30 August 2009

The Sick Boys Of The Airline Biz

As the world airline industry tries to put on a good front in the face of still falling traffic/revenues in both passenger and cargo, we can now see some trends of players who are going to hurt more than others.

Perry Flint's ATW editorial for August made a big point about the success of the DOT over the DOJ in approving the Continental/United/Star ATI JV. This should have been a collective sigh of relief for the industry. However in my humble opinion this masks a darker side.

The conventional wisdom of the internal airline market seems to be that bigger is better and that consolidation should be the order of the day. I disagree. Consolidation does not result in lower fares and better service. The economies of scale as a result of mergers have in the main been far outweighed by the high costs of integration and the resulting downsize has not led to any consumer benefit save the ability to have a single ticket service.

When the dust clears - the resulting airline hardly ever gets a size boost and the market returns to the state it was previously. Warts and all. Somehow the airlines always seem to expect that the government(s) will ride to their rescue if all else fails. How many shareholders have lost considerable sums in capital write offs due to bankruptcies and writedowns over the past 30 years? The number is staggering.

Michael O'Leary must be a happy person at the moment watching his nemesis Aer Lingus writhe in agony in what its own CFO called an airline "...in trouble".

It is time for the government's to get FULLY out of the airline regulatory (except for consumer protection and safety) business and to stop tampering with the market forces.

So my nominees for sickest airlines of the world and most likely to need "fixing" are as follows:

In the basket case category:
Aer Lingus

In the deeply troubled category
British Airways
Virgin Blue
Many Chinese based airlines

In the category - in need of a dose of reality
Too many to pick nominees

Strangely enough the US airlines are not immediate standouts here. True they are struggling but this is a comparative game - so I am giving them a break at the moment.

Agree with me or not - I hope this sparks more debate.

However - lets have a truly more honest and open market and let the strong survive on true metrics and let the scrappiest keep them honest..


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