Flying high?

The role of air transport has been so relevant that it changed our way to consider long distances in terms of time instead of length. It is quite obvious the importance to guarantee an efficient flow of cargo and passengers as well. The real issue related to air transport, and particularly about airlines is profitability.

According to the Daily Financial, airlines industry reported losses for USD 9.4 billion during 2009 and during 2010 it may reach loses fro USD 2.8 billion.

Airlines business has a massive issue related to economic cycles. When the sun shines for the financial markets and everything is bullish, we find high oil prices that boost operational costs. On the other hand, when economy is depressed people do not have money to travel. In both cases affect profits.

Therefore, it seems natural in this industry an increasing level of mergers and acquisitions (M&A) to keep businesses running. This has become a preferred strategy that ensures some economies of scale and contributes to the consolidation of some companies in the market. For instance we can name the recent cases of the merger between Iberia and British Airways, and between United Airlines and Continental (this one would create the biggest airline in the world).

Nevertheless, some specialists point out that M&A in the long term will enable monopolies because this exaggerated consolidation of the biggest companies that will expel the smaller competitors. As some recent evidence, the Air Transportation Association reported that 37 airlines have gone to bankrupt and 9 were liquidated since 2000. Also, a lack of competitors would increase fares and bad quality service if no regulation is dictated.

In spite of these dark prospects, the compulsory need for air travel seems to be the real fuel for this business considering the absence of other alternatives to transport in big scale. Technology might have the last word in this matter if by any chance we can get super trains or another creative way to travel that will replace most of air travels for instance.

It might arrive another opportunity to the industry if technology delivers successfully fuel-efficient aircraft such as the brand-new Boeing 787. Nevertheless, this does not mean emancipation from oil dependency. In addition, an upper-hand from the government having a regulating role could be helpful as well to keep small business running. Thus, what would be the next step for a business that started with our fascination to imitate the flight of the birds? It seems is not compromised so far, but indeed full of issues and scarce of good profits.