Air­lines op­ti­mistic de­spite a year of sev­eral tragedies

U.S. avi­a­tion more ad­vanced than Asian coun­ter­part

The Washington Times Weekly - - Geopolitics - BY MEGHAN DRAKE

It hasn’t been a good news cy­cle for the avi­a­tion busi­ness — a com­mer­cial plane shot down over Ukraine, the clo­sure of Is­rael’s main air­port over ter­ror­ism fears and Wed­nes­day’s deadly crash of another plane in East Asia — but the travel-by-air busi­ness is not likely to see an eco­nomic crash land­ing.

Af­fected car­ri­ers and lo­cal mar­kets could take a bot­tom-line hit, but the un­happy con­flu­ence of sto­ries should not have a ma­jor im­pact on over­all prof­its and pas­sen­ger de­mand, said Michael Boyd, pres­i­dent of the Colorado-based avi­a­tion con­sult­ing firm Boyd Group In­ter­na­tional.

“None of these things are ad­di­tive to where the whole air­line in­dus­try is go­ing to be af­fected,” said Mr. Boyd, adding that these in­ci­dents could prove more dam­ag­ing in tar­geted mar­kets such as travel and tourism to Is­rael.

“The trav­el­ing pub­lic has a very short mem­ory,” added R.W. Mann Jr., founder and owner of an air­line anal­y­sis firm that bears his name. “And they’re also fairly lo­cal­ized.”

He said the in­ter­na­tional in­ci­dents will not have a big im­pact, be­cause trav­el­ers al­ready go through a risk as­sess­ment when they choose their air­line and des­ti­na­tion. If a U.S. cit­i­zen is trav­el­ing to Or­lando, Florida, the choice of air­line, time and date are part of an in­ter­nal safety check.

One longer-term im­pact, how­ever, may be in­sur­ance costs for car­ri­ers. Pre­mi­ums could rise, in­creas­ing pres­sure on prof­its and ticket prices, if the per­cep­tion of ris­ing dan­ger in the skies per­sists.

The lat­est bad head­line came late Wed­nes­day night, when a Tran­sAsia Air­ways plane crashed in bad weather from Ty­phoon Matmo. Tai­wanese Trans­port Min­is­ter Yeh Kuang-shih said 47 peo­ple were trapped and feared dead, while another 11 were in­jured, The As­so­ci­ated Press re­ported.

The Tai­wanese plane crash comes at a time when air­plane safety woes have at­tracted in­ter­na­tional fo­cus thanks to the still-miss­ing Malaysian Air­lines over the In­dian Ocean; the re­cent crash of another Malaysian Air­lines jet over eastern Ukraine; and the de­ci­sion — much crit­i­cized by Is­rael — by the Fed­eral Avi­a­tion Ad­min­is­tra­tion and many Euro­pean reg­u­la­tors to tem­po­rar­ily halt all ser­vice to Tel Aviv’s Ben Gu­rion Air­port, the coun­try’s main in­ter­na­tional hub.

But for ma­jor U.S. car­ri­ers, these tragic in­ci­dents aren’t go­ing to be as equally mourn­ful on the bot­tom line.

Mr. Mann also noted that the U.S. air­line sys­tem is far more de­vel­oped than in mar­kets such as Asia, where many car­ri­ers are fac­ing fi­nan­cial trou­bles and de­creased stock val­ues.

“It’s still a very frag­mented in­dus­try in Asia” be­cause of a large group of star­tups and bud­get air­lines and a lack of joint ven­tures, Mr. Mann said.

Par­tic­u­larly bat­tered has been Malaysian Air­lines, which has dealt with two bizarre in­ci­dents cost­ing a to­tal of 537 lives. Malaysian Air­lines’ stock was down 2.17 per­cent in trad­ing at one point last week.

Deal­ing with two tragedies, the fu­ture of the air­line is un­clear. Bloomberg re­ported this week that Malaysian Air­lines’ par­ent com­pany, Khaz­anah Na­sional Ber­had, is de­ter­min­ing a re­vival plan to be an­nounced as early as Au­gust.

Khaz­anah Na­sional, a Malaysian govern­ment in­vest­ment fund, an­nounced in a state­ment July 3 that a “com­pre­hen­sive re­view of re­struc­tur­ing op­tions for [Malaysian Air­lines] is be­ing un­der­taken and eval­u­ated,” in­clud­ing tak­ing the air­line pri­vate or fil­ing for bank­ruptcy re­or­ga­ni­za­tion.

In the Mideast, the war be­tween Ha­mas and Is­rael has spilled onto the tar­mac.

The FAA acted af­ter sev­eral air­lines, in­clud­ing Delta Air Lines, Scan­di­na­vian Air­lines and Korean Air Lines Co., can­celed flights to and from Ben Gu­rion due to a rocket strike one mile away. Over Is­raeli ob­jec­tions, the FAA ex­tended the ban for another 24 hours Wed­nes­day. The Euro­pean Avi­a­tion Safety Agency has also is­sued a “strong rec­om­men­da­tion” to all Euro­pean air­lines to avoid Ben Gu­rion un­til fur­ther no­tice.

Mr. Mann noted that pro­hib­ited airspace by reg­u­la­tors is “not … truly lim­ited to Tel Aviv.” A dozen coun­tries through­out the Mid­dle East and Africa have a flight ban or high-risk pro­file by the FAA. He said the rea­son why this flight pro­hi­bi­tion has caused a stir is be­cause Is­rael has “eco­nomic lever­age” that other states do not.

“Ye­men, not so much. Is­rael, yeah,” he said.

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