Airline sector 'may see more failures'

The airline industry could face more failures due to higher oil prices and rising consumer compensation payouts, according to a leading aviation consultant.

The sector has seen a string of collapses in recent months including Danish low-cost carrier (LCC) Primera, Cyprus-based Cobalt Air and Switzerland’s SkyWork Airlines.

Aviation consultant John Strickland, from JLS Consulting, told an Industry Outlook session at WTM London: “I think there will be more failures. One of the challenges for the airline business has been the fuel price rising dramatically in the last 12 to 18 months.”

Two years ago, aviation fuel was priced at around $30 per barrel but it has risen by 40 per cent in the past 12 months to reach $70 to $80 per barrel.

“Low cost, long-haul has been the flavour of the month as a business model – it’s all about offering a low price and a simplified service with passengers buying the extras they need,” said Strickland.

Another problem for airlines is the high level of compensation they are required to pay for delayed and cancelled flights by the European Union law, known as EU261.

Strickland added that he expected Emirates to remain the leading airline in the Middle East region – ahead of rivals Etihad Airways and Qatar Airways.

“They are powerful airlines – Emirates will remain the leader. Governments are seeing the economic advantages of having a strong airline,” Strickland added.

“They will remain a big part of the picture. They have been trailblazers in a number of markets. They have taken entrepreneurial risk and seen the fruits from the traffic they have developed.”

But Strickland said “second tier” airlines faced a more difficult future than the big three of Emirates, Qatar Airways and Etihad.

“More governments are beginning to recognise they need to have efficiency in their airlines,” he explained. “Gulf Air has a remit to turn that airline around. There are some hard realities being faced up to.”