Late last year, Montie Brewer, a former Air Canada president and ceo, gave a presentation entitled ‘Five Reasons Why the Airline Industry Will Never be Profitable” at MIT. Here are the five reasons:

1.  It’s a capacity-led business model (which causes constant overcapacity)
The deregulation and subsequent commoditisation of airlines means the only way for an airline to grow is to add capacity. Airlines need to show more capacity on GDSs in order to grow revenue – this addition happens in tranches of hundreds of seats at a time, rather than the addition of tens, which might more naturally match demand. While adding capacity leads to lower operating costs, eventually total capacity grows too big to be sustainable.  Low cost carriers are less commoditised and better differentiated, not relying on GDS distribution, but distributing direct to consumer. They could ultimately prove to be hardier and more resistant to peaks and troughs than their legacy carrier cousins, who, according to Brewer, typically enjoy 10-20 profitable days in the year.

2.   Airplanes don’t go away (they just become more efficient)

It might seem reasonable to assume that consolidation in the airline industry through mergers, acquisitions and liquidations would lead to a natural reduction in overall capacity (fewer aircraft = fewer seats). But Brewer says that history shows a carrier’s capacity (both efficient and inefficient) never goes away. “The problem is aircraft do not go away, and aircraft do not make their way from an inefficient operator to a more efficient operator; aircraft CAN fly forever; even when an airline tries to retire aircraft, they come back like a bad spaghetti sauce (remember ValuJet using Delta’s DC-9s to compete directly with them in Atlanta); and, when carriers grow they realize great efficiencies.”

A three percent growth in capacity results in only a one percent increase in total operating costs.  But this works in reverse when carriers reduce capacity. The cost savings achieved aren’t commensurate with the reduction.   

3.   Labour Leverage

Brewer says labour organizations are not structured to manage the responsibility they possess.  He says labor has tremendous leverage over the industry, but because they are simple political organizations, they have a short-term view. He notes that politicians too (who often support labour for their own ends) have a short term aim – to stay in their elected position.  “Given the high fixed costs of the industry, airlines can rarely afford a strike or intermittent work stoppages.  According to Brewer, the working assumption is management will not allow labor to take too much, but in reality, labor can take all it wants – but then both parties will have to live with the outcome.

4. Revenue Cycle and Cost Cycle are Out of Sync  A low margin business with volatile input costs is a toxic mix. Even in the best of years, the airline industry is a low margin business where it is not uncommon for any number of input costs to increase at least 20%. The oil price increases during 2008 are the perfect example. Passengers flying on any date could be using a ticket bought when oil was $50 per barrel cheaper. Is the relationship between volatile costs and revenue impossible to manage?  No, but it would require companies to maintain outsized cash balances – which look good to labour during contract negotiations and also to financial raiders seeking to buy a company to harvest that cash. 5.  Nobody Really Wants It to Be Fixed

Happy consumers are enjoying below-cost flights. And airport service providers (often monopolies), and their retail outlets which passengers have no way of avoiding are also happy. Not to mention airline catering, aircraft lessors, ground handling, aircraft manufacturers, distribution systems, fuel providers, maintenance and repair organisations and freight operations. And travel agents. Each of these industry sectors in the airline industry value chain earn a higher return on invested capital than the airline companies that keep them in business. 

If Brewer is to be believed, the future for the airline industry is unremittingly grim. All around, existing airlines are hanging on by their fingernails waiting for the coming upturn, but this will be followed by a downturn. It does make you wonder… with the prospect of 10 - 20 profitable days a year why are new entrants into this fragile industry starting up at all?

It’s a haunting sound when a train groans and grinds into the station and then settles with a sigh at the platform. More haunting when it’s the last tourist train between Johannesburg and Hoedspruit.

The train I’m talking about is the Premier Classe, a delightfully old-fashioned overnight ride as well as the most relaxing, picturesque and absolutely the cheapest way of travelling the 450km from Johannesburg to Hoedspruit with its surrounding reserves and lodges. It promises a “five star” product, and a lot of the time Premier Classe gets that right.

