When the oil price reached its dizzy peak in July last year, airlines were forced to finally junk their old, fuel-inefficient aircraft. This brought two benefits – huge fuel cost-savings and a big reduction in capacity (in the US, a 14% capacity drop is anticipated during 2009).

 In the US, where swift and sweeping capacity cuts actually allowed domestic carriers to increase fares, the strategy was so successful that Iata now predicts a small profit (US$300m) in 2009. 

Even so, with the oil price currently hovering around US$40 a barrel, premature (or plain unlucky) hedging combined with declining passenger numbers and cargo volumes have taken the gilt off the gingerbread for many carriers and the industry remains in a dangerously delicate state.

 Inevitably, the collateral casualties are the businesses which supply all parts of the air travel chain. Take a brief look of the state of the aircraft manufacturing industry… 

* Airbus forecasts a 66% decline in new orders this year. Still, Airbus ce, Tom Enders, said recently at Davos, he believes there is no need for the French government to aid airlines in buying equipment. (Adding to the French manufacturer’s problems is the prediction that it will fall short of its A380 delivery goal in 2009, from the anticipated 25 to 21, and more recently to 18).

 * Boeing will slash 10 000 jobs this year.* Canadian aircraft manufacturer, Bombardier, cut 3 800 jobs last year.* Cessna, (light jets), is laying off 2 000 staff.* Engine manufacturer, Rolls Royce, is losing 1 000 jobs. The common thread is cancelled orders, falling demand and postponed deliveries.

Now Iata says we should expect more capacity cuts, but because demand is falling faster than capacity, load factors are tumbling.

Of the many older, less fuel-efficient aircraft, now sitting idle, Giovanni Bisignani, Iata charirman and ceo, says: “It seems that these aircraft have been priced back into the market by the fall of fuel prices, though filling them with passengers may be a challenge.”
Other have expressed the fear the future could play out thus…1.  A huge pool of available aircraft, (cancelled and deferred new aircraft orders, combined with parked, older, less fuel-efficient aircraft) will push equipment prices south.

 2. This, combined with the current “cheap” fuel price will be irresistible for airline ‘wannabes’. A rash of start-ups will quickly lead to a surplus of available seat kilometers (ASK). 3. Excess capacity will push yields down, leaving airlines in a worse position than they are now!