Desiree, I can agree with the sentiments that you express so eloquently, but for an essay or article to be valid the author must make certain that the underlying facts are correct.
Yes, I agree that in our world the executives far too often are allowed to walk away from the financial wreck that they have created. Not only unscathed, but sometimes with “golden handshakes” or even very generous “bonuses”. Paid for, of course, courtesy the taxpayer.
But you are incorrect in too many aspects of your article “Money, Money, Money “.
KLM is not a “massive airline”, it is not a small but a medium-sized airline. It was too small to survive as an independent carrier and has been become part of Air France, even if still operating under its own flag and identity. But that is a minor item.
You fail to take into account that the situation has changed suddenly, dramatically, drastically and in a way that nobody could possibly have foreseen: caused by the Corona (or COVID-19) pandemic.
Your argument that the habit of airlines to secure fixed fuel prices over a period in the future can be seen as speculative, yes that is true. To an extent.
In the past, aircraft were fuel guzzlers. The prices of oil were relatively stable, and low. It was not the major cost factor then that is has become later. The prices of airline tickets were high, high enough so that airlines were not overly worried about fluctuations in the price of oil.
That started to change, first with the oil crisis of the ‘seventies. Then low-fares airlines made their debut. The business model of Freddie Laker’s “Sky-train” was not really what the public needed; anyway, it was torpedoed by the might of British Airways. But soon the idea that had sprung up in the USA, low-fares airlines, was picked up by Ryanair and others followed. The prices of an airline ticket dropped often even to far below what would have been charged for a comparable distance by bus or train. This was made possible by technical developments, resulting in very much increased efficiency of aircraft and the engines that propelled them. But cost control became very critical. Aircraft needed to be operated to as close to capacity as possible. And the price of fuel also became a critical factor.
If you buy a house and decide on the form of a mortgage you may have to opt for different models. Fixed or flexible interest rates? An endowment policy? The point here is that you, as the future property owner, will have to make a decision that is speculative. You, when buying a house, will speculate on what will happen on the financial markets in the future.
Airlines did something similar: they could, no were forced to, speculate on the future oil prices in order to calculate their fares. Passengers often book months ahead of their journey. Once booked, paid and confirmed, their ticket will be valid for a flight to their chosen destination, at the chosen date.
With the fluctuations of oil prices it made sense for airlines to lock in to the futures, not just for speculative purposes but also in order to create a stability in their market. Will they be forced to keep to their contracts and “buy”, pay for fuel that they will never take delivery of? My guess is that the oil companies will be willing to negotiate. Already, demand is falling. Airlines that are forced to use their financial reserves to pay for oil that they will never receive will result in further collapses. The oil industry will need customers. The Marshall aid after WW2 not only enabled countries that received this aid to recover much more quickly, it also turned them into customers, locked in to use their dollars for American goods and products.
Aircraft leasing is another phonomenon that came up in a very big way when in the late ‘seventees the late Dr. Tony Ryan set up Guinness Peat Aviation (GPA), which soon became the largest aircraft leasing company in the world. Leasing is not necessarily a bad thing. It allows airlines, but also operators of fleets of trucks, buses, vans, even office equipment, to structure the equipment to their needs in a flexible and efficient manner. Some owners of aircraft even lease the engines. It frees capital and allows the fleet to be tailored to the needs of the operators.
That the leasing companies are not immune from risk was proven dramatically when Dr. Ryan decided to bring GPA on to the free capital market by issuing public shares. This coincided with the first war in Iraq and led to the collapse of GPA. Just before that event, Dr. Ryan had founded Ryanair, which allowed him to rise from his financial ashes. But leasing became a permanent attribute to the aircraft industry.
Air cargo: Most cargo that is tranported by air is part of a very intricate world-wide network. Often the loading and off-loading of cargo does not integrate well with the demands and nature of boarding of passenger planes.
Air cargo has become an in creasingly specialised aspect of aviation, with logistics that place very different demands on the operations. Smaller items are tranported in special containers that can be packed and unpacked in purpose-built cargo terminals. Large aircraft bring their loads to hubs where these operations take place, often during the night. Incoming cargo is sorted and loaded into vans, trucks or “feeder” aircraft for further distribution. The opposite is taking place, cargo coming into the cargo shed is sorted by destination and loaded in the waiting aircraft. KLM has grounded all 747 Jumbo jets, some of them were so-called “combis”. It has been proven far more efficient to separate passenger- from cargo operations. Martinair, once an independent air charter company, has become the air cargo arm of KLM.
Airline slots: No, in many if not most cases airlines have been granted temporary dispensation from the authorities for the need to fly empty aircraft from A to B, or C or D, just to keep their route licences.
Desiree, your comment on all these issues suggests that, in your opinion, they were conceived with purely speculative motivations. They were not. Until just about two or three months ago they made good economic sense. What has happened, what has made them all of a sudden into financial white elephants is a pandemic that may have been, even should have been, recognised as a potential future threat. There were so-called “think-tanks” that DID see something like this coming as a potential global threat. One of the people who did take notice was Bill Gates. Politicians certainly did not see any (personal) advantage in taking a vague future threat seriously.
Do I agree with you that certain people have used the situation to their own advantage, to “fleece” the taxpayer? Oh yes !
As I mentioned at the start of this reaction: I agree with your sentiments, but you did not support them with valid arguments.
My credentials for this comment are: Former (retired) commercial pilot, GPA, captain with Ryanair (early period), F/O KLM, captain air cargo operations and holder of a master’s degree (in Dutch “Drs”).