Moderators: jsumali2, richierich, ua900, PanAm_DC10, hOMSaR

 
User avatar
neomax
Topic Author
Posts: 945
Joined: Fri Dec 01, 2017 3:26 am

Are alternatives to state-run airlines realistic?

Tue Sep 25, 2018 11:02 pm

So SAA is a great example of the troubles faced by state-run airlines, and there are a lot of other examples in the same bucket. But when people suggest getting rid of the state-run airline and replacing it with a new one, those seem to have an equally abysmal success rate. So are alternatives to state-run airlines actually realistic or are some countries just bad for running any kind of airline? It seems that in some countries, any kind of airline, new or old, state-run or startup all fail indifferently.
 
User avatar
enilria
Posts: 10373
Joined: Fri Feb 22, 2008 7:15 pm

Re: Are alternatives to state-run airlines realistic?

Tue Sep 25, 2018 11:07 pm

There are VERY few countries where both the flag airline and the airports are privatized. Usually it is one or the other. The USA is certainly not in that group (with govt airports). Air travel is a way of creating economic development. Countries can use running airports or airlines to help push that agenda. The USA chose airports and they are used very heavily by govt to push economic development in the USA. New Zealand is a case where both are private and the airports and airlines are having a shoving match that is leading to less air service.
 
filipair
Posts: 164
Joined: Fri May 14, 2010 3:28 am

Re: Are alternatives to state-run airlines realistic?

Tue Sep 25, 2018 11:45 pm

enilria wrote:
New Zealand is a case where both are private and the airports and airlines are having a shoving match that is leading to less air service.


What do you mean by that? Air NZ is still majority owned by the New Zealand government.
 
PPVRA
Posts: 8587
Joined: Fri Nov 12, 2004 7:48 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 2:44 am

The aviation industry has a history of heavy government market distortions through ownership of airlines AND heavy handed regulations that had/have nothing to do with safety, but rather merely with power and control.

Take that away and yes, you can expect significant turbulence while readjustments take place. Further more, now we can FINALLY learn how to run an airline properly in a market environment. Some will learn, others will not—but in the end, learning is good and will lead to more stability in the future.

And really, there is still significant government interference in the industry. Aircraft financing, airports mostly still live in the regulatory dark ages that the airlines freed themselves from, and there are still a handful of influential government owned or backed airlines out there distorting competition.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
User avatar
VirginFlyer
Posts: 5571
Joined: Sun Sep 10, 2000 12:27 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 3:32 am

filipair wrote:
enilria wrote:
New Zealand is a case where both are private and the airports and airlines are having a shoving match that is leading to less air service.


What do you mean by that? Air NZ is still majority owned by the New Zealand government.

This needs some context. Air New Zealand was completely privatised by the New Zealand government in 1989, but the government took a majority stake in 2001 as part of a rescue package following the collapse of Ansett Australia (which Air New Zealand was then a 100% owner of). The government has subsequently sold down its shareholding, and now only retains a 53% stake. The government has taken a rather hands-off approach to its investment in the airline since then.

Auckland Airport was corporatised by the government in 1988. The shareholding was mixed between central and local government. The central government sold its share in 1998 by listing the airport on the stock exchange, and North Shore city sold its shareholding a year later, while Auckland City and Manukau City retained their shareholding’s, and now the combined Auckland Council is a 22.4% shareholder.

Another example would be Australia, where the government privatised the airlines it owned (Qantas and Australian Airlines) during the 1990s, and the airports it owned through the Federal Airports Corporation during the 1990s and 2000s. In the Australian case, I don’t believe there is any significant direct government shareholding (federal, state, or local) in Qantas or in the former FAC airports, although there may be some minority shareholdings, as well as shareholdings by government owned investment companies.

