Expert backs barter deals to boost airlines
Dubai, April 23, 2008
The International Air Transport Association (IATA) has forecast that airlines in the US are set to witness a 10 per cent reduction in net profits in 2008.
This is mostly due to high fuel costs from $5.6 billion to $4.5 billion as had been earlier predicted in December 2007.
“With oil prices buzzing at around the $110 a barrel mark, airlines are scampering to make ends meet,” said president and CEO of BizXchange (BizX) Bob Bagga.
“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 $30 million. BizX can do the same for airlines in the Middle East,” he added.
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 No. 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 US and Canada by up to $30 round-trip.
And although the aviation sector in the Middle East is witnessing growth of eight per cent per year, Emirates Airlines, Dubai’s flagship carrier, announced its intention to increase fares by 5.5 per cent amid plans to cut costs by $100 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 chairman of the summit and director of SeaMountain Michael Smith.
In the Middle East, BizX focuses on developing partnerships with companies involved in real estate, media, travel and hospitality, printing or any business that carries excess inventory or capacity.
Since inception BizX has turned over $200 million. It has over 2,000 clients and saved them over $30 million in cash last year. – TradeArabia News Service