A huge setback for the airline industry?

Scott Jagow Aug 10, 2006


SCOTT JAGOW: This terrorist threat out of London today might be a huge setback for the airline industry. In fact, airline stocks tanked this morning in Europe. Shares of American Airlines dropped almost 13 percent. Mark Pilling is the editor of Airline Business magazine in London. Mark, what’s the first concern right now for the industry?

MARK PILLING: The first concern for the industry of course is to make sure that they can get as many of their passengers as quickly as possible to where they’ve got to get to. I mean airlines absolutely hate this kind of disruption. It causes immense hardship to their customers and it causes immense hardship, quite frankly, to the airline. I mean this is massive disruption to the schedule. Their whole planning, where the aircraft are, where the crew are, all the rest of the massive logistic exercise that involves getting people from A to B.

JAGOW: And how much does something like this cost the industry?

PILLING: In the short-term it will run into the millions of dollars, just on one day this is going to cost them in excess of $10, $15, $20 million when you think about the whole of the UK and that’s probably a conservative estimate.

JAGOW: Mark, what exactly are the costs that the airlines must incur when something like this happens?

PILLING: I mean it’s difficult to say, you know, it depends on each carrier and each airline. They will lose some passengers here, some passengers will choose not to fly, they just won’t be able to fly. And then they will have to have all the costs of getting aircraft into the air, extra aircraft to get people back, the whole disruption cost of aircraft in the wrong place. You need more fuel, more crew, bringing in extra people to deal with this. It’s just horrendous how these things mount up. Future ongoing costs depends on if there is any longer term issue in terms of bookings, whether people will say ‘Well I’m not going to fly because I don’t fancy it at the moment. I feel there’s a heightened threat of some terror action therefore I will not fly.’ Do you know what I mean?

JAGOW: Certainly. And we’ve just been talking about how well the airlines are doing this summer. Record demand, shares are up for the first time in several years and now this. So what’s going to happen here?

PILLING: Yes there’s no doubt about it. I mean, let’s not get too carried away with the performance of the airlines, can I just say, profitability this is just one quarter or maybe two quarters for some carriers that we’ve seen some good news, but we need to see some sustained profitability before we say ‘yes the industry’s turned a corner.’ But yes, the worst case scenario for carriers is of course another big event. Carriers cannot cope with this really on top of fuel costs being where they are. Competition is intense as we know, in most markets. I think the way the authorities have reacted, and the airlines too, has been very swift and very dramatic. I mean they are taking this incredibly seriously. So you know we’ve got to hope that works and that has worked. But share prices in the UK and across Europe for some carriers have already dipped.

JAGOW: OK Mark thanks a lot.

PILLING: Cheers.

JAGOW: Mark Pilling is the editor of Airline Business magazine. He spoke with us from London. In Los Angeles, I’m Scott Jagow. Thanks for joining us.

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