The aviation industry is going through possibly its biggest convulsions in history.

Last week, Virgin Atlantic's Richard Branson predicted that one of the big American airlines would go bust if fuel prices continued to rise.

And this week, Qantas CEO Geoff Dixon said the fuel price “emergency” may be the catalyst for an accelerated push towards industry globalisation and that “over time, consolidation will transform aviation”.

He said that regulatory reform could create a “new world order” characterised by (1) a few, very large global airlines with a portfolio of interests, (2) niche airlines with specialist offerings and (3) powerful, government-backed airlines, particularly from the oil rich states.

Here’s what the report, carried in CAPA’s Europe Airline Daily, July 23 issue, said:

“Over time, consolidation will transform aviation. It will produce a few, very large and extremely efficient global airlines with a portfolio of interests and brands - like Air France and KLM. These players will have enormous power in marketing, in fuel buying and hedging, in aircraft purchasing, and in reach. There will still be niche airlines with specialist offerings - whether for business or leisure travellers - but these will need to be run very skilfully, and any weakness will lead to a quick death. And there will also remain those powerful, government-backed airlines, particularly from the oil rich states. These governments will continue to use aviation services as instruments of national economic development”.

All full service airlines will segment their businesses and focus on core activities, he maintains, as "no airline will be able to prop up its inefficient catering company, or freight business, or engineering function. Competition will be too tough, and the alternatives will be too attractive”.

Global alliances are also to be an integral part of the future aviation landscape. Mr Dixon stated that globally competitive networks will be as important to success as a competitive product for full service airlines, noting that Qantas had engaged in a form of “virtual consolidation” today offering 125 routes by partner airlines – 55% more than five years ago.

But the foundation of Mr Dixon’s new world order vision is strong, global aviation brands. He said the Qantas two-brand strategy had given the Group the flexibility to meet the needs of a wide range of customers while better aligning costs, revenues and product offerings in individual markets. As a result, wholly owned LCC subsidiary, Jetstar, was poised to become a pan-Asian brand, in a market he described as a “huge opportunity”.

Meanwhile, the competitive outlook among premium airlines is only going to get “fiercer” he believes, and the cycles of innovation will turn more rapidly.

By 2020, “many more” airlines will disappear, either unable to cope with “permanently” higher fuel costs, or be swallowed up in takeovers or mergers. Said Mr Dixon, “the industry structure will be on a global scale, and focused on maximum cost constraint and efficiency”.

But overall, fuel that will be the major determinant of the size of the industry in the meantime.

Meanwhile, the International Air Transport Association has stated it may revise its forecast of losses for the airline industry this year, amid higher oil prices and weakening demand. In June, IATA forecast a combined industry loss of US$2.3 billion in 2008, based on a consensus oil price of USD107 per barrel.

Said Giovanni Bisignani, Director General: “We will probably increase our (worst case scenario) USD6 billion (industry) loss forecast in the next few months. We have problems from the revenue side because of the credit crunch, and we have problems from the cost side…(Members will find it) very difficult to cope with this situation in the autumn and winter period. Many more airlines will go bankrupt. In the first six months of this year, I have already cancelled 25 companies from different continents and with different business models.”