JUDGEMENT DAY IN THE MAURITIAN SKY?

The Air Transport Industry is basically an amalgam of technology, economics, politics and competing social objectives, maintained in a precarious balance. Whether being at National or International levels, airline companies compete in a dynamic and fiscally sensitive environment; manufacturers fight for business; airports struggle with the predilections and interference of Governments; and Governments themselves wrangle internally over Aviation policy and in their relationship with the rest of the world.

The Mauritian Aviation Industry is dangerously entering an era of uncertainty and high risks. The entire industry itself is now exposed to total collapse, or else to be merged, taken over, or be filed for bankruptcy protection. Despite the internal and external pressures, airlines and Governments continue to manage and operate a transport system that is safe, and for some, profitable. But today, the Mauritian Aviation Industry is facing major challenges and has become critically volatile under the conditions of:* Chaotic Effective Risk Management Policies (Fuel Hedging as one example).* Dangerously low Cash Flow in some case, which is directly a measure of Corporate success and an airline's ability to adopt new strategies without as much (or perhaps any) new financing.* Major regresses between employees and employers relations, whereby poor and corrupted Corporate Culture is gradually creeping up to result a 'low morale' working atmosphere. The risk of local brain drain and loss of foreign expertise have already started in the industry.* Global Financial Crisis, resulting sharp drops of overall global economic activity, decreasing loads/yields and air traffic levels.* Growing administrative, political and cultural differences between airlines, Governments, Shareholders and most stakeholders.* Resistance from Bilaterism to Multilaterism in a global trading environment and no change in political and cultural attitude by airlines, Governments and operators.* Virtual elimination of competition where foreign nations' airlines are leaving the Mauritian destination and limiting this already oligopolistic market. Consequently, this is: (a) restricting competition in the market; (b) limiting choice for travelers; (c) creating artificially high fares; (d) preventing a great number of passengers in price sensitive routes from travelling; (e) preventing improvement of standards and service levels due to the absence of competition.* Deteriorating National and International economies, with an eventual rise in inflation, long recessionary periods and therefore, causing air traffic and airlines profits (if any) to decline.* Falloff in air traffic and resulting what economists refer to as 'Diseconomy of Scale', in which cost per unit begins to rise, thus, possibly forcing the industry to furlough volume-related workers as well as Management and administrative personnel at all levels.* Absence of innovation in the race for survival in the Mauritian Aviation Industry. New generation of employees know as 'Generation Y' is almost inexistent, though new generations are persevering and performing in top positions of other industries.

Effective Risk Management within any airline is the cornerstone of capital structure. A well-designed risk program allows airline companies to use their financial and human capital to pursue their vision, unhindered by the need of maintaining high reserves to cover potential losses. Sadly, the Mauritian Aviation Industry has been fueled with chaotic Effective Risk Management Policies (Fuel Hedging as one example). The consequences are leading to an unprecedented crisis where:* Unanticipated losses and excessive time spent by boards and Government are detracting from other more important concerns.* Detrimental effects are affecting the industry's credit ratings, costs of capital, reduction of Cash Flows, growth and profitability.* Deterioration of Public image and loss of customers are changing the concept of this industry, moreover, because of no actions taken and which are offending societal norms.

