Airlines optimistic despite a year of several tragedies
U.S. aviation more advanced than Asian counterpart
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.