Here comes the slow up?
The Centre for Asia Pacific Aviation (CAPA) has reported that airlines in the United States have signalled to the market that they plan to reduce or slow capacity growth in 2008. CAPA has stated the recent plans are the direct result of a softening market and excessive competition, with both airlines and analysts agreeing that the future profit outlook is grim and that market consolidation is essential- an attitude which CAPA sees as evidence that capacity needs to be reduced.
US Airlines has announced that it is set to reduce capacity in its primary US operations by 3-4% next year, stating that it “sees no business case to grow domestically.” US Airlines is not alone in working to stay competitive, with Southwest Airlines, Continental Airlines, American Airlines and Delta Air Lines stating that they will cut back or reduce capacity expansion in 2008.
Some of the capacity being taken out of the US market will find its way offshore, into international markets, with British Airways announcing a 5% growth in its strong long-haul market which includes the North Atlantic.
"You will have a recession some time, and the impact on the airline industry will be dramatic… All of that leads to consolidation, I think," said Gary Kelly, CEO, Southwest Airlines.
“We'll be growing international in relatively unabated terms... We're also looking at the consolidation question," said Ed Bastia, President, Delta Air Lines.
Whilst mergers have been a topic of discussion, the actual implementation of a consolidation is quite difficult. To merge, large US airlines first have to receive the approval of reluctant anti-trust authorities and then actually consummate a complex combination of networks, unions, cultures and brands. Such a task is more than challenging and the airlines will more than likely have to wait till consolidation is suggested by another organisation.
CAPA has suggested that such difficulties may soon become a world wide problem, noting the falling levels of consumer confidence in the US and the falling house prices and tighter credit at The Bank of England. The bank recently reduced interest rates by 0.25%, stating, “Conditions in (UK) financial markets have deteriorated and a tightening in the supply of credit to households and business is in train, posing downside risks to the outlook for both output and inflation further ahead.”