The present situation can only be described as an industry calamity. Any airline is dependent for its very existence on the competence of its Planning Analysts and Risk Management top planners. Failure to forecast and plan spells the difference between success and failure. To rescue the Mauritian Aviation Industry, urgent and remedial MBO (Management by Objectives) are required. Effective Risk Management through a well-defined MBO would set tangible goals for employees at all levels and each must be held accountable for achieving them. This would benefit Management, planners, Airline Employees and the Government to receive timely, accurate, unbiased and fairly complete information on their performance results, where all parties can from there be in a position to take early and intelligent corrective actions. MBOs will effectively drive employees at all levels to accept and assume responsibility for the achievement of the industry's goals, and these very employees at all levels would become committed when the goals are meaningful, attainable, and established through planning from all stakeholders of the Typical airline Pyramid of Authority and as well as close monitoring/appraisal from Shareholders and the Government. Dangerously low Cash Flow in the industry is a clear sign that the Mauritian Aviation Industry is going to limit its own future growth and operations. The important consideration in the cash flow concept is a measure of flexibility. A large cash flow means that a carrier can fly new routes or adopt new strategies without as much (or perhaps any) new financing. Unfortunately, this is not the case and trouble days are ahead for the industry. Therefore, the key to good airline Cash Management and financial planning is the Cash Forecast, or, more specifically, the Cash Budget. To remedy the present and forthcoming situation, Cash Budget must be seriously updated periodically and monitored continually to adapt a strong Cash Forecast. It's high time that the Mauritian Aviation Industry should start learning from its past and present mistakes. Cash Budgets have not been done in time and forcefully applied when changes were seen coming. Nothing is permanent but change, and the value of cash forecasting depends on keeping abreast of change. No one is stupid enough to hear continually that the present Global Financial Crisis is resulting sharp drops of overall global economic activity, decreasing loads/yields and air traffic levels. It's high time for the Mauritian Aviation Industry to start taking actions and declare expected outcomes. Despite the mystique that has become attached to this industry, airlines are essentially the same as any other business. They use factors of production (assets, labour and capital) to produce and sell a product (the airline seat or space for cargo). The objective of the business is to sell as many seats as possible in the market place at the highest possible price at the lowest cost, thereby obtaining maximum profit and return on investment. So far, the Mauritian Aviation Industry has managed to pass most barriers to entry, which are mainly high capital costs, rigorous certification requirements, and sometimes difficult route licensing and capacity restrictions. Now, since most routes of the industry are scheduled operations, the 'Accessibility Factor' allows bookings and acceptance of passengers on any flight almost up to the time of departure. Some refer this as 'last minute booking'. Practically, this means that on any given flight there will be a number of empty seats. Passengers carried pay for the unused capacity, through higher fares set to ensure that short and long run costs are covered whatever be the under or over booking made. This scenario is now getting coupled with drops in air traffic levels and decreasing loads/yields due to the Global Financial Crisis. Therefore, it is not an intelligent strategy to hope and bet that 'last minute booking' is going to save the Mauritian Aviation Industry. Rather, the cyclical nature of the industry must be analyzed and solutions must be implemented immediately. Right now, the cyclical tendency in the present and next year should normally follow a declining growth rate, whereby, World GDP, World TKP and the industry's operating revenue are all simultaneously going to decline. These said, the Mauritian Aviation Industry has to realize that profitable operations are not going to happen in such conditions where it is still maintaining excess capacity and high fares. No doubt, everyone already knows the catastrophic financial results ahead. To preserve the Mauritian Aviation Industry, cost-cutting measures to reduce "rising" operational costs must be drastically implemented. Sadly, this is not going to be rewarding for monopole blocks but however, opportunities would be created in the future for other airlines to come back or even take birth in Mauritius. This forecast can be understood by comparing the changes in the global airline industry after the 2001 terrorist attacks in the United States of America. This event brought many airlines all over the world over the edge, with huge deficits that were further increased. Huge losses forced airlines to implement additional cost-cutting strategies basically overnight. Airlines furloughed or laid off employees at all levels from Top Management to layman posts, with some carriers rehiring some employees on a part-time basis. Aircraft fleet sizes were reduced, having a negative impact on frequency. To compensate for reduced frequency, some airlines used larger aircraft on selected routes. Airlines operating on traditional hub-and-spoke systems reduced or eliminated services to selected destinations. In some cases, airlines merged or filed for bankruptcy protection. For example, in late 2002, US Airways filed for bankruptcy with the hope of restructuring and reemerging as a successful carrier. As of December 2002, United Airlines, the second largest carrier in the world at the time, announced the possibility of declaring bankruptcy protection because of massive debt load. American Airlines, the largest carrier in the world at the time, made an announcement saying that filing for bankruptcy was just a matter of time if the industry did not pick up. However, at the same time, opportunities were created. Smaller airlines took birth, low-cost sector exploded and alliances between air carriers were increased, resulting in increased market share and cross-utilization of resources. The trends briefly elaborated are likely expected to continue for the foreseeable future in today's Global Airlines Industry and the Mauritian Aviation Industry is no exception. Civil Aviation has a history of cycles and the present scenarios coupled with the Global Financial Crisis are going to tumble the industry. Are we seeing Judgement Day in the Mauritian Sky? If yes, we can now only think of ways to recover from each downturn with renewed vigor.

First Officer Kaviraj KhadunATR72-500 Pilot / Masters in Aviation Management