Airline industry faces turbulent times

By Robert Plummer Business reporter, BBC News

Turbulence in the aviation industry has already brought down a series of small airlines over the past year - but the collapse of XL Airways is on an entirely different scale.

Thousands of holidaymakers have been left stranded by XL's collapse

The demise of the carrier and its parent firm, the UK's third-largest tour operator, have left up to 85,000 people stranded abroad and disrupted another 200,000 people's holiday plans.

Travel industry insiders say its failure has sent "shockwaves" through the business and is likely to be followed by more holiday companies going bust.

After it underwent a management buyout in 2006, XL grew quickly to become a major presence in the British package holiday market.

It sold holidays under a range of different brands including Travel City Direct, Kosmar and Freedom Flights, as well as operating flight-only services for independent travellers.

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But even before XL chairman Phil Wyatt's emotional announcement that his group was going into administration, there were warning signs that the firm might have overstretched itself.

In August, XL said it was ending its programme of flights to six Caribbean islands - St Kitts, Tobago, Antigua, St Lucia, Barbados and Grenada - from the beginning of November.

At the time, the airline blamed the decision on soaring fuel costs, saying it would concentrate instead on its Florida services, as well as short-haul and medium-haul destinations in the Mediterranean.

Not long afterwards, it emerged that XL was in urgent refinancing talks with its lenders, Barclays and Icelandic group Straumur, and that corporate restructuring specialist Kroll had been called in.

Aviation industry expert John Strickland, director of JLS Consulting, told BBC News that although XL's website had now been taken down, the company would have been accepting bookings until late on Thursday night in the hope of turning the business around.

"The last thing you want to do is cut off the blood supply," he said.

Sky-high costs

With the price of jet fuel remaining high, the forced departure of smaller players from the airline industry is becoming an all-too familiar saga.

A carrier's planes are grounded, prompting panic among passengers as they scramble for seats on other flights. Efforts to revive the business fail and staff lose their jobs - 1,700 of them in the case of XL.

"This is a terrible and brutal experience for passengers and staff alike," said Jim McAuslan, general secretary of the British Airline Pilots' Association.

"Passengers have lost their holidays, our pilots have lost their jobs. Over the past months, we have worked to keep XL going, including forgoing pay rises, so the announcement is a major blow."

The announcement came as a shock to XL's customers

The first carriers to go under in the current wave of failures were mainly low-cost, long-haul business class airlines. One of them, Maxjet, filed its unseasonably-timed request for bankruptcy protection on Christmas Eve last year.

Maxjet bailed its clients out by buying space on rival Eos Airlines - but four months later, Eos itself went bust.

Silverjet, Oasis and UK-Canadian carrier Zoom have also gone into a terminal tailspin in recent months.

And the dominoes keep on falling. Earlier this week, Macclesfield-based package holiday company Seguro was brought down by Spanish airline Futura, which began insolvency proceedings because of - once again - high fuel costs.

Tourism has taken a hit for a number of reasons this summer, as would-be British holidaymakers cut back on their vacations because of the credit crunch and the waning purchasing power of the weak pound.

And since the peak season for overseas travel is now slackening off as the new school year gets under way, airlines' cash flow is being squeezed.

Even airlines generally regarded as healthy and well-financed are having to cut back. On Thursday, Easyjet said it was shedding up to 60 management and administration jobs at its Luton headquarters.

But for those carriers genuinely in difficulties, there is little but grey skies ahead.

"I think there will be more failures, sadly, in the months to come," JLS Consulting's Mr Strickland told the BBC. "We have a number of weaker players in a highly competitive market."

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