COVENTRY: Yet another airline has collapsed – this time British operation Flybmi, costing almost 400 jobs as hundreds of flights were cancelled at short notice. It is the latest in a string of recent European airline failures, including Air Berlin, Alitalia, Monarch, Primera, Azur and Cobalt.
Airlines also have to deal with fluctuating expenses like fuel, which accounts for around a third of total costs. There is also extensive regulation, combative unions, relatively low barriers to entry and the fact that travellers can so easily shop around. The political uncertainty has not helped British airlines either – though equally we must generally beware of companies using this as a scapegoat for bad performance.The net result is that it is very difficult for airlines to consistently turn a profit. Business failings are particularly likely to be punished – in the case of Flybmi, for instance, neither the company’s costs nor its fares were low enough to compete effectively.
The attractions of growing through acquisition are much the same as in many sectors: It gives you greater control of purchasing costs by boosting your negotiating power, while also potentially reducing the downward pressure on ticket prices by taking competitors out of the market. It’s also financially irrational when you reflect that the airlines sector produces among the poorest returns on investment. Yet even during recessions, the rate of airline launches sometimes increases.
But don’t look to Ryanair to become another of the casualties: Chief executive Michael O'Leary still expects the company to make profits after tax of around €1 billion to €1.1 billion for the financial year 2019.
Source: News Formal (newsformal.com)
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