Willie Walsh, chief executive of British Airways, expects a further 30 airlines to go bust by the end of the year, a similar number having already gone down in flames in the year to date.
Meanwhile, XL, billed as Britain's third largest tour operator but in truth more of a low-cost airline with a bit of packaged holidaymaking tacked on the side, bites the dust. With customary tact, Ryanair says it serves XL's customers right for signing up with such a dodgy operator. They should have flown Ryanair instead. That way they could have been sure of at least getting their flights.
One of the effects of a downturn is to cleanse the system of the excess capacity that builds up in the boom. In this regard, what's happening in the airline and package holiday business is not so different from what's going on in banking. A Darwinian process of survival of the fittest is underway. Those that manage to come out the other side will be bigger and stronger.
What's made the process much worse this time around for airlines is the oil price. High fuel prices are also what seems to have put the kibosh on XL. With XL, it wasn't so much a collapse in demand that was the problem as that the cost of providing a holiday had risen to more than it was charging for them. The fact that the company was also loaded up with debt, the result of an Icelandic-backed leveraged buyout a couple of years back, made matters more difficult still. As ever, the lesson is that debt is a killer. Those that enter the downturn with too much of it are less likely to survive than those that don't.
A big tour operator can be guaranteed to go bust in every downturn. You can set your watch by it. In the 1970s it was Court Line. Come the early 1980s, it was Laker. In the early 1990s, it was Harry Goodman's International Leisure Group. Out of that implosion was built the explosive growth of David Crossland's Airtours. Sure enough, when the downturn of the early "noughties" arrived, he too met his come-uppance. Shareholders were virtually wiped out in a series of recapitalisations.
By comparison, XL is a comparatively minor stripping out of capacity, though we haven't yet entered the full depths of the downturn, so presumably there will be plenty more where that came from. Shares in the bigger tour operators – TUI, Thomas Cook and Holidaybreak – all rose in anticipation of a wider bloodbath. Fewer tour operators means more business for the ones that survive. Like nature, the capital markets are a brutal place.Reuse content