Even in the unlikely event Transnet wakes up fast, this pleasant and relaxed contribution to our tourism economy is about to grind to a halt. And along with it, will go train-tourism initiatives, a largely untapped niche of potential tourism interest.

Thornybush Collection CEO Nic Griffin told Business Day that it was intolerable delays in the service which would ultimately lead to the failure of the service. And he said it was Transnet who must take the blame.  “The parastatal appears to be bogged down by poor maintenance and security, lack of infrastructure investment and weak management, which is turning customers away,” said Griffin.

“We have chartered both the Premiere Classe and the Blue Train in the last four months at huge expense, but on each occasion the train has run between three and nine hours late. The overseas market simply will not support this poor service. The worst part is that nobody apologises.”

The Passenger Rail Agency of SA (Prasa) CEO, Lucky Montana, says in an open letter in Business Day, February 9, to the DA, Shosholoza Meyl (the Prasa subsidiary which runs Premier Classe), requires about R1,4bn a year to run the business effectively, but the DoT provides only R450m. But, lest you think it is simply underfunding which has done the damage, read further on in the letter. Montana admits that the acting CEO of Shosholoza Meyl, Viwe Mlenzana, has been suspended for unauthorized expenditure and over-expenditure.

He says Sisa Mtwa, Metrorail CEO has been asked to explain his failure to manage controllable costs in Metrorail, poor train performance and the “neglect of the Tshwane Business Express Service” and to explain why disciplinary action should not be taken against him. And Metrorail Gauteng’s management team has been told to refund Prasa the money (almost R600 000 according to the DA) it spent on Women’s Day celebrations last year.

The tragedy of the decline of our rail services across the board is that all the infrastructure once was (and in many cases still is) in place. With proper maintenance it could have still been in functioning order and we would now have a decent commuter system plus a great tourism offering. I’ve been past the yards filled with rusting skeletons of rolling stock – they make you want to weep. I’ve seen the deserted stations where every sheet of roofing, every window frame, every door and every toilet has been removed. Now that the infrastructure has been allowed to rot and rust and waste away, the combination of underfunding and overspending will probably be the death blow to a once proud rail tourism service.

The whispers are circulating – Department of Transport DG,  Mpumi Mpofu (wife of controversial ex-SABC ceo Dali Mpofu) is currently the hot favourite to succeed Khaya Ngqula, as CEO of SAA. Mpofu has just resigned from the DoT, which could be an indicator she’s the hot tip, although she has denied in media she will take the post.

Media reports say Vodacom chairman Oyama Mabandla too is a candidate. He was mentored by Andre Viljoen, and groomed to succeed Viljoen. But Viljoen left suddenly and Khaya Ngqula was unexpectedly appointed, and Mabandla left the airline soon for Vodacom after a very short term as acting CEO for SAA.

It would be a comfort to know Nomfanelo Magwentshu was in the running. Confident and extremely competent, she was SAA’s general manager business development and the success of two major projects she drove during her tenure (SAA joined the Star Alliance, and launched LCC, Mango) is proof of her capability and leadership. She left to join 2010 Fifa World Cup Organising Committee as COO, and it’s unlikely (but not impossible) she’d leave World Cup with only 10 months to go to the fruition of her efforts. SAA would be lucky to get her to come back.

Then there’s Siza Nzimela, CE of that feisty little feeder carrier, SAX (SA Express). Nzimela too is a woman of formidable capabilities. She spent from 1996 to 2003 with SAA, starting as a research analyst, rising to EVP Global Passenger Services in 2001, and then EVP Global Sales and Voyager in 2002, until her transfer to SAX as CEO in October 2003. With six years running an airline quite successfully, preceded by seven in SAA, she is logically the strongest contender of the four but observers say she may lack the political clout.

Of course political gerrymandering is the last thing our critically ill national carrier requires. It doesn’t need government-type thinking. It doesn’t need political imperatives dictating route development. It needs routes on which it will make profits - every unprofitable route is funded by taxpayers.

