Airlines feel the pinch

Flying across the Atlantic on American Airlines, as I did twice last week, has much in common with travelling on a cattle truck to market. Flying Emirates to Dubai, or any of the Middle Eastern flag carriers, come to think of it, is a much more civilized experience.

Aside from the obvious shortcomings of economy service in the West, there are several key differences between Middle Eastern airlines and those in Europe and America. Chief among them, though, is profit.

Middle Eastern airlines seem more than capable of making a decent return and are capitalizing better than most on the massive increase in passenger traffic to the Gulf States. Their American and European counterparts, sadly, do not.

Western airlines, both giant international carriers and smaller regional companies, are caught in a nosedive wracked by rising costs, falling passenger numbers and mounting losses.

Bankruptcies abound; fleets belonging to carriers that were once industry leaders are literally falling apart at the seams; and costs are soaring to stratospheric heights.

As with most economic woes today, the biggest culprit in the western airline mess is the price of oil. Every penny on the cost of a gallon of jet fuel adds about $195 million in operating expenses across the global airlines industry, analysts reckon.

Fuel, though, isn't the only increasing overhead weighing on the world's biggest airlines. Keeping abreast of regular maintenance checks for safety represents another rising cost.

Now, I'm not normally a nervous flyer, but when I'm 39,000 feet above the Atlantic Ocean in an AA jet and I read that the carrier's entire fleet of MD 80s has been grounded because an FAA inspector spotted bunches of wires literally hanging out of the fuselage, the knuckles tend to whiten a bit.

Putting thousands of flights out of commission has hit AA hard.

The International Air Transport Association, IATA, revealed last month that the ratio of seats carrying passengers to empty seats fell in every region of the world by the latest count, with Europe the hardest hit.

By contrast, Emirates Airlines in Dubai posted a massive 40 per cent rise in profit to more than 5 billion dirhams last year as passenger and cargo numbers went through the roof.

Passenger traffic at Dubai International Airport, meanwhile, jumped 15 per cent in the first three months of the year.

There are two key differences between Middle Eastern and Western airlines that lead to the important difference of profitability. Firstly, all the high achieving airlines in the Middle East are state run and highly capitalized. Secondly, Middle Eastern skies are much more "open" than those in the west.

The recently signed "phase one" open skies treaty between the European Union and the US was, sadly, too little too late to save major airlines.

A rapid and radical round of consolidation and more bankruptcies now almost certainly await them. Governments and airlines in the West should take a look at companies like Emirates.

Re-nationalisation of carriers like American, or British Airways is certainly never going to happen, but perhaps the idea of state support should not be ruled out. After all a robust national flag carrying airline was once as important to a prosperous and secure nation as its army, its flag and its currency.

James Doran is a New York based business columnist who has travelled the world for seven years as a foreign correspondent for The Times of London for whom he has also served as a bureau chief in Wall Street and Washington DC.

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