THIS WEEK’S TOPIC: Should the state step in to save distressed companies such as airlines? What are the risks and downsides?
All around the world, airlines are struggling for survival. In April this year, the International Air Transport Association (IATA) estimated that airlines in Asia-Pacific would see a revenue drop of US$113 billion this year.
Although I agree that governments should play a significant part in saving their battered airlines, wisdom and balance are needed in execution. Most governments do not have unlimited resources to pour into a specific sector. Using a business example, when Jørgen Vig Knudstorp took over as Lego’s CEO in 2004, it was in debt to the tune of US$800 million. The first thing he did was to ensure that most costs were shed before slowing turning the company around and eventually hitting record profits. With the 99.5 per cent drop in passenger volume, it is imperative that SIA sheds as much costs as possible during this time. Backstopping losses is of paramount importance.
The proposed ”flights to nowhere” is also a good idea by SIA to start drumming up revenue. Only when costs are mitigated and revenue plans executed should the state step in to keep the airline afloat.
Mario Singh
Chief Executive Officer
Fullerton Markets