SAA needs to build expertise in its management and to gain and maintain depth in its human capital. It needs a leader who understands the nuances of airline economics. It needs someone to run it like a profit-driven private business. Until it gets a brace of interventions such as these, it will remain the sick man of the Southern skies.

So who’s up for the job? The announcement will probably be made simultaneously with the announcement of SAA’s annual results. Naming a new CEO would provide a welcome diversion from what promise to be a sickly set of results. �

An article entitled “Saving SAA”, Business Day (June 5) praised SAA for “shaving off”  R2,5bn in cost savings, “all of which, as acting CEO Chris Smyth points out, are sustainable and have been incorporated into the day-to-day operation of the airline”. Smyth says, because of these cost-savings measures, on a purely operational level, SAA is profitable.Good news? Well, not really…it pales into insignificance against SAA’s enormous lease interest costs, bad hedging decisions, a R1bn Voyager balance sheet liability, a R700m provision for the purchase of 15 Airbus A320s, (without which it cannot move forward on its Africa expansion plans). SAA’s debt exceeds equity by 10%.This polishing of the parastatal’s marbles can mean only one thing – it’s time to report the annual results, and no one is going to be dazzled by the operating profit. The past six years have produced an embarrassing nett loss close to R16bn (R5,98bn nett loss in 2002/3, R8,61bn nett loss in 2003/4, R648m nett profit in 2004/2005,  R65m nett profit in 2005/6, R883m nett loss in 2006/7 and a R1bn nett loss in 2007/8). For the 2009 financial year, it is estimated the company will post yet another loss of approximately R1bn for a year which encompassed unprecedented oil price spikes, rand instability and a world moving into recession.  And it is certain the airline will once again ask the government to pay over R5bn and R10bn of taxpayers’ money to put the carrier back on its feet.

Jasson Urbach, an economist with the Free Market Foundation (www.freemarketfoundation.com) says: “As long as firms, in order to survive, are not protected by government-granted monopolies or taxpayer-guaranteed finance, they are compelled to provide a profitable and efficient service to customers when in competition with all other existing and potential suppliers. When governments protect public enterprises by keeping out potential competitors or making taxpayers pay for their mistakes, that discipline is removed and the result is poor management and poor service to customers.”

Ms Hogan was right – SAA should be sold, and the quicker the better.Now read the response to the Business Day article from Gidon Novick and Erik Venter, joint mds of Comair.“Your editorial on Friday was very surprising and quite disturbing. In it, you suggest that South African Airways (SAA) once again should be bailed out by the South African taxpayer to the tune of between R5bn and R11bn. This would follow the R15bn that has been ploughed into SAA over the past six years at the expense of more worthy public needs — least of all healthcare, education and policing.Your assumption that SAA is now sustainably profitable is incorrect. SAA competes in three markets: domestic, regional and international. The only one of these where SAA is able to compete and generate profits is the regional African market where SAA benefits from a very regulated environment. In the domestic market, where we compete with our two brands, British Airways and kulula, SAA is less efficient and therefore can’t fairly compete and has resorted to anticompetitive practices in the past. Many small private players including Flitestar, Sun Air and more recently Nationwide have closed down, unable to compete with the unlimited capital of SAA.Two-and-a-half years ago SAA launched Mango in attempt to stifle the growth of private low-cost airlines. In that time it is estimated (they refuse to publish financial results) that Mango has lost more than R200m.In your editorial you mention the tax revenues that would be lost if SAA were not bailed out forgetting that SAA is not generating tax revenues as it doesn’t make a profit.The main argument from SAA to motivate another bail-out is that the interest payments on its loans are resulting in operating losses. Welcome to basic business economics. The private airlines have to face the same challenge of high-interest bills when raising finance (and at higher interest rates than SAA incurs with government-backed credit), so why should SAA not have to deal with this “problem”?Almost 20 years ago the government at the time decided to deregulate the South African airline industry and invited private players to compete against SAA. The continued bail-outs of SAA at the expense of private competition is effectively a re-nationalisation of the airline industry in SA. Amazing then that an enlightened, pro free enterprise publication such as Business Day would endorse this. “  Erik Venter and Gidon Novick

For all those of you, who like me, have been pondering over the abruptness of the disappearance of the doomed Air France flight AF447, and asking yourselves why, in this age of high technology, there seemed to be so much difficulty in locating the wreckage, here is an interesting piece from Innovation Analysis Group (IAG) Blog http://iagblog.blogspot.com/. Please note, this is not a definitive technology article, rather an opinion…

We need broadband on planes - like now

The wake of this week’s AH447 tragedy highlights something crucial. While we don’t know why the plane crashed, we should have known where it crashed immediately.This is not some outlandish idea.This is the 21st Century. We have the ability to track cell phones for 911 purposes (let’s forget other sneaky reasons for now). The A330 had GPS, but it was a one way system like found on cars. The crew knew where they were, but there was no live feed back to Air France. Its clear from the absence of a “mayday” message that the crew had no time to even think of sending one. Whatever happened, it came too fast.

The Airbus A330 is a marvelous airplane - fitted with the latest technologies. But how come that the space shuttle has had real time telemetry all these years and airline’s have not installed this on their planes? The short answer is cost. But that is a sufficient answer. It costs a fortune to build in redundant systems too, but its done for safety. Ask anyone in commercial aviation what is their #1 priority? They will all say safety.

Well, its time to add another layer of safety and that is make broadband mandatory on every commercial plane. Broadband would not have saved AF447. But it would have enabled real-time telemetry and Air France would have known the plane was in trouble sooner and where it was in the world.

This is not to say lives could have been saved on AF447. But we learn from accidents.What can we learn from a crash where the evidence is miles underwater? Not enough obviously. To save lives going forward it seems reasonable to recommend that all commercial planes be required to carry broadband. This will allow not only passengers to communicate - more importantly, airplanes can generate continuous streams of data to airlines. This data stream could allow the operator to monitor systems - taking pressure off pilots when things start to go wrong. And eventually they do go wrong.

The technology exists. It may add a cost, but which passenger would refuse to pay (say) $5 more for such a system to be added? Indeed, don’t be surprised to see insurance companies require this technology to be installed. The AF447 crash will cost them a fortune, as every crash does. For the sake of maintaining the airline industry’s magnificent safety record, IATA should take the lead on this matter. Accidents happen - thankfully they are becoming ever more infrequent (which is why this one is getting so much attention). The cost of learning from accidents need not be repaid time after time. Posted by IAGblog

When Delta ceo, Richard Anderson recently jumped on the “agents-pay-airlines” bandwagon, saying he supported a similar vision to that of Richard Arpey, American Airlines’ ceo, (Arpey said he dreams of the day when travel agents and GDSs pay airlines for access to their content, rather than the reverse – (see previous blog post below) the US travel industry came to the boil.

In an open letter to the travel industry, Chris Russo, ASTA chairman and president said: “Much like Aldous Huxley’s Brave New World, both men envision a utopia that punishes individuals for breaking from their planned universe. They see a world in which everyone will happily accept that what they say is right and good. A world in which travel agents and online travel agencies will pay for the privilege of selling what has become a transportation commodity, and not a pleasurable one at that. They see a place where they, not the customer, are the center of the universe.

Under their vision, gone will be any semblance of customer service or follow through. Why should it exist when consumers will simply select the cheapest flights, go straight to that airline’s Web site and book it.”

“…Well, my customers don’t envision that world, and if I have anything to do with it, they never will. They don’t call me looking for an airplane seat. They call me to help them plan their vacation. They call me because they have a last-minute business meeting in London. They call because they want me to plan their family reunion next summer or because they have a funeral to attend. They call me for my assistance, for my expertise and for the value I provide them, and they are willing to pay for my services. They know they can go online and find out the price of everything. I sell them on the value of everything.“…

“Distribution for an airline, for example, includes much more than simply offering a seat and taking payment. Credit card merchant fees are included, as are GDS segment fees and commissions paid to international agents and large online travel agencies. With all these expenses there are few costs associated with travel agents. They took care of that a long time ago. But as the airlines start to look around, they see that travel agents are still in business and still making money. Money that isn’t going into their coffers.”

Why? Because we are where America shops for travel. Travel agents can manage a customer’s needs for air, hotel, car, insurance, theater and more. Consumers want choice. Consumers want service. Consumers want advocates who will fight for their rights. They want a distribution system that gives them full access to the entire travel industry, both leisure and commercial.

And in an open letter to Southwest from the Business Travel Coalition (BTC) chairman, Kevin Mitchell sees another force at work  - airlines like Southwest, looking for more high-yield business traffic by having a GDS presence are tinkering with agents’ livelihoods, yet are unable to replace the service model which TMCs provide.

Referring to a distribution fee Southwest already charges for bookings on the Travelport GDS, Mitchell says this type of thinking “would virtually shift your entire cost of distribution to travel management companies (TMCs) and then in turn onto the backs of corporate customers who already pay for distribution in the price of Southwest Airlines’ tickets.”

“While recently there has been much dangerous “dreaming” by airline executives about leading customers toward this self-serving future, I can assure you that this is not where travel buyers intend to go, and certainly not a path to success for an airline looking to grow in the corporate space. Companies will drive market share to those airlines that listen and are responsive to their preferences.”

“High-value corporate customers will not accept picking up the tab twice for Southwest’s distribution costs and at the same time cross-subsidize your leisure fares… you should know our community will not be dictated to, especially when a wholesale replacement of a tried-and-true distribution model that serves our needs is concerned.”  �

The latest cannonball in the three-way airline-GDS-travel agent war whistled into the US retail travel agent camp on April 16, when Travel Weekly reported that American Airlines ceo, Gerald Arpey’s dream scenario is one in which travel agents pay the airline for allowing them to sell its tickets.

Questioned about distribution-cost-savings, Arpey spoke of “reversing the flow” and said the airline believes it is paying too much in commission and booking fees, which “hinges on the use of technology and the competitive environment, because a lot of those commissions or overrides or booking fees are paid in order to stimulate traffic.I can see a day, and maybe I’m dreaming here, where those folks who are the intermediary between us and our customer have to pay for access to our product rather than us paying them to distribute our product.”

This is the War of the Distribution Costs. Airlines are staring down GDSs to get them to slash sector fees, and retail travel agencies are the battleground in which the war is being fought. First prize for airlines is if travel agents are driven totally online so airlines avoid GDS charges altogether. Some tactics in this conflict have been…

 *charging agencies for opt-in models for full content, *levying a (dollar-based) surcharge on bookings in GDSs which won’t strike a good enough deal with the airline, *now, the rather amazing idea that agents pay airlines for distribution.

But the practicalities of this last solution are not very clear…

*How would any carrier cope with the flood of direct bookings it would gain when the natural consequence of such radical action ensued (agents would immediately off-sell AA)?

*How would AA then service those customers (like when a delayed flight is cancelled, is AA going to get the passenger with an urgent meeting to attend, a seat on a competitor?).

*How expensive would it be for AA to replicate a travel agency-type distribution model of its own, around the globe, in which GDSs play no part and all bookings are online?  

*Who would want to go into one of these airline “agencies” knowing you can book only one airline and nothing else? No one. That’s why the travel agency model was invented.

 Yes, Mr Arpey, I think you are dreaming.

Interesting comment in The Times (the SA Newspaper), March 20, reflecting the cynicism of the SAA board allegedly awarding the airline’s outgoing ceo a multi-million Rand settlement (amount undisclosed) just after the carrier receives yet another rescue package from government. It had asked for R5,2bn, but got only R1,6bn.

 “The state is no longer willing to allow the parastatals to act with impunity

EDITORIAL: PRESIDENT Kgalema Motlanthe and his cabinet should be applauded for taking a stand against the SAA board’s shameful decision to grant a golden handshake to the airline’s axed chief executive, Khaya Ngqula, who is still under investigation for misconduct.
The cabinet’s decision to seek legal advice on whether the board had acted unlawfully by entering into a multi- million rand financial settlement with Ngqula, without first consulting the government, its sole shareholder, is also encouraging because it indicates that the state is no longer willing to allow parastatals to act with impunity.
A month ago, a frustrated national treasury director- general, Lesetja Kganyago, said SAA was like an “unreformed alcoholic” who keeps asking for more. This was after the state was asked for the umpteenth time to bail out the struggling national carrier to the tune of R1.6-billion.
For far too long, the government has sat quietly on the sidelines while chief executives and boards of under-performing state-owned companies paid themselves huge salaries and unjustifiable bonuses. Now Motlanthe and his ministers are saying enough to the shenanigans that have been going on at SAA and in other under-performing state-owned enterprises .They have told the department of public enterprises to prepare a report on the state of all parastatals.
The department will look into issues of governance, management and the reasons for under-performance in each of these companies.These are all positive steps by the government, and these measures might go a long way towards fixing what is wrong at SAA and in similar companies.

We hope the urgency that has been shown by Motlanthe’s cabinet in dealing with the rot will continue to prevail even under the next administration.”

     Although our national carrier has been flying for 75 years, it seems that whatever SAA does, it just cannot get itself off the ropes and into the ring. Here are some of the left jabs, straight rights, left hooks, and combinations that have left the airline reeling… �
1. Is SAA solvent?  
SAA’s debts currently exceed its equity by 10% a parliamentary portfolio committee recently heard. Kaushik Patel, SAA’s cfo, says despite having had R8,5bn’s worth of shots in the arm from the SA government in the past five years, the carrier remains undercapitalized and is now in a debt trap. A promise of only R1,6bn has been secured from treasury, but SAA has said it needs R5,2bn in capital just to deal with its frequent flyer programme liability on its balance sheet and to avoid being sued by Airbus. �
2. Will Airbus sue? �
The reference to SAA actually needing R5,2bn from government to avoid being sued by Airbus relates to it attempting to cancel part of a 2002 order comprising a mix of 41 Airbus aircraft, valued at around R23bn in 2002. After the 2004 fuel hedging disaster SAA wanted to cancel 15 A320s (a total of R9,4m at list prices) out of the order. Airbus took the view that the original contract was a single package involving all 41 aircraft (nine A340-600s, six A340-300Es, 11 A319s and the 15 A320s, all but the A320s have been delivered) and thus the order was still in force according to Airbus and progress payments have to be maintained. SAA is believed still to be in negotiations with the manufacturer. �
3. Will Comair and Nationwide sue? �
The Competition Commission is yet to decide on a second case brought by Comair and the liquidators of Nationwide over what the two private airlines have called SAA’s unfair use of incentive schemes to persuade travel agents to offsell them. If the decision goes against SAA, it will open the way for a civil case to be brought by the Nationwide liquidators and Comair. How much they will claim is unknown. �
4.  Some gravy with that, sir?
Labour unions provoke an investigation into alleged irregularities in the awarding of a catering services tender for SAA to a company in which a business partner of SAA ceo Khaya Ngqula’s wife is involved.  Midway, the airline and its ceo suddenly decided to part company “by mutual agreement” according to chairman Jakes Gerwel. �
5. Why do 9 out of 10 druglords prefer SAA? �
Two recent significant drug-busts at Heathrow, involving SAA crew have not only disgraced the airline, but could threaten its continued operations to the UK. In 1997 SAA was threatened with impoundment of aircraft and a ban on flights into Heathrow after crew were found to be trafficking drugs. �
6. Two strikes and you’re out? �
The airline is facing a wider strike than the present one by Satawu. The strike was sparked by the disclosure that despite SAA heading for a massive loss in 2009, retention bonuses have been paid to senior management. The 2006 strike crippled the airline for a week and dealt it a serious financial blow. �
7. Can we have our money back? �
Air Tanzania owes SAA almost R43m and SAA is having to take legal action to extract the money. This dates back to the partnership between the two airlines from 2002 to 2006 which turned sour when the East African carrier sustained loss upon loss. Air Tanzania is now a floundering 3-aircraft carrier owned by the Tanzanian government.   

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!