It occurred to me today when I was reflecting on the Air Australia failure that there is an argument that this business failure is similar to the end result exhibited by failed Ponzi schemes. Let me be clear that I am not suggesting that Air Australia was operating deliberately in that way.
Let me explain.
In simple terms a Ponzi scheme is one where the funds being raised today are used to pay the returns to existing investors. In other words the ‘scheme’ only survives by virtue of its ability to continue to raise new funds, or investments. Given that Air Australia, as reported in the Australian press, has 100,000 forward bookings, a large proportion of which I imagine are fully paid, and it’s business has been placed in administration due to ‘lack of operating funds’, suggests that its survival and ongoing viability was very much dependent on its continued ability to generate and sell new bookings! Much like the behaviour of a Ponzi scheme.
It is not the purpose of this post to get into a debate over management responsibility or otherwise. My point is simply, that perhaps there are systemic issues within the airline industry, and indeed other industries, where forward bookings are taken, and the funds relating to those bookings are not put into some form of “trust” arrangement to cover the cost of providing the service or product when they occur. Trust accounts exist in a large number of industries including real estate and law. I am even aware of at least one major events company that uses trust accounting to ensure that funds allocated to an event are managed approriately.
Perhaps it’s time to look at the structural nature of other industries, such as the airline industry, where forward bookings and payments are fundamental to the way the industry operates, so that the unsuspecting customer is more protected.
