, the elections are on going and there is a high probability of a re-orientation of the US policy on the International scene once the elections are over… This should quieten down the situation and bring back oil prices to more reasonable levels. So we have still several months to go in this storm; there will be some casualties in the Airlines industry, but those passing through will become stronger during the recovery period which will follow.
Who will go down? Interesting question, but difficult to answer because some hidden immaterial components like political or banking relationships between managers are not visible… However one point, Airlines which have based their business only on Passengers ignoring freight are more fragile. The Cargo activity is less sensitive to crisis…
Hard days, but “After the rain, the sun…”

[CR2]

However one point, Airlines which have based their business only on Passengers ignoring freight are more fragile. The Cargo activity is less sensitive to crisis…


Indeed. Less pax a/c = less belly freight capacity available (at dumping prices).

[Readability 5]

The current high oil price has little to do with the war in Iraq, that was five years ago, the price of a barrel of oil has doubled in the last twelve months, and has everything to do with commodities traders. Denied the opportunity to make a fast buck in equities, they are now speculating on the short-term future price of oil, investigations are already underway by the regulatory authorities into this practice, although it is difficult to see how they could regulate to stop the market doing what comes naturally.

Don't expect OPEC to come to the rescue by pumping more oil, recent increases in production have had little effect because the current price is based on speculation rather than restriction of supply.

R5

[sevenstrokeroll]

chinooker

the USA is sort of two or three countries (worth) and perhaps that is why a couple of "alliance" members might work out. USAIR is quite strong where United is quite weak. USAIR strong back east, United strong in the Chicago area and parts of the west. With USAIR getting a strength boost in the southwest with AmericaWest.

I think that Branson is full of it. There is too much fear amongst airline workers in my country and they will sacrfice yet again to keep em flying.

[Passenger 07]

Attention Readability 5

Investors are reluctant to invest in Irak and Iran, this is well known and is one of the major reasons of the oil crisis. Check serious financial analysts for energy commodities on medium or long term, and you will be convinced.
Irak is far to be at the required level of production and its installations need to be seriously refurbished, idem for Iran.... but none want to invest in those countries...

[Retire2015]

Twice, I have heard the observation that Oil is now an "asset class" that is invested in by pension funds, insurance companies, and individuals. This is easily done by ETFs and perhaps other instruments.

Most importantly, the size of this new asset class was quoted as equal to China coming on line.

Wilbur Ross was one of the indiviuals making the observation.

R

[click]

Don't think that was a lecture from CJ...more like a request. A lecture would be something that I would write regarding your left wing socialist views. Free enterprise works. It's not a tragedy...survival of the fittest, innovation, rewards (for both employees and owners)...you name it. Socialism is a cancer on society rewarding incompetence and laziness, destroying initiative. Talk to any of my colleagues about to retire on a state pension..don't think that 600 Euros per month at best is a sufficient reward for a lifetime of safe flying. But hey, they are all equal now with the rest of the work dodgers and nose pickers. And don't even get me started on the health 'care' system. All these perks are a direct result of 'socialist ideas', everyone being equal and government controls etc.
That's a lecture...not a request:E

[Readability 5]

Investors are reluctant to invest in Irak and Iran

Total, Royal Dutch Shell, Eni and Statoil - Hydro all operate in Iran, and continue to do so despite political pressure not to. Total recently pulled out of a deal to develop the South Pars gas field in Iran, - the worlds largest - strenuously denying that they had come under political pressure to do so. Also, according to the International Energy Agency, Iraqi oil production has now recovered to its pre war level, 2.3 million barrels per day. I'm sure this would not have been possible without the help of western oil companies.

R5

[pwalhx]

Wise words from Sir Richard, or merely stating the blindingly obvious once again?

[peter we]

I'm sure this would not have been possible without the help of western oil companies.

And the reduction of capacity in the first place wouldn't have been possible without the help of Western armies.

There were no western oil companies 'helping' Iraq until an agreement was signed a few weeks ago (and whether any be implemented will have to be seen).

[teamax]

Who listens to this man. His only usefull contribution would be to tell us which of the Virgn branded airlines will fail first.
My guess, Nigeria, America, Atlantic followed by Blue. Oh dear, I`m sounding like SRB now.

[HZ123]

Those that attended the BA AGM certainly learnt a lot if the Times article is anything to go by. The Chairman of BA is clearly the master of stating the obvious, it is akin to Gordon telling us not to waste food. Another communications gaff!

For once I have to defend Sir Richard. It seems that the great and good of the airlines all share the same skills of stating the obvious. It must be a job requirement somewhere on the first page of the job describtion.

[LD12986]

I'd be interested to know how Virgin Atlantic is doing at the moment. Long before the fuel crisis, Singapore Airlines had been complaining that it was underperforming.

[spider_man]

I believe VS flew with a 1% operating margin in the last financial year.

[ATNotts]

Coming back to Richard Branson's point, I would venture to suggest the answer might be that there will not be a "casualty" as such. Not that one, or may be more than one might become insolvent - but that the travesty that is "Chapter 11" will ensure that they a reincarnated - to fail again, and return to good 'ole chapter 11.

They certainly wouldn't be allowed to be taken over by any cash rich foreign investors (Emirates for example) - that would never do.