FLUG REVUE November 2003: European airline restructuring intensifies

FAREWELL TO THE FLAG CARRIERS

By Volker K. Thomalla

The air transport industry in Europe is currently in a phase of unprecedented upheaval, in which there is no longer any place for the taboos that have prevailed up to now. Pressure resulting both from the general economic situation and also from the SARS crisis in Asia, which has been a disaster for air travel, have accelerated the pace of change still further. On top of this, the appearance of the low-cost carriers on the European air travel market has given the process extra momentum. Any carrier that does not now actively play a part in reshaping the airline industry will find itself on the side of the losers later on when it ceases to have any future at all. In Europe, flag carriers have always been a matter of national pride. It was unthinkable that a foreign company should have a majority shareholding in a national carrier, and before Sabena and Swissair went bankrupt, it was difficult to imagine a flag carrier ever becoming insolvent. Governments preferred to put their hands in their pockets and bail out a national company, irrespective of whether there was any prospect of its making a profit or not.

With the demise of Sabena and Swissair, the old way of thinking has gone by the board. And at a time of empty state coffers, most governments are no longer willing to keep airlines artificially alive with financial support that runs into billions simply because it would be nicer to have a national carrier. A number of countries are privatising their airlines. Even France plans to reduce its stake in Air France to 20 percent. Airlines have completed the transition from pampered darlings of the state to more or less normal companies which have to prove themselves on the market. And if the domestic market is too small or not profitable enough, then the airlines concerned have to adapt to the circumstances or else be driven from the marketplace. This may sound brutal, but that is the reality. Today's passengers have become more flexible and more critical. They do not have to fly from an airport in their country with a national airline. They use the airport and the company which meets their needs the best, irrespective of which European country it is based in. In Europe, at least, flag carriers are a dying breed. Air travel is international and, accordingly, the airlines have to fall into line. The EU Competition Commission in Brussels is seeing to it that the days of state support for national carriers are over. It vehemently opposes trade-distorting payments and is taking action to outlaw them.

It is now time for the airlines to find themselves partners capable of survival and team up with them in a sensible way, whether through merger, reciprocal participation or fixed alliance links. As this edition of FLUG REVUE was going to press, it appeared that Air France and KLM were on the point of merging, to form the biggest airline in Europe in terms of numbers of aircraft. How far this merger will lead to a loss of identity of one of the partners remains to be seen. Alitalia is also looking for a partner and has made overtures to Air France as well.

Other airlines, such as Olympic Airways need to look around for partners too, but apparently are not. After much dithering, Swiss has decided to enter a far-reaching strategic alliance with British Airways and is to join Oneworld. This is a strategically important decision, even if it does not solve the Swiss carrier's pressing short-term financial problems. The decision may have cost Swiss more of its independence than if, for example, it had teamed up with Lufthansa. But anyone who stays independent will have to weather any storm that comes its way on its own.

From page 4 of FLUG REVUE 11/2003

Last updated 10 October 2003

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