What is the future of low-cost market? Should traditional companies become involved? Will the Chinese aviation industry compete with Boeing and Airbus one day? We put these three questions to Dominique Strauss-Kahn. On 29 October, in Morocco, the economist and former CEO of the IFM (International Monetary Fund) will participate in a panel discussion organized by APG on the growth of air transport.
What does the future hold for the low-cost market?
Dominique Strauss-Kahn, consultant: "Nobody wants to pay more for something that is not better. However, a quality low-cost company is not much different to a company that is not low-cost, and which in its category, is not of good quality. So I believe the low-costs will develop, and I don’t see why it woudn’t work on long-haul flights. I believe in fact, that there are two markets that are very viable - the high-end market and the low-cost market. It is the intermediate market, which is more difficult. So it's no surprise that Lufthansa (via their subsidiary Eurowings) has launched into low-cost, and I think the international low-costs have quite a future. Especially if the hypothesis of an even larger market growth than expected, due to hundreds of millions of people within a certain level of income bracket, allowing them to spend money on air travel, becomes fact."
Should traditional airlines develop low-costs?
Dominique Strauss-Kahn, consultant: "The global profitability of air transport today is far below what it should be, it’s almost ridiculous, and here I’m talking about airlines that are making money. Competition from low-costs is obvious, and the difficulties that Air France have had in their policy on the development of Transavia are a hindrance, a risk to their survival. So I don’t think there are many other alternatives for companies to accept that they themselves have to become involved in the development of low-costs. It’s very difficult for traditional companies to convert to the low-cost philosophy - although not impossible. What is at stake is their ability to restructure, form alliances, and lower costs to satisfy demand, which will continue to grow. If they have their shareholders’ support, if they can convince their staff that this is the way into the future, and especially if they have a clear strategy of the various niches which are to be tackled, such as the low-costs, then they can do it."
Will the Chinese industry compete with those of Boeing and Airbus one day?
Dominique Strauss-Kahn, consultant: "I think the current Airbus / Boeing deal is temporary; that doesn’t mean it will change within the next two years. The big players, including the Chinese of course, will fall into line. Part of the technology transfer has already taken place; there are issues of materials, such as titanium, for example, where the Chinese are particularly well placed. I cannot see in the future, what would prevent, neither technologically nor commercially, a country like China developing a powerful aviation industry. It may take some time, it might be difficult, there is a lot of learning to be done. You don’t become an aircraft manufacturer just like that by snapping your fingers, without the experience of a very long history, which the Europeans and Americans have; but I see no obstacle for the Chinese to become so."