US consumers keep consuming while others pay

Ground Floor: Governments walk a tightrope when it comes to the economic management of their countries. They have to encourage a thriving business community and a healthy consumer demand for goods and services but they can't allow big business to take over the effective running of the country - nor do they want to see consumer demand grow to such an extent that the economy is in hock to everyone else.

The US economy continues to live on borrowed money to such an extent that, yet again, it has a trade deficit that has etched itself into the record books.

It's not the widest trade gap ever, that was in November, but January's $58.3 billion (€43.5 billion) - higher than the forecasts of around $56.5 billion - is the second-highest, at a time when policymakers insist that they don't want to see the deficit grow and when every second analyst in the US is uttering dire warnings about the mess that the economy could find itself in as a result of an apparently insatiable desire for imported cars and consumer goods.

It's not that people outside the US don't want their goods - exports rose by 0.4 per cent to $100.8 billion - but Americans want foreign-made products more - imports were up by 1.9 per cent.

When people want to be positive about this, they say that it is a sign of a strong economy with good demand. Well, that's true to some extent - they are certainly demanding a lot of stuff. And it's not just consumers; imports of capital goods were the highest in more than four years with the US buying in industrial machinery, aircraft engines and semiconductors worth $30.7 billion.

Where are all these goods coming from? China mainly, as the US deficit with it has grown while its deficits with the EU and Japan have narrowed slightly. It would seem that the Chinese economic miracle is set to continue, at least as far as its US consumer base is concerned, and European producers will need to work harder still to compete with the Chinese.

We can, and do, argue that American spending on capital goods is a good thing, since this can help production in the US. However, the problem is that consumers are still favouring imported goods regardless of how much increased manufacturing activity there might be in the United States.

The International Council of Shopping Centres reported a 1.3 per cent increase in February over the previous month and a 4.9 per cent increase year-on-year. So US consumers just keep on consuming and other countries keep on paying for it as the current account deficit also grows and the Americans need massive inflows of foreign funds to finance it.

This is why there is a strong belief that US rates will go higher this year.

In the meantime, however, for Irish consumers who feel that the shrine to the shopping mall which recently opened in Dundrum doesn't quite cut it compared with what the US has to offer, the current dollar rate makes shopping trips to New York continue to look attractive.

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You might go shopping in New York and you might get a good deal on a transatlantic flight, but the prospect of an Irish low-cost transatlantic carrier has faded somewhat following Willie Walsh's appointment as chief executive of British Airways.

It's hard not to be an admirer of Walsh (unless, of course, you're a member of the Government or, perhaps, a member of Siptu).

The man spectacularly turned Aer Lingus from a basket-case airline into a competitive option for travellers in a very short time, all the while having to deal with issues of "nationality" and "identity", which other operators didn't have to think about.

Nobody could blame Walsh for deciding to go - there is nothing more frustrating than having a perfectly good business plan torpedoed by people who don't actually know anything about the industry.

The case of Aer Lingus is a textbook example of the folly of having state ownership of companies which need to compete in a global marketplace.

Politics is about consensus and lines of least resistance. Business is an altogether less-forgiving place and the airline industry is one of the most unforgiving of all.

Last week, another low-cost airline went out of business - this time in Canada. Jetsgo was founded in 2002 and had grown to become Canada's third-largest airline, but its expansion was based on poor operating practice. It was averaging losses of 6.9 million Canadian dollars (€4.3 million) a month by the time the plug was pulled.

But failure doesn't mean that new things shouldn't be tried. It simply means that the model wasn't strong enough (or that the people concerned simply hadn't done their homework properly).

Although it's a tough sector, the industry has plenty of profitable operators and, globally, there's room for plenty more. But it's a sector which has increasingly (and rightly) turned away from national airlines in favour of private models.

The Swiss national airline has confirmed that it's having more talks with Lufthansa that should lead to the German carrier taking it over - but not before the Swiss government and banks had already injected close to four billion Swiss francs (€2.6 billion) into Swissair in a bid to save it.

Now, three years later, the shareholders (which includes the government) are getting virtually nothing for the operator.

In India, the first listed airline, Jet Airways, has had a slightly bumpy start to life as a public company with the shares opening higher than the public offering but lower than expectations.

Nonetheless, the feeling is that, in a country with more than one billion people, there has to be huge potential for a low-cost carrier, particularly as air travel is not yet a huge part of Indian transport preferences.

There are plenty of opportunities to make money in airline travel, but governments should stay out of it.