Barter Can Help Airlines Bolster Efficiency, Says Expert
Airline operators could easily barter a large proportion of their excess seat inventory to offset cash budgetary expenditures
Airlines today are faced with a stark and daunting reality. With no near respite to escalating oil prices, cost cutting measures, which usually result in workforce layoffs, loom grimly over the horizon. Alternatively, airlines can increase ticket prices, which in a time of economic downturn, could negatively affect global business. Both options also come with social mal-effects that drain their corporate equity.
The International Air Transport Association (IATA) forecasts that airlines in the US are set to witness a 10 percent reduction in net profits in 2008 mostly due to high fuel costs from US$5.6 billion (AED23.8 billion) to US$4.5 billion (AED16.5 billion) as had been earlier predicted in December 2007.
“With oil prices buzzing at around the US$110 a barrel mark, airlines are scampering to make ends meet,” said Bob Bagga, President and CEO of BizXchange (BizX). “Through barter however, airlines can save cash on their budgeted operational expenditures and generate new and incremental revenue by accessing new passengers through BizX.”
Speaking at the Airline Payment Summit in Toronto, Canada, Bagga explained how airlines can cash in on their excess seat capacity, which is a perishable item, and offset budgetary expenditures. “Last year we saved our clients a total of over US$30 million (AED110.1 million). BizX can do the same for airlines in the Middle East.”
A number of US based airlines have announced plans to reduce their workforce in order to stop their shrinking profit margins. Recently, Delta Air Lines, America’s number 3 airline, revealed plans to cut 2,000 jobs and scale back flights. United Airlines has also announced that it will raised fares in the United States and Canada by up to US$30 round-trip.
And although the aviation sector in the Middle East is witnessing growth of 8 percent per year, Emirates Airlines, Dubai’s flagship carrier, announced its intention to increase fares by 5.5 percent amid plans to cut costs by US$100 million (AED367 million).
In essence, BizX takes a position in the airline’s excess inventory and in return, the airline would receive an equal value of ‘BizX Trade Credits’. The airline then uses these credits to ‘purchase’ budgeted expenditures for which they normally would write a cheque.”
Many airlines participate in direct barter. However this is not scalable as challenges dwell in accounting and the expiration of the acquired inventory. With BizX, credits do not expire and BizX keeps track of all trades based on Generally Accepted Accounting Principals (GAAP). In other words, the sellers provide services when they have excess capacity, and the buyers use their credits at their convenience.
“BizXchange’s participation in the Airline Payment Summit showed how barter is a time-tested way for airlines to increase yields, load factors and their bottom lines,” said Michael Smith, Chairman of the summit and Director of SeaMountain.
In the Middle East, BizX focuses on developing partnerships with companies involved in real estate, media, travel & hospitality, printing or any business that carries excess inventory or capacity. Since inception BizX has turned over AED734.6 million (US$200 million). It has over 2,000 clients and saved them over AED110 million (US$30 million) in cash last year.