V/F
It is not for him to pride himself who loveth his own country, but rather for him who loveth the whole world. The earth is but one country, and mankind its citizens. —Bahá'u'lláh
 
User avatar
aemoreira1981
Posts: 3683
Joined: Mon Jan 09, 2017 12:17 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 3:57 am

Depends on the area. If SAA closed tomorrow, all of its long-haul routes have significant competition on them with another airline except JNB-JFK (the closest to that is DL on JNB-ATL). Oneworld airlines wouldn't really worry as BA has its South African franchisee in Comair and for feed to other continents, Comair could codeshare with the LATAM Airlines Group's airlines for feed into the Americas via GRU and to Australasia via QF (they already codeshare with CX). Comair flights not as Kulula already operate using BA numbers. The real question in the region is how both Comair and Airlink (the other two major airlines in South Africa) would align themselves in sub-Saharan Africa, as each is a successful regional airline, but each would also likely need some wide-body capacity, albeit not necessarily out of Africa, but to areas in central and western Africa, and along the Mediterranean. Each would also have the advantage of not being a patronage mill. (For an airline like South African, it should only have about half the employees it has.) As for aircraft with airlines owned by the South African government, assets, the only assets it has in terms of aircraft are 14 of its 16 A340s at SAA proper and the 10 CRJs at the Express unit (1 operational); everything else, including the entire Mango fleet, is leased. Those aircraft today are probably worth only a little above scrap value.

Now, as for elsewhere, it would be interesting for the development of an airline like TK if it wasn't a public-private partnership. The desire to fly all over the globe is clearly with the current Turkish government, although TK has the right size of equipment to do so profitably, including being sub-daily on many routes. Europe is where airlines have in many cases been forced to privatize to survive or become niche, with LOT and Finnair being notable exceptions, although each is run in a hands-off approach.
Last edited by aemoreira1981 on Wed Sep 26, 2018 4:15 am, edited 1 time in total.
 
steveinbc
Posts: 351
Joined: Sun Sep 13, 2015 4:30 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 4:15 am

I would say that the UK has successfully fully privatised the "flag carrier" and all the airports. Heathrow is owned by the Spanish and BA has been non public for over 40 years.
A319 320 321 330 340 380 B707 727 737 747 757 767 777 787 BAe1-11 Trident 1, 2, 3B Viscount Lancaster VC10 HS748, ATP DHC-1, 3 Dash-8 Dash-400 Shorts 330 360 Embraer Banderiante Brasileria 175 190 BAe146 Saab 200 DC-3 -8 -9 -10 MD-11 ATR42-72
 
StudiodeKadent
Posts: 438
Joined: Mon Jul 31, 2017 8:43 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 4:24 am

neomax wrote:
So SAA is a great example of the troubles faced by state-run airlines, and there are a lot of other examples in the same bucket. But when people suggest getting rid of the state-run airline and replacing it with a new one, those seem to have an equally abysmal success rate. So are alternatives to state-run airlines actually realistic or are some countries just bad for running any kind of airline? It seems that in some countries, any kind of airline, new or old, state-run or startup all fail indifferently.


What do you mean by "realistic" here?

Of course it is possible to have pure free markets in airports and airlines. But in a pure free market, NOT every country will be able to have its own flag carrier, NOT every country will be able to run a megahub airline, etc.

Not only that, but its clearly possible for some government-owned airlines to be ran very competently (unlike SAA).

The question is, what is your aim? What is your objective? If you want to create something like Dubai, you basically need at the very least a lot of "favors" from the government but in reality government ownership becomes essentially necessary. If the management comes from the private sector however and the government is willing to let the airline be ran like a business (rather than as a national-pride or prestige-for-cronies thing) then very good outcomes can occur far more swiftly than a purely-private-sector solution. Of course this has problems and only some governments can do this (typically you need relatively authoritarian levels of control and either the ability to impose high taxes, some sort of geographic advantage that makes your proposed hub a good transfer hub, or a very cashed up government).
 
User avatar
aemoreira1981
Posts: 3683
Joined: Mon Jan 09, 2017 12:17 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 4:33 am

Another country where it seems hard to run an airline is Nigeria, especially with the handicaps it imposes on airlines. There, major deregulation is needed to allow anyone with a reasonable chance to succeed. The way Nigeria Airways was run from the 1980s onward until its dissolution in 2003 is a cautionary tale...it was a patronage mill not unlike South African Airways today---it had over 3,000 employees for just 3 working aircraft a few years before closing. (Before it went nonstop to JFK, SAA flew JNB-LOS-JFK but Nigeria Airways didn't pay up and the stop was moved before becoming nonstop.) I would also say the DRC is a bad place as well...and this is worse because the DRC was handed a great network built up by Sabena, but it has an absolute nightmare of a regulatory environment and hardly any safety standards.
 
Bald1983
Posts: 623
Joined: Wed Jun 15, 2016 8:04 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 4:40 am

neomax wrote:
So SAA is a great example of the troubles faced by state-run airlines, and there are a lot of other examples in the same bucket. But when people suggest getting rid of the state-run airline and replacing it with a new one, those seem to have an equally abysmal success rate. So are alternatives to state-run airlines actually realistic or are some countries just bad for running any kind of airline? It seems that in some countries, any kind of airline, new or old, state-run or startup all fail indifferently.


Private companies are the way to go.
 
Bongodog1964
Posts: 3542
Joined: Wed Oct 18, 2006 6:29 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 10:08 am

State ownership is not necessarily a problem, the problem is state interference, There was a time when the vast majority of International flying was covered by bilateral agreements, the two nations would agree to each provide roughly 50% of the capacity on the route, in effect there was no competition and ticket prices were sky high, these prices covered the excessive numbers of staff. employment of the aviation ministers brother in law as CEO, awarding the new hangar contract to the presidents nephew., allowing the presidents wife to commandeer a 747 for her shopping trip to Paris etc. In the modern era however you need to keep your costs close to the competition and this can't be done with political hands in the trough. especially when you order A320's cancel them in favour of B738's, then phase out the Boeings and return to Airbus !!
It seems to me that any airline anywhere is going to struggle now without a fleet of at least 50 aircraft, otherwise they just can't be efficient enough.
SAA need to look at Ethiopian Airways to see what they could have been. IMO the options for SAA are to either be swallowed up by the likes of Lufthansa, AF/KLM or IAG, or if thats not politically acceptable to be swallowed up by Ethiopian Airlines
 
mxaxai
Posts: 2146
Joined: Sat Jun 18, 2016 7:29 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 10:45 am

PPVRA wrote:
The aviation industry has a history of heavy government market distortions through ownership of airlines AND heavy handed regulations that had/have nothing to do with safety, but rather merely with power and control.

Take that away and yes, you can expect significant turbulence while readjustments take place. Further more, now we can FINALLY learn how to run an airline properly in a market environment. Some will learn, others will not—but in the end, learning is good and will lead to more stability in the future.

And really, there is still significant government interference in the industry. Aircraft financing, airports mostly still live in the regulatory dark ages that the airlines freed themselves from, and there are still a handful of influential government owned or backed airlines out there distorting competition.

The air transport market is unlike many others. The larger airline almost always has an advantage over a smaller one, and the hurdles to starting an airline are very high. It is also quite easy to fail, as losses often grow quickly while profits are generally small. Hence why many markets have moved towards an oligopoly with only few airlines.
Re Financing, imagine going to your bank and asking for a low sum of US$ 5 billion for a small fleet of 50 narrowbodies, but you'll get profit margins of 5% max and a 50% chance to fail.

I think a completely unregulated market would, over time, evolve to have one or two very large airlines and possibly a number of small niche players. After all, no competition maximizes profits.
You would also see many less attractive routes abandoned that are kept alive today by some sort of government influence or subsidies. These often serve less populated or less developed areas in an attempt to make or keep those places attractive to businesses. For example, the US have EAS.
 
ltbewr
Posts: 15454
Joined: Thu Jan 29, 2004 1:24 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 11:27 am

The ME3 and their home airports are for all practical purposes government owned and controlled, yet are generally considered to be well run. Then uou have airlines like Alitalia and Air India that are examples of the worst of government and political control, more worried about keeping patronage jobs than financial soundness.
 
MIflyer12
Posts: 8759
Joined: Mon Feb 18, 2013 11:58 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 11:52 am

OP should Google 'Schumpeter, creative destruction'. One persistent problem in the industry is not letting failed firms go out of business, which makes space for better-managed firms.

Sabena had one year of profit post-1958. http://news.bbc.co.uk/2/hi/business/1642576.stm

The troubles of Alitalia are legend and heavily discussed in these forums.

I have to wonder if the OP got his education in Economics in a Communist country, or has no meaningful education in the subject at all.
 
PPVRA
Posts: 8587
Joined: Fri Nov 12, 2004 7:48 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 12:53 pm

mxaxai wrote:
PPVRA wrote:
The aviation industry has a history of heavy government market distortions through ownership of airlines AND heavy handed regulations that had/have nothing to do with safety, but rather merely with power and control.

Take that away and yes, you can expect significant turbulence while readjustments take place. Further more, now we can FINALLY learn how to run an airline properly in a market environment. Some will learn, others will not—but in the end, learning is good and will lead to more stability in the future.

And really, there is still significant government interference in the industry. Aircraft financing, airports mostly still live in the regulatory dark ages that the airlines freed themselves from, and there are still a handful of influential government owned or backed airlines out there distorting competition.

The air transport market is unlike many others. The larger airline almost always has an advantage over a smaller one, and the hurdles to starting an airline are very high. It is also quite easy to fail, as losses often grow quickly while profits are generally small. Hence why many markets have moved towards an oligopoly with only few airlines.
Re Financing, imagine going to your bank and asking for a low sum of US$ 5 billion for a small fleet of 50 narrowbodies, but you'll get profit margins of 5% max and a 50% chance to fail.

I think a completely unregulated market would, over time, evolve to have one or two very large airlines and possibly a number of small niche players. After all, no competition maximizes profits.
You would also see many less attractive routes abandoned that are kept alive today by some sort of government influence or subsidies. These often serve less populated or less developed areas in an attempt to make or keep those places attractive to businesses. For example, the US have EAS.


The industry has gotten better, not worse, with the removal of those heavy handed regulations of the past. We have more competition, lower fares and more innovative models than in the past.

The influence of the significant government backed players today is one that makes life difficult for the non-govt backed players. They are not a positive influence in the market.

Also, the air transport market isn’t the only industry with very high capital costs and slim profit margins. Not by a long shot. Furthermore, there are some very significant disadvantages with long established, larger carriers, particularly when it comes to labor costs—plenty of newcomer LCCs grow really fast.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
vahancrazy
Posts: 194
Joined: Sat Jun 23, 2007 5:54 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 1:30 pm

ltbewr wrote:
The ME3 and their home airports are for all practical purposes government owned and controlled, yet are generally considered to be well run. Then uou have airlines like Alitalia and Air India that are examples of the worst of government and political control, more worried about keeping patronage jobs than financial soundness.


AhAh you beat me on time! I wanted to write about those two miserable cases.
 
User avatar
enilria
Posts: 10373
Joined: Fri Feb 22, 2008 7:15 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 1:39 pm

VirginFlyer wrote:
filipair wrote:
enilria wrote:
New Zealand is a case where both are private and the airports and airlines are having a shoving match that is leading to less air service.


What do you mean by that? Air NZ is still majority owned by the New Zealand government.

This needs some context. Air New Zealand was completely privatised by the New Zealand government in 1989, but the government took a majority stake in 2001 as part of a rescue package following the collapse of Ansett Australia (which Air New Zealand was then a 100% owner of). The government has subsequently sold down its shareholding, and now only retains a 53% stake. The government has taken a rather hands-off approach to its investment in the airline since then.

Auckland Airport was corporatised by the government in 1988. The shareholding was mixed between central and local government. The central government sold its share in 1998 by listing the airport on the stock exchange, and North Shore city sold its shareholding a year later, while Auckland City and Manukau City retained their shareholding’s, and now the combined Auckland Council is a 22.4% shareholder.

Another example would be Australia, where the government privatised the airlines it owned (Qantas and Australian Airlines) during the 1990s, and the airports it owned through the Federal Airports Corporation during the 1990s and 2000s. In the Australian case, I don’t believe there is any significant direct government shareholding (federal, state, or local) in Qantas or in the former FAC airports, although there may be some minority shareholdings, as well as shareholdings by government owned investment companies.

V/F

Well that even made my main point even stronger that countries where the airports and flag airlines are both private are nearly nil.
 
DGVT
Posts: 84
Joined: Wed May 23, 2018 12:27 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 2:22 pm

Airlines should not be state run. As a matter of fact it is time to liberalize the market completely. A good start would be allowing foreign airlines to offer domestic flights and 5th,7th & 8th freedom flights in the US. Time to utilize that cheap labor and those cheap maintenance costs of other countries. Of course all the US airlines and their employees are going to hate me, but from a consumer perspective I mainly see gains. Have a look what happend at the numbers of connections and the low airfares after liberalisation in Europe.
 
Cush
Posts: 468
Joined: Sat Feb 14, 2009 4:42 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 3:03 pm

DGVT wrote:
Airlines should not be state run. As a matter of fact it is time to liberalize the market completely. A good start would be allowing foreign airlines to offer domestic flights and 5th,7th & 8th freedom flights in the US. Time to utilize that cheap labor and those cheap maintenance costs of other countries. Of course all the US airlines and their employees are going to hate me, but from a consumer perspective I mainly see gains. Have a look what happend at the numbers of connections and the low airfares after liberalisation in Europe.


I don't know... Flights are very reasonable for the most part to anywhere in the US. I took a recent flight from PIT-LAS for $90 and have an upcoming flight from PIT-FLL for $55. I'd say that's pretty good!

Also, I absolutely HATE the idea of outsourcing maintenance to other countries. I am all for outsourcing elsewhere, but keep maintenance in house. I want the guy working on my plane to feel so confident about his quality of work, that he would be willing to put his own family on that aircraft.
Fly me to the moon let me play among the stars.
 
raylee67
Posts: 955
Joined: Mon Oct 24, 2011 11:06 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 3:04 pm

There is a distinction between "state-run" airlines and "state-owned" airlines. A state-owned airline can be run at arms-length and compete effectively. It doesn't have to be "state-run". And it can be profitable AND bringing economic value to the country at the same time, as any infrastructure is intended to. It is all about whether the government has other intentions with the airline (e.g. projecting prestige, etc.)

Singapore Airlines would be one good example. Japan Airlines used to be state-owned before the 1980s as well, when it was pretty well run.

Another surprising example I can think of is Aeroflot (the current one).
319/20/21 332/33 342/43/45 359/51 388 707 717 732/36/3G/38/39 74R/42/43/44/4E/48 757 762/63 772/7L/73/7W 788/89 D10 M80 135/40/45 175/90 DH1/4 CRJ/R7 L10
AY LH OU SR BA FI LX
AA DL UA NW AC CP WS FL NK PD
CI NH SQ KA CX JL BR OZ TG KE CA CZ NZ JQ RS
 
Antarius
Posts: 2942
Joined: Thu Apr 13, 2017 1:27 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 3:14 pm

ltbewr wrote:
The ME3 and their home airports are for all practical purposes government owned and controlled, yet are generally considered to be well run. Then uou have airlines like Alitalia and Air India that are examples of the worst of government and political control, more worried about keeping patronage jobs than financial soundness.


Yes and no. EK has been well run. EY, on the other hand is a perfect example of government sticking their fingers into something for no reason - AUH didnt need another supermajor, but it was politically unfathomable to have DXB have one, so out came the measuring stick.
2020: SFO DFW IAH HOU CLT MEX BIS MIA GUA ORD DTW LGA BOS LHR DUB BFS BHD STN OAK PHL ISP JFK SJC DEN SJU LAS TXL GDL
 
Exeiowa
Posts: 357
Joined: Fri Jul 06, 2018 4:49 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 3:40 pm

Transportation in general is a slightly different economic reality than some other sectors, as the economic impact is often greater than the ability to generate revenue. Therefore in many cases it would make sense to operate some aspects of transportation at a loss for the greater benefit. That leaves only one type of entity capable of doing so at a loss because of other income. That would be government with taxation. The problem is if the express need to provide additional transport options get repurposed for other less wholesome outcomes (ie corruption).
 
User avatar
PatrickZ80
Posts: 4370
Joined: Tue Jul 13, 2010 5:33 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 4:18 pm

raylee67 wrote:
There is a distinction between "state-run" airlines and "state-owned" airlines. A state-owned airline can be run at arms-length and compete effectively. It doesn't have to be "state-run". And it can be profitable AND bringing economic value to the country at the same time, as any infrastructure is intended to. It is all about whether the government has other intentions with the airline (e.g. projecting prestige, etc.)

Singapore Airlines would be one good example. Japan Airlines used to be state-owned before the 1980s as well, when it was pretty well run.

Another surprising example I can think of is Aeroflot (the current one).


I'd call Alitalia a state-run airline. It doesn't exist to make profit, it exist to provide jobs and air transport to Italy. If not for the Italian government pumping money into the airline every time they're running out they'd have been bankrupt long ago.

However there are also airlines in Italy that aren't state-run and in general I'd say they're performing better. However the most succesful are the foreign airlines that serve Italy. Don't forget, the largest airline in Italy is Ryanair. They know how to make profit, which is easy in Italy. But Alitalia just doesn't seem capable of doing what Ryanair does.
 
ScottB
Posts: 7190
Joined: Fri Jul 28, 2000 1:25 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 5:46 pm

enilria wrote:
There are VERY few countries where both the flag airline and the airports are privatized. Usually it is one or the other. The USA is certainly not in that group (with govt airports). Air travel is a way of creating economic development. Countries can use running airports or airlines to help push that agenda. The USA chose airports and they are used very heavily by govt to push economic development in the USA. New Zealand is a case where both are private and the airports and airlines are having a shoving match that is leading to less air service.


To be fair, it's not entirely clear that privatizing airports necessarily leads to a better experience or lower prices to the consumer. SIN is rated the best airport in the world and it's government-owned. BKG is privately-owned and it has been a money pit for the owners. Given that airports tend to use a lot of land, have external environmental impacts, and draw passengers from a wide area, it's also not clear that intense competition between airports is desirable or even economically sustainable; i.e. is it beneficial to invest in the public infrastructure (highways and/or transit lines) needed to connect to a secondary airport if the primary airport will have adequate capacity for the foreseeable future.

Even in the case of a "privatized" airport like LHR, it's obvious that government still has a heavy hand in matters since the airport cannot on its own choose to construct or not construct a new runway. And some level of government regulation is required to ensure that competition isn't hindered by deals between the airports and airlines. I suspect that there has been little privatization of airports in the U.S. simply because the overhead of government (inefficiency, corruption) running an airport is lower than the overhead of a corporation (higher borrowing costs, profits, executive bonuses) running an airport.

Bongodog1964 wrote:
State ownership is not necessarily a problem, the problem is state interference


That's the real issue. When the government starts to meddle with routes, schedules, and pricing and requires crony/patronage hiring, it becomes difficult to operate efficiently.
 
mxaxai
Posts: 2146
Joined: Sat Jun 18, 2016 7:29 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 6:40 pm

PPVRA wrote:
The industry has gotten better, not worse, with the removal of those heavy handed regulations of the past. We have more competition, lower fares and more innovative models than in the past.

The influence of the significant government backed players today is one that makes life difficult for the non-govt backed players. They are not a positive influence in the market.

Also, the air transport market isn’t the only industry with very high capital costs and slim profit margins. Not by a long shot. Furthermore, there are some very significant disadvantages with long established, larger carriers, particularly when it comes to labor costs—plenty of newcomer LCCs grow really fast.

We do have more competition today, but that is because there were high average fares, weak competitors and lots of unserved markets immediately after deregulation. There also was a lot of enthusiasm that made financing fairly easy. Without an antitrust agency, the consolidation that we've seen over the past 20 years will likely continue. Consider: How many hubs, or even countries, have more than 1 long-haul carrier? How many hubs have more than one dominant carrier at all? And if they do have more than one, on how many routes do they actively compete?

I think railways are a good example for an industry where similar things can be observed, and where it is similarly difficult to enter: The US and UK both privatised their railway systems (well, partially at least) and a lot of routes were discontinued and reduced, and parts of the infrastructure were left to rot in economically less attractive regions. Which in turn drives away even more business. In Japan, on the other hand, virtually all railways are more or less private but all long-distance routes are served by one company, JR (who were originally state-run).

I would agree that it is best if the government doesn't interfere with the day-to-day operations but there is some government guidance, and sometimes support, neccessary.
 
User avatar
PatrickZ80
Posts: 4370
Joined: Tue Jul 13, 2010 5:33 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 6:41 pm

ScottB wrote:
That's the real issue. When the government starts to meddle with routes, schedules, and pricing and requires crony/patronage hiring, it becomes difficult to operate efficiently.


Not only that, but when the government backs the airline financially there's no motivation to make a profit. The airline will survive anyway, profitable or not. This leads to inefficiency. Why bother doing things efficient when it doesn't matter anyway?

Independant commercial airlines are much more efficient, they exist to make profit. Any redundant costs are being cut. That's something you don't see on a state-run airline.
 
ExpatVet
Posts: 154
Joined: Mon Sep 03, 2018 4:35 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 7:25 pm

Well, Wizz Air is de facto Hungary's national airline, in a way... (I know, it's not a flag carrier) :)
L101, 733/4/5/8/9, 741/2/3 (never managed 744!), MD 80/2/3/8/90, MD11, DHC8/3/Q4, E170, E195, 757, 77W, 763/4, Travel Air 2000. A300/310, A319/320/321, A333, ATR-72, probably a