SailorOrion
Topic Author
Posts: 1959
Joined: Tue Feb 06, 2001 5:56 pm

80% Of Airlines Will Have To Die.

Mon Jul 14, 2003 4:04 pm

What is really the problem with this business? It's not 9111, it's not the war against iraq, it's definately not an 8-week effect like SARS. It's simply the fact that this is an testosterone-driven (rather than market-driven) industry where national pride, market-share and prestige matters way more than sane entrepreneurial thinking.

In 2001 and 2002 this world's airlines have lost more money than has been made in the 100 years before that. This is not because every airline lost a whole lot of money, but because many airlines who were already doing not-so-well, did even worse. And what do we do? We bail them out, with billions and billions of tax dollars, whereas on the other end, we increase taxes more and more on the tickets, in order to "distribute" the wealth in this industry.

Of course it is sad to see airlines go. I think its very sad that there is no more Braniff, or Eastern or Pan Am. It's sad to see whan happens to SwissAir and Sabena.

But we have to let them die. We have to unless we want to do even more harm to the entire business. Especially in Europe, there are way to many airlines. It is a terrible fact for the industry that we have 20+ airlines in the EU, and every single one of them thinks they need to operate an international network.

We have to abolish those mediaeval protectionistic laws like Bermuda II, or the 25% rule in the U.S., and all similar rules that are around, no matter where they origin from.

In some ways the Europeans have to learn from the Americans here, over in the U.S. there are a number of large airways (on the long run, US/UA, DL/CO/NW, and AA) and a couple of low-cost and niche carriers, plus the regionals, most intercontinental traffic is routed through a very limited number of airports: LAX and JFK getting the most, then the hubs of the airlines get a number of traffic (ATL, ORD, SFO) and some large O&D markets have a limited number of flights (e.g. BOS). What about Europe? Every country thinks they need at least two (better more) airports with an intercontinental network. But does the market need that? NO. We need a small number of large network carriers (as a first guess these would be BA, LH and AF) and most other national carriers will HAVE TO GO (merged into the 3 or 4 remaining). Sorry. Otherwise we do not get the downward spiral stopped.

This would also be the only way to overcome the horrendous overcapacity that exists. Over 15% of the world fleet is currently grounded somewhere. Almost 300 747s are mothballed (if you say that only the half is airworthy of those, still a fleet larger than SQ+BA+LH sits on the ground). Of course there will be tremendous growth in the next 30 years. But as long as we dont let the market to clean up itself, it will simply collapse one day. Think of it, most of the growth will NOT take place in North America, or Europe, but in other place. New, underdeveloped markets who look at what going on in the big ones. We have to set an exsample for those as well.

It's a simple matter of evolution. You have to let the feeble once die, so that the strong ones can survive.

SailorOrion
 
jhooper
Posts: 5560
Joined: Thu Dec 13, 2001 8:27 pm

RE: 80% Of Airlines Will Have To Die.

Mon Jul 14, 2003 4:12 pm

Unfortunately.....................you're right.
Last year 1,944 New Yorkers saw something and said something.
 
jhooper
Posts: 5560
Joined: Thu Dec 13, 2001 8:27 pm

RE: 80% Of Airlines Will Have To Die.

Mon Jul 14, 2003 4:14 pm

Well, I don't know about 80%, but some will sure have to die. The notion of providing government subsidies to keep struggling airlines alive is economically inefficient.
Last year 1,944 New Yorkers saw something and said something.
 
TriStar500
Posts: 4411
Joined: Thu Nov 04, 1999 9:50 pm

RE: 80% Of Airlines Will Have To Die.

Mon Jul 14, 2003 4:32 pm

I agree with a lot of your points, but would like to add that there will always be niche routes warranting a nonstop service. E.g. it would most likely not a make a lot of sense to backtrack from DUB to FRA, LHR or CDG if you want to travel to the US East Coast. Therefore, there will always be a demand for routes bypassing the hubs of the European big three (LH/BA/AF), which are likely to dominate our airline market in the future. However, many prestigious routes wil have to be given up.

I can see many of the overprotected "national" airlines continue in their existence, but not in their current overblown inefftive size, but as feeders for the dominant network carriers plus as operators of hub bypassing routes with a high demand (sort of like the domestic network of most European "national" carriers is operated: most flights radiate through the hubs, but there are also nonstop services bypassing these).

I see a dominant role for BA, LH and AF in the future, plus an influential role of mid-sized national carriers with a large home market like KL, IB, AZ, SK etc. as part of an alliance. Unfortunately, small and inefficiently run airlines (I am oversimplifying now for the sake of argumentation) like LX, EI, OA will either die out or be limited to said hub-feeder function for the "big ones" plus some limited nonstop hub bypass flying.

Homer: Facts are meaningless. You could use facts to prove anything that's even remotely true!
 
SailorOrion
Topic Author
Posts: 1959
Joined: Tue Feb 06, 2001 5:56 pm

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 12:21 pm

Well, I don't know whether 60% or 70% or 80% have to go, I also think thats not so important. I also agree with the fact that there will always be hub-bypassing traffic, which will increase in the future, but the thing is that there are just way to many hubs in Europe.

But as long as this business does not adapt to the most basic rules of a market environment, nothing is going to change unfortunately  Sad

SailorOrion
 
Jaws707
Posts: 667
Joined: Mon Aug 06, 2001 10:45 am

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 12:42 pm

I agree with most of your key points, but instead of dying off I think there will be more in the way of future mergers. An airline consisting of DL/NW/CO would be way too big and that wouldnt happen. I think Europe has enough potential customers to warrant maybe 5 majors instead of the 3 you mentioned. I would think the 5 to be AF, BA, LH, a merger between SAS and Finair, and a merger between Alitalia and Iberia. The smaller companies like LOT, or CSA would probobly be integrated somewhere in here. Lets remember that air traffic is expected to grow at 5% for the next 20 yrs so that is a lot of new potential customers for the airlines as well. One more point is that a lot of the financially troubled cariers have infact gone out of business in the past 2 years. Including National, Midway, Sabena, Ansett, and Vanguard.
 
BR715-A1-30
Posts: 6525
Joined: Thu May 30, 2002 9:30 am

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 2:03 pm

Some have to die to make way for younger airlines. AA has been in GREAT Health for years, but is now in the hospital. I might add she is doing quite well in the hospital, and it looks like she is ready to be discharged, but United is coughing up a lung. US isn't doing too good. Younger LCCs like AirTran and jetBlue and Song (OPB DELTA) and Southwest, and Frontier are doing great. Eventually more will come and more will go. As business changes, Older businesses seem less able to compete with newer business strategies.
Puhdiddle
 
TriStar500
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Joined: Thu Nov 04, 1999 9:50 pm

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 6:37 pm

I guess we can all agree on BA, AF and LH becoming the big players in the future European aviation market. In the long run, we will also see small national carriers like EI, LX, SN etc. either go belly up or become regional subsidiaries of the "big three".

Which leaves the question, what will happen to mid-sized airlines like KL, IB, SK, AZ etc.? Although a merger with their repective alliance leaders would seem to be a logical scenario, we have heard a fair share of stories, how a seemingly successful merger was thrown into jeopardy after different company cultures and regulations had to be mixed and harmonized. With national pride coming into play, this will further the difficulties.


Homer: Facts are meaningless. You could use facts to prove anything that's even remotely true!
 
bobrayner
Posts: 2038
Joined: Sun Apr 27, 2003 8:03 am

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 7:32 pm

It's not just about size! Being big doesn't make them a great business.

If we get more motion towards a free market, then those mid-sized flag-carriers that have actually avoided the stereotype of overstaffing and inefficiency will prosper.

For instance, according to the last good figures I have (anybody got better?),
KLM has an annual RPK:staff ratio of 2.13m
LH has an annual RPK:staff ratio of 0.99m
Thats gotta hurt  Big grin


[Edited 2003-07-15 12:33:47]
Cunning linguist
 
SailorOrion
Topic Author
Posts: 1959
Joined: Tue Feb 06, 2001 5:56 pm

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 8:11 pm

Bobrayner:
Don't want to be rude, but you have made a little mistake in your calculations, since LH Passage Airline (Lufthansa & Cityline) has 36,000 employees, with an rpk of 95 billion that leads to a RPK:Staff ratio of 2,6 million.

Do consider that LH Technik maintains a fleet of well over 1400 units, and the LH Sky Chefs have a world market share somewhere between 30% and 40% (dont have exact figures), and there is also Thomas Cook with a ratio of about 6,5 million.

SailorOrion
 
bobrayner
Posts: 2038
Joined: Sun Apr 27, 2003 8:03 am

RE: 80% Of Airlines Will Have To Die.

Tue Jul 15, 2003 8:32 pm

Hmm. The figures surprised me too!

Sorry; I was trying to get the most direct comparison in the shortest time, which meant using the ATW 2001 stats. For LH only (excluding cityline &c, just as KLM UK / cityhopper were excluded) they had 86695m rpk and a rather surprising 87975 employees. Presumaby that's where I went wrong.

I should just have compared to AF (1.46) or Olympic (1.37) - my pet hates. They're always good examples of inefficiency  Smile

Anyway. Although there are indeed economies of scale, that doesn't mean the the biggest fleet wins. Look at the USA!

With any reasonable liberalisation, the market is likely to be shaped more by competition on routes than by takeovers and mergers. In which case, the carriers who can offer the best balance between operating cost/service/ticket price when opening a new route should flourish - regardless of whether they start with 5% market share or 50%.
Cunning linguist
 
SailorOrion
Topic Author
Posts: 1959
Joined: Tue Feb 06, 2001 5:56 pm

RE: 80% Of Airlines Will Have To Die.

Wed Jul 16, 2003 12:15 am

Bobryaner:
Yeah, I was quite surprised as well when I read your post, but I dug up some figures from LH. Meanwhile, they have almost 100,000 employees, over 30,000 of which are working for the Sky Chefs.

I agree to your statement that an airline need not to be large to be efficient, I was rather trying to state that there are just too many airlines around, and especially in Europe.

The main problem is that most airlines are just hunting for market share, instead for cost-coverage.

This would be like LH adding 25 new U.S. flights a day just to attempt to become #1 transatlantically. Of course they could even reach that goal, but they would never cover the costs.

SailorOrion
 
cptkrell
Posts: 3186
Joined: Sun Sep 23, 2001 10:50 pm

RE: 80% Of Airlines Will Have To Die.

Wed Jul 16, 2003 11:57 am

Well-made points, SailorOrion, however, I would comment that there are STILL quite a few travelers that are very much "afraid" of the possibility of terrorism as they somewhat distrust current security measures (in the U.S. at least). This, coupled with the (real or perceived) hassle of going through all the security stuff two hours ahead of pushback before a two hour flight has put a real dent in casual/vacation air travel.

There is also a significant reduction in business travelers as companies turn more and more to the internet, satellite conferencing and such, and before I retired from GM last year, business travel under a certain mileage figure (can't remember, 500 or so miles) was restricted to automobile at my facility.

I wouldn't gamble that we'll lose 80% of the carriers, but with the negatives mentioned above continuing for the forseeable future, only the efficiently managed carriers offering focused, value-oriented product will make it...Jack

all best; jack
 
luv2fly
Posts: 11056
Joined: Tue May 13, 2003 2:57 am

RE: 80% Of Airlines Will Have To Die.

Wed Jul 16, 2003 12:10 pm

Cptkrell

Well-made points, SailorOrion, however, I would comment that there are STILL quite a few travelers that are very much "afraid" of the possibility of terrorism as they somewhat distrust current security measures (in the U.S. at least). This, coupled with the (real or perceived) hassle of going through all the security stuff two hours ahead of pushback before a two hour flight has put a real dent in casual/vacation air travel.

This is one of the main reasons the airlines are doing so badly! It is a hassle and I am sure a whole lot of people still are not confident with the TSA agents. Also people do not like there luggage opened without them being around.

There is also a significant reduction in business travelers as companies turn more and more to the internet, satellite conferencing and such, and before I retired from GM last year, business travel under a certain mileage figure (can't remember, 500 or so miles) was restricted to automobile at my facility.

This coupled with the fact that people are tired of both being gouged and also the ever increasing decline in service levels. Also should be noted how self serve check in have been embraced, it might not be the technology is being so embraced, it has to do with the way we are treated when we are sending money with you....

You can cut the irony with a knife

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