Upbeat amongst the gloom

Fernandes told Contrails that the downturn “provides long-term opportunities for AirAsia, as the lowest-cost producer, to grow rapidly, open new markets and win market share from competitors. Our strategy to continuously conduct aggressive promotions and enhance customer service has been successful in driving strong traffic growth.”

Airbus CEO Tom Enders responded saying the order is “proof that there are some rays of sunshine in the market, certainly in the low-cost market.”

The deal in fact had been done over the previous two days and was sealed on the train between London and Paris with Fernandes noting that normally Airbus sends an executive jet to pick up a prospective customer but he had to buy a train ticket –such is the downturn.

Tens of thousands of miles from the city of love, residents of Perth are falling in love with Fernandes’ brand of sunshine marketing embracing the airline’s new Perth to Bali service which was launched with 5000 free tickets. The support has been so strong that the airline has added a second daily service even before the first one takes-off. The AirAsia magic works wherever it goes.

The rise and rise of AirAsia is one of aviation’s great success stories and in the first quarter of this year the airline posted a RM203.2 million ($72.5 million) profit, up 26 per cent from the year-ago period. Passenger numbers soared 21 per cent with a 33 per cent rise in revenue to RM714.2 million.

But while Fernandes has found the sunshine, there are too many flying around in what appears to be a never ending storm. ICAO has estimated that the airline industry has posted an operating loss of US$9.6 billion in 2008, while IATA puts the net loss near US$10.4 billion with a sickening prediction of another US$9 billion loss this year.

What is of deep concern is that this downturn – unlike many in the past – is global and it is deep with many airlines burdened by legacy baggage and in some cases management and workforces that seem to be in denial about the reality of the depth of the downturn.
Make no mistake this recession is serious and it will be prolonged.

But make no mistake it will not lead to the cross border consolidation that some tout.

At the Paris Air Show, fierce nationalism was there for all to see and consolidation was dismissed with analysts pointing to the Asia Currency crisis and SARS not resulting in any cross border mergers.

“Can you see the Malaysian’s passing control of their airline to Thailand”, quipped one industry analyst.

And to prove the point he highlighted Singapore Airlines’ abysmal attempts to forge JVs with airlines in Asia in the 1990s.

“They [Singapore Airlines] were kicked out of Taiwan, Cambodia, Thailand, India – twice – and South Africa. The only deal they did in the region was Air New Zealand and that was a fiasco.”

In fact the only successful deal that Singapore Airlines concluded was the 49% buy into Virgin Atlantic in 1999 a deal that most agree was overvalued.

Recently one investment house suggested that the born again Air New Zealand needed to merge with Virgin Blue group, which appears to ignore the fact that the product of the two airlines is vastly different and New Zealand has been burnt before with Australian forays.

At the Paris Air Show talk of Air New Zealand merging with another airline was laughed off by serious industry watchers as was any thought of Qantas getting into bed with British Airways which appears to be lurching from one disaster to another.

Where there was common agreement was that both Boeing and Airbus could take serious production hits from 2011 as investment funds dry up.

Most of the financing is in place for 2009 and 2010 but 2011 onwards looks sick observed analysts.

The Paris Air Show would have been far gloomier if news of the 787’s latest first flight postponement had broken earlier and it may well transpire that the latest delay will be the tipping point for cancellations for airlines with weakened balance sheets.

Hopefully Fernandes will bring some sunshine to the Farnborough Air Show next year.