Malaysia Airlines MH17 downing another hit for embattled airline industry

The tragedy in Eastern Ukraine where rebels seem to have shot down a passenger plane with 298 people on board is the latest disaster to have affected the global airline industry, which had only recently recovered after several years of uncertainty.

In the wake of the MH17 incident, many world airlines and flight-monitoring agencies moved quickly to stop flying near Tel Aviv, Israel, after Hamas militants managed to successfully launch a missile and hit a target within a kilometre of the airport’s main runway.

‘God forbid there’s another incident of this nature in the next year or so.’– Joseph D’Cruz, business professor and aviation consultant

The events of this past week come on the heels of the year’s other incomprehensible airline tragedy, when a Malaysian Airlines flight with more than 200 people on board disappeared from radar screens over Indonesia, never to be seen again.

“Malaysian Airlines now is most likely to go bankrupt,” University of Toronto professor Joseph D’Cruz says. “People won’t fly Malaysia and the airline may go out of business because of that, so that’s a huge cost.”

The Federal Aviation Administration made the decision to ground flights for all U.S. carriers going through Israeli airspace this week — a controversial move considering airlines have successfully managed to fly safely over dangerous war-torn areas for decades. But ground-based rebels seemingly managing to blow a commercial jetliner out of the sky changed the rules.

Extra caution

Airline experts are now taking risk assessment into their own hands to a degree they’ve never had to before, both to reassure passengers that they are safe, and also to head off insurance claims of negligence.

“Most airlines have security departments that try to evaluate those sorts of risk,” said William Waldock, a professor of safety science at Embry-Riddle Aeronautical University in Daytona Beach, Fla. “Some do it better than others, but I would expect that everyone is on a very heightened sense of alert right now.”

As airline analyst Pierre Jeanniot told CBC News this week, “It has certainly sharpened the response of different agencies to ensure that if we make any mistake, it will be on the side of extra caution, rather than less.”

If the reality of international air travel really has changed for good, insurance companies may well decide it’s not worth it — a development that would wreak havoc on an industry finally back on two feet.

“They may decline coverage, they may tell the airline ‘if you want to fly into a conflict zone, we won’t cover you’ and the airline then would then have to take the risk themselves,” D’Cruz said.

Fears like that belie the historic reality, however — on the whole, air travel is much safer today than it’s ever been.

Flying is safer than in the past

According to website planecrashinfo.com, there were routinely between 25 and 35 major planes disasters a year, globally, throughout the 1960s and ‘70s, among large planes with more than 18 passengers aboard. The last big year for crashes was 1989, when there were 32 such disasters. But the last time that figure hit 20 was 1997, and it’s fallen steadily ever since.

In 2013, for example, despite public perception, there were two major plane accidents — a crash into the ocean in Indonesia in April with 108 people on board and an emergency landing at the San Francisco airport in July with 300 passengers. (It’s worth noting than nobody died in the Indonesian crash, while three out of 300 on board died in the San Francisco incident.)

This year, the death toll has spiked alarmingly, almost entirely due to the two high-profile Malaysian Airlines disasters in which a combined 500 people are presumed to have died. And just this week, on Wednesday, more than 40 people appear to have died in a plane crash making an emergency landing in Taiwan.

But outside of those, among the hundreds of thousands of other flights to have taken off, there haven’t been any commercial flight disasters with more than 20 fatalities this year. Yet the public perception is at a fever pitch right now, and that’s hard for a volatile industry to change.

“Remember how 9/11 changed the whole airline business,” D’Cruz says. “We are going to see a similar set of changes coming into place.

“God forbid there’s another incident of this nature in the next year or so, or the whole airline industry will change.”

Improving finances

The financial side of things is always secondary to the human toll in any such tragedies, but it’s worth noting that the global airline industry has returned to profitability after several years of uncertainty.

Data from the International Air Transport Association shows that globally, airlines saw a loss of $16 billion worth of revenue in 2009, when the global economy was hit by a massive recession. But the numbers have bounced back since, and globally, airlines made $10 billion in profit last year. That figure is forecast to double to $18 billion this year, despite the recent spate of calamities.

Richard Aboulafia, an analyst with the Teal Group, said airlines might be more proactive about avoiding hot spots in the near term, but the reality is that there are very few areas where non-government militaries have weapons sophisticated enough to shoot down a plane.

“This is a totally new zone,” said Joseph D’Cruz, a business professor at Toronto’s Rotman School of Management. “This is a totally new development that we have lethal weapons in the hands of very poorly organized terrorist groups, so we don’t have enough experience with this to develop a formula that says ‘if this, this, and this happens, it’s now safe to fly,'” he said. “We don’t know.” 

For their part, airlines are taking an overly cautious approach, wary of playing into the unease that passengers are feeling.

“We plan these things conservatively,” Delta Airlines CEO Richard Anderson said this week, “but we’re going to need concrete information … that lets us draw an independent conclusion and [adhere to] our much higher duty of care that it’s going to be safe for passengers and our employees.”

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