A Crazy Airline Week
Well, it has been an interesting week; a collapse of a substantial UK-based charter carrier Globespan, the on/off drama of the British Airways cabin-staff strike, the looming possibility of baggage handlers on strike in the UK and the general malaise of the airline industry has made interesting reading and thinking.
The Globespan collapse was notable in a number of ways; timing, of course is important, and when a company is placed into receivership it is always when the party pushing the issue feels that the business has the most money in its coffers. For an airline with bank accounts full of Christmas passengers’ money, yet before they had the expenses of flying them, the timing was predictable and understandable.
However, one of the primary reasons that the airline was short of money is very interesting indeed. Their credit-card processor E-Clear, was apparently withholding a substantial amount of money owed to Globespan; cash-flow that the airline needed to operate. During the past few weeks, there have been reports that a Jersey-based investment company Halcyon Investments were to be injecting new capital into Globespan. This hope fell yesterday, and now it appears that there is a close relationship between E-Clear and Halcyon Investments, a relationship that the administrators, PricewaterhouseCoopers will be keen to examine.,
As long as customers believe that credit-card companies will refund their money should a default occur, the credit-card processors will need and place ever more onerous conditions on the company; this may be in the form of a pledge against real assets, a large letter of credit or it may be that the card processor simply holds up the payment of cash to the business until they are comfortable. With no real assets, many businesses are being forced to accept payments at a pace that is simply too difficult to operate with, and force the company into receivership.
This was one of the contributory reasons to the Conquest Vacations bankruptcy, and I think that this trend will trigger increasingly frequent closures and mergers, if not actual bankruptcies.
And while British Airways, who are rarely out of the news today, may have their Christmas period free of a strike, it does not eliminate the dreadful labour relations that seem to characterise that airline. Their sales are 1.2 billion below the first six months of last year, their pension-fund shortfall is over $8 billion and the airline industry is more precarious than ever.
One would wonder if their union really thinks that this would be a good time to withdraw their labour, or if BA management will actually be able to come up with a plan that will set the carrier back on a profitable course. Personally, I doubt it.
All this should make consumers think twice about who they choose to fly with. It may, for a short time, but soon enough, seduced by improbably low fares, safe in the knowledge that someone else, the credit card companies, a government fund or and insurance company, will underwrite their decision; and if they don’t, you can be sure that the screams of indignation will be heard from legislative building to legislative building across the land.
But the adage remains, and more critical each day; Buyer Beware.