IATA Chief Says Labor, Credit Problems Lurk
Airlines in the United States are
counting down the days of 2007... looking forward to claiming this
year as their first profitable one since 2000. But while the
champagne may already be on ice, the head of the International Air
Transport Association cautioned US carriers not to celebrate too
much.
Reuters reports in a speech this week to the Washington Aero
Club, Giovanni Bisignani (right) warned the bubble could burst due
to a number of factors, in particular labor unrest and credit
woes.
"Unfortunately, as the industry shows even fragile
profitability, labor starts to look for a free lunch. Already we've
seen strikes from France to Japan," Bisignani said Wednesday,
speaking of upcoming labor negotiations for several carriers.
"Several key US contracts will be negotiated next year -- if labor
pursues an agenda as an irresponsible adversary, our common future
is limited."
As ANN has reported, labor
groups such as the Allied Pilots Association, the union for pilots
at American Airlines, have made no secret their intention to take
advantage of the current financial upswing in upcoming contract
renegotiation talks.
APA says its pilots took it hard on the chin -- and even harder
in their wallets -- in 2003 to keep the airline out of bankruptcy
-- and they now want some of that back, especially as several
executives were awarded lucrative bonuses earlier this year.
Today, labor costs represent 23 percent of total costs for
airlines nationwide. That's a high number... but it's actually five
percentage points less than in 2001, before the 9/11 terror attacks
that spurred years of financial downturns, and restructuring at
many airlines.
Bisignani also warned US carriers -- which for the most part
have resisted upgrading their fleets, despite a global surge in
airline orders -- may find it harder in 2008 to order new planes.
Airlines reluctant to order in 2006 and 2007, due to economic
uncertainty brought on by high fuel prices, may find manufacturers
unable to fill any new orders for several years.
"Lenders will be cautious and even if orders are placed today,
production lines at Boeing and Airbus are virtually full for the
next three years," Bisignani said, adding credit woes among US
carriers also throws "a shadow over the industry."
About 1/3 of the US airliner fleet is over 25 years old -- and
while safety hasn't been compromised, those older models are far
less efficient than newer planes. That's a big risk factor,
Bisignani said, with oil prices pushing $100 a barrel.
With continued volatility in many areas, Bisignani warned
airlines to not grow overly-jubilant.
"The industry is out of intensive care, but the industry is not
financially healthy," Bisignani said, according to The Associated
Press.