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IATA members` profits are real profits

Author: Theodore Koumelis / Date: Fri, 10/26/2007 - 12:54
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As an industry we have become largely privatised - but we continue to ignore a fundamental truth, that the one major reason why private capital makes investments is...

As an industry we have become largely privatised - but we continue to ignore a fundamental truth, that the one major reason why private capital makes investments is profit! said IATA<.> Director General Pierre J. Jeanniot, in a speech to the Financial Management Conference in New York on 4 April.
Net profitability on international scheduled services declined from USD 3.1 billion in 1998 to USD 1.9 billion in 1999, and a slight recovery to USD 2.2 billion is possible for 2000. The net profit figures for 1999 and 2000 would represent an average of 1.4 percent of revenue in the two years. Even if all that profit were devoted to rewarding shareholders, it would not set the world on fire. But at least it would be real - unlike many NASDAQ profits! Jeanniot continued.
The problem is that we continue to be market expansion and market-share oriented, rather than `bottom line` driven. Now, there is an added risk of being blinded by modern E-commerce hype. E-commerce is a promising field.
Sensibly applied, E-commerce techniques could have a favourable impact on our operating cost base, now USD 150 billion, of some USD 12 billion, everything considered.

But once again, we should resist the temptation of giving all this away to consumers. One fundamental that has not changed is that, whereas actual load factors cannot go above 100 percent, break-even load factors can -and sometimes do. The basic road to sustained profitability has not changed. So, we should plan to create consistently less capacity than our original market forecast but, at the same time, take advantage of a good economic climate to improve yields, through more careful inventory control of lower fares. At this time, nobody should ask business class travellers to pay more.
Jeanniot concluded with advice to shift the airline shareholder to the top of the priority list for rewards, and to stop chasing the chimera of endless traffic growth at any price. If governments are no longer going to subsidise such folly, why should we?
Let us never forget the fundamentals of sound airline operations - and let`s all start to make some real money!

ABOUT THE AUTHOR

Theodore Koumelis

Co-Founder & Managing Director

Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.