Aviation, a fragile industry, exposed to a host of setbacks beyond its control

    One week it is a fractured fuel line that fundamentally disrupts airline operations in New Zealand’s major airport, Auckland. Today, an ATC malfunction threw all air services at Australia’s key hub at Sydney Airport. For several hours, the airport was shut down, throwing local and global airline schedules into disarray. Then again, as Bali’s Mount Agung threatens to erupt in celebration of Australia’s school holidays, once again airlines operating to the island are at risk of having to bear the cost of repatriating thousands of holidaymakers if their stays are disrupted.

    But these are only a minor selection of the myriad of things that can upset the fragile balance of the industry.

    The Icelandic volcano with an unpronounceable name (Eyjafjallajökull) closed many European services down in 2010, disrupting 10 million passengers – and there are serious warnings of a new eruption in Iceland, following a series of earthquakes.

    Health concerns at the time of the SARS outbreak, the chicken borne disease, earlier this century almost caused Cathay Pacific to shut down operations, while air services across the world were severely cut back. At the time the World Health Organisation stated it was “not a matter of whether, but of when” a major disease outbreak would shut down air travel.

    This is probably the greatest external threat, although a level of complacency has descended as the memory fades. But one thing is certain – there will be more to come.

    One of the biggest “external” events, over which airlines have no control whatever, is the price of fuel. This is the biggest single input cost; at present with oil prices around USD50 a barrel, the cost is containable. But increase that threefold, as happened 10 years ago, and the entire industry is put at risk.

    And, as a highly conspicuous activity, airlines are highly prone to security risks and terrorist threats. Even where the risk is contained, the cost and inconvenience of providing for protection can be major impediments to profitability. Weather is another unknown that can easily wreck the tight scheduling that is necessary for efficient operations.

    Add to that the fact that airlines are most heavily (and often archaically) regulated, from safety to economic regulation that prevents logical commercial activity – such as not being allowed to merge or take majority shares in foreign airlines – along with a host of consumer rules that can punish airlines for delays that are beyond their control, and the picture emerges of an industry that almost seems set up to fail.

    So, given the enormously competitive marketplace within which they operate, making a profit isn’t something that comes easily to airlines.