Wednesday, April 23, 2008

The Really Wild Blue Yonder

We're heading for some turbulent times in the aviation industry. Yesterday's news that the Monopolies Commission is thinking of breaking up the control of the UK's major airports was hailed by everyone of great news - well not the BAA. On the surface of course it looks like a given and there will be great times ahead as airports compete to attract airlines to their airport. Simple really, except not quite so simple when you look at the economics of the whole thing and here in Scotland the proximity of Edinburgh and Glasgow both competing for what is only a relatively small pot. Somehow or another airlines, notably Virgin, think that it will instantly lower their costs and the passenger experience will be improved. Again it's all a bit to simplistic. Airports do not compete in the same way as ordinary businesses and never will. It's all become a bit of a mess, resulting from the governments privatisation of the BAA years ago and its sale to the Spanish company a couple of years ago. We've made a real rod for out national aviation back.

There's an added problem looming, that of very tricky times for the airline business. The shares of both easyJet and Ryanair continue to slide. This morning easyjet dropped 5% to 288 pence per share in early trading, that's down from 448 ( a drop of 36%) since February; just remember they were at over 700 in June 2007. Ryanair are also in all sorts of trouble. They are at €2.63 today, down from €3.50 in February (a drop of 25%), back in 2005 they were at €6.77. The fact is that they cannot buck the inevitable - meaning rising oil prices and the squeeze of discretionary spending. Unlike the traditional carriers who have a greater proportion of business travel and carry cargo, carriers like easyJet and Ryanair have very little space for manoeuvre. I wouldn't be at all surprised to see some new route expansion from Ryanair in Scotland shelved and neither would I be surprised to see some aircraft being sat on the ground as the pressures on costs keep soaring

No comments: