The crisis was caused by the abrupt liberalization of the industry and the September 11 terror attacks aggravated the situation, said Rigas Doganis, chairman of the Brussels-based European Aviation Club.
"Liberalization has made it more difficult to be profitable because of overcapacity," Doganis said in a speech to businessmen in the Philippine capital.
Doganis, who has acted as an adviser on aviation matters to European officials, said warning signs for the industry could be seen as early as 1999 and by the following year 10 major airlines posted a combined $4.5 billion in losses.
The main problems are overcapacity – especially on long-haul routes – falling yields, partly due to the rise of low-cost airlines, a rise in fuel prices, increased labor costs and the failure of some airlines to properly use state-funded restructuring programs.
The September 11 attacks, involving the crashing of passenger aircraft into the World Trade Center towers in New York and the Pentagon in Washington, worsened the downturn. Demand collapsed and insurance costs soared, along with security and air traffic control charges.
It also hurt confidence in business and air travel, as major world economies were already in a downturn.
He said projections by the International Air Transport Association (IATA) showed that air traffic would continue to decline until 2003. Even when traffic starts picking up, it will take more than a year to return to pre-September 11 levels.
Some three years will be needed before airline profits return to normal.
He said that until then, several airlines, mainly in Europe, would likely go bankrupt unless their home governments step in to protect them.
Doganis also counselled Asian countries to be wary of forging open-skies aviation agreements with the United States.
Under such a deal, the two governments would remove restrictions on each other’s airlines flying between the two countries. However, such deals would favor larger US carriers.
"Open skies favor major aviation powers," he said.
It would also worsen the problem of overcapacity which is behind the industry’s woes, he added.
He added that an open skies policy would also be risky for tourism development, because it shifts the burden of promoting tourism to the airlines.
He pointed out that in times of trouble, it has been proven that foreign airlines are the first to pull out.
Doganis is an international authority on aviation and acts as consultant and strategy adviser to airlines, airports and banks. – with Marianne V. Go