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Air industry defies talk of crisis
 Despite industry problems, airlines such as Virgin Atlantic have reported increased profits. QUICKVOTEYOUR E-MAIL ALERTSLONDON, England (CNN) -- To the casual reader of the business headlines the air industry can sometimes appear to exist on the brink of near permanent calamity. Late last year, amid rising fuel costs, airline bankruptcies and billion-dollar losses, International Air Transport Association (IATA) Chief Executive Giovanni Bisignani described the problems facing aviation as "the worst crisis in our history." But as Airbus struggles to deal with the fallout from production delays to its flagship A380 superjumbo, with Noel Forgeard -- CEO of Airbus parent company EADS -- and Airbus CEO Gustav Humbert both forced to quit over the affair, British Airways subject to an investigation into alleged price fixing and Brazilian flag carrier Varig the latest airline to suffer financial collapse, could 2006 be even worse? Peter Morrell, head of the Air Transport Group at Cranfield University in southern England, sees no reason for alarm. He says the difficulties of a few high-profile names should not detract from the overall health of an industry enjoying 5 percent growth a year. "There may be the odd negative thing going on but the background to the aviation industry is economic growth. That has been a very positive aspect that has come through into spending on business and leisure travel over the past year or two," Morrell told CNN, highlighting increased profits at Virgin and Cathay Pacific and the continued success of low-cost airlines as recent success stories. "The airlines may have had to cope with higher fuel prices but on the other hand they've been able to do so against a background of strong demand." Yet Morrell believes both success and failure can have a positive impact on the overall health of an industry undergoing a process of normalization after a long period in which politics and subsidies often clouded purely commercial considerations. "The air transport industry has always been quite a special industry. I think we're moving towards it being a normal industry but there's still a long way to go," Morrell said. "In a normal industry you get market entry, you get people failing and you get mergers. If you're a Brazilian World Cup supporter, it's not very nice if your Varig flight suddenly disappears but ultimately Brazil has quite a vibrant airline sector. So in a way it's just market forces working their way out." According to Jim Smith, Editor of Jane's Transport Finance, "fuel burn" is set to become the key issue determining market success and failure over the next few years as airlines battle to minimize the impact of rising fuel costs. "It's a Catch 22 situation," Smith told CNN. "You have to have money to invest in the fuel efficient aircraft. If you invest in the fuel efficient aircraft then you save money on fuel burn. If you're unable to afford fuel efficient planes then, firstly, you're probably not making any money and, secondly, you're more at the mercy of oil prices." Smith says airlines have also started experimenting with other cost-saving measures, many of them borrowed from low-cost operators, such as turning planes around as quickly as possible. "People talk about meals on board and that sort of thing but that's nickel and dime stuff," he said. "An airline doesn't make money while a plane is on the ground. The low-cost carriers have realized people will choose an airline based on price. It's no longer posh to fly -- planes have pretty much become flying buses. If you've got a cheap fare you can live for three or four hours like a sardine." Greater fuel efficiency could also help the air industry tackle environmental concerns, according to Morrell. But he also believes the introduction of carbon emissions trading schemes or international taxes on aviation fuel are necessary if airlines are to escape the green lobby's wrath. Nonetheless, even amid rising fuel costs and price increases to counter environmental concerns, he expects the air industry will continue to prosper, with big growth in the Middle East, India and China. "Air travel remains a very attractive proposition. Even with high fuel costs it doesn't stop this inexorable demand for more and more air travel. Overall, it's a much better picture than it was after 9/11." 
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