Monday, May 7, 2012

Balance A Commodity in Short Supply

As Europe falls into a double dip recession the debate of austerity vs. growth is raging. The argument that austerity measures do not create growth and jobs is gaining credibility. The answer does not lie in uncontrolled government spending but rather in an approach of cost savings and measured spending to spur growth. 

On a micro economic level, this is similar to the approach taken by airlines globally. This tends to explain the resilience of the airlines in MENA/GCC when compared to those of Europe and North America.

With every crisis in the last two decades western airlines have cut costs and tightly controlled growth. The best example is US carriers post 9/11, that instituted deep cost cuts and throttled growth to the point it took more than a decade for the sector to recover and barely just. It took a major shake up with consolidation and bankruptcies to energize the industry.

In this region, similar things happen. Airlines start by cutting costs and canceling unprofitable routes and flights to stem losses. Productivity drives and cost cutting becomes the battle cry of the season, just as conventional wisdom dictates. But then common sense or folly prevail depending on your point view. Aircraft are not grounded in mass and orders are not canceled, maybe deferred.  

The airlines of the region continue their growth either by increased frequencies to popular and new regional destinations or by expanding into new regions such as Asia, Africa, CIS and South America, the emerging and frontier markets of the global economy. Markets that are totally ignored by Western European and North American carriers. Instead, we hear the criticism of how airlines are subsidized by their governments, as if western carriers are not protected by their respective governments.

This balanced approach to regional and global crises is what have saved the airline industry of the region, over and over. 

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