Reasons for this unsatisfactory result, according to IATA, include a high level of competition, the fact that the airlines are capital and labour intensive with still-high unit costs, a tendency to buy traffic and market share in the short term, and a misalignment between economic cycles and aircraft deliveries which often leads to extra capacity coming on line at just the wrong time. Just the right mix of ingredients to discourage investors. Things are going to have to change in the brave new world of money, money, money.
Many costs are outside airlines' control, such as fuel, interest rates and user charges.
But cuts are needed in distribution costs and a far more commercial line taken in adding capacity. Overall, notes IATA DG Pierre Jeanniot, the industry needs to better manage itself, particularly on the capacity side. Further cost reductions and greater marketing synergies suggest that the industry should become much more consolidated, continues Jeanniot. The industry response has been to consolidate through codesharing agreements and alliances, due primarily to existing legislation and limitations on foreign ownership, and the bilateral traffic rights enshrined in history. The primary attraction of alliances is instant access to new markets, with the opportunity of capitalising on, rather than competing with, other airlines hubs.