By Updesh Kapur/Miami


The figures speak for themselves. The North American aviation industry has never had it so good and, to say impressive is an understatement.
This year, over 50% of the global airline industry’s profits is expected to be generated by carriers based in North America.
At $15.7bn, it’s a healthy figure against a record global level of $29.3bn – almost double the $16.4bn posted by the industry as a whole during 2014.
The Middle East, after Asia and Europe, is set to account for a relatively minor $1.8bn of the projected 2015 net profit numbers.
The significant strengthening of financial performance in the space of 12 months is the result of several factors. Stronger global economic prospects, a record number of travellers, sharp rise in passenger load factors, appreciation of the US dollar, and more noteworthy, much lower fuel prices which have fallen to below half the 2014 levels.
According to the International Air Transport Association (IATA), the global airline industry governing body, 2015 will see 3.5bn passengers carried; almost 55mn tonnes of cargo flown; and a global network of member airlines spanning 51,000 routes.
IATA states aviation supports 58mn jobs worldwide, generates $2.4tn in economic activity, while singling out the US, the world’s largest travel market, as supporting around 5.7mn jobs and contributing $561.7bn to the GDP.
US airlines are leading the North American charge and indeed the industry in terms of profitability and the US is our industry’s most impressive turnaround story, says IATA director general Tony Tyler, speaking at the association’s annual meeting in Miami this week.
“US airlines are investing more than $1bn a month in their product and adding service to meet rising demand for connectivity.”
In a nutshell, Tyler says: “Aviation stimulates growth and creates jobs.”
Tyler’s words may well have created a sense of buoyancy in a packed conference room at the Loews Hotel in Miami, but ones that were desperately needed for an industry plagued over the years by crippling costs.
Though there are variances in performance region by region due largely to economic disparities, the outlook is positive.
The US aviation industry has emerged as the star performer transforming itself from the lows of the tragic events of 9/11 almost 14 years ago through mass restructuring, consolidation, and both fleet and product investment, to the highs of today.
The financial might of the US majors, in particular, will encourage them to grow and further develop their business, says a confident IATA.
Yet the irony here is the US fears its share of the profitability pie is under threat. It wants, and rightly so, to maintain and increase profit margins in line with any business strategy.
The thorn in the side are the relative ‘minnows’ thousands of miles away with the onslaught into American territory of the three burgeoning Gulf carriers said to be eating into their market share.
As highlighted in recent weeks in this column, the key US players – Delta, United and American – have mounted a joint scathing attack on the Gulf’s Emirates, Etihad and Qatar Airways over billions of dollars of alleged government subsidies received that they claim provide unfair competition and an uneven playing field in global aviation.
The US majors are pushing their governments to restrict Gulf access to American shores. Strongly denying the claims, the Gulf carriers have hit back, arguing the US aviation industry has benefited from tax rebates and government backed Chapter 11 bankruptcy protection over the years to keep their businesses afloat.
And thousands of US jobs have been created through deployment of flights from the Gulf to the US and the mass orders of US-made aircraft placed by the Middle East’s key operators.
Collectively, these factors have helped shape the US aviation industry to what it is today – healthy, buoyant and profitable.
In Miami last week, the US-Gulf spat was not on the IATA agenda at its 71st AGM.
IATA remained neutral on the issue, saying it had no mandate to interfere, not wanting to support, nor defend either side in the bitter row. Hence, none of the six airlines in question faced each other in a panel debate. This would have created fireworks for sure.
Hundreds of delegates from across the world were eager to hear firsthand the arguments from both sides in a conference attended by scores of airline CEOs and industry bodies.
The panel debates during the two-day conference featuring airlines, aircraft manufacturers, cargo operators and airports, were expected to rouse many talking points. They didn’t.
Instead, much of the rhetoric was left on the sidelines of the conference. Only Qatar Airways Group CEO Akbar al-Baker, in open session, was quick to raise concerns of “protectionism from certain circles in the US and Europe”.
“Any rollback of liberal market access and open-skies policies will reverberate across the whole world and will lead to retaliatory protectionism that will affect all aspects of trade,” he said.
“There is no olive branch on this issue. Under government agreements, we can deploy as much capacity as we want in the US and the US carriers can deploy as much capacity as they want in my country. It’s a two-way street. What’s the problem?”
American Airlines CEO Doug Parker, one of the bosses behind the anti-Gulf charge, said this was an issue about being able to compete against airlines instead of competing against governments. “Our dispute is not with any of those three airlines. We’re just trying to get the US government to enforce fair policies,” he said.
IATA’s Tony Tyler went on: “It is no secret there is underlying tension in our industry, often described as a rift between state-owned airlines and those owned wholly or predominantly by private shareholders.
“Others see it in terms of government protectionism. Some interpret it as a clash between aviation business friendly countries and those less focused on maximising the economic and social benefits of connectivity.
“Regardless of your viewpoint, IATA is not the battleground on which any resolution will be achieved,” he told delegates.
“IATA supports fair and free competition, but market access is an issue for governments to address, not industry. We are very much in favour of liberalising and the whole issue of opening up the skies is good for the industry, it’s good for everyone, but within that description, there’s room for sensible people to disagree about what fair competition means.”
US Secretary of Transportation Anthony Foxx steered clear of the issue during his address to conference delegates, clearly not wanting to add fuel to the already raging fire in both quarters.
Industry bosses expressed their own thoughts on the issue which could have ramifications across the world.
Kenya Airways Group managing director and CEO Mbuvi Ngunze agreed in part with Tyler that IATA ought not to be seen as an open battleground for the US – Gulf spat that has dominated the aviation industry news agenda for the past six months.
“This issue will have implications for those countries it will touch, but I think this will have to be dealt with internally within the confines of the regulatory committees,” he said.
Malaysia Airlines’ new CEO Christoph Mueller said the tone of the US criticism levied at the Gulf carriers was “a bad surprise to me”.
“Our industry has suffered from a lack of liberalisation for a very long time. What is happening is a setback. I am particularly amazed because it was US carriers such as Pan Am and TWA in the past that enjoyed the most liberalised aviation regime which allowed them to operate hubs in Europe.
“The initiative we have seen brewing over the past few months is anachronism. I have not heard similar calls in Asia where there are a lot of steps towards furthering liberalisation.”
According to Athar Hussein Khan, CEO of the Association of European Airlines, the debate needed resolving sooner rather than later.
“A dispute of this magnitude needs to be resolved. It would be in the industry’s interest. The issues on the table cannot be resolved bilaterally or regionally. A neutral stance might be needed.”
Lufthansa CEO Carsten Spohr believes the airline industry should take a closer look at how the World Trade Organisation has dealt with trade disputes in other industries and try to learn from them.
He also stated that the dispute made the discussion more credible on a bigger scale and had merit to become a global discussion. Germany’s Lufthansa had spearheaded earlier claims from select European neighbours that the Gulf players provided unfair competition in their own markets – claims which have now stretched to the US onslaught.
Air Canada CEO Calin Rovinescu stressed that the solution had to rest in the hands of policymakers.
“We can talk as much as we’d like about liberalisation and airlines wanting to have greater access, and I think that’s overall a very good thing, but fundamentally air traffic agreements are trade agreements like so many other parts of the industrial landscape.”
This is a debate which is set to linger on. But it is the end game that most are interested in trying to understand.
If the US airline industry is keen to protect its healthy profit margins as outlined at the beginning of this column, it has to accept open competition and embrace the spirit of competition in the interests of all.

♦ Updesh Kapur is a PR & communications professional, columnist, aviation, hospitality, tourism and travel analyst. He can be followed on twitter @updeshkapur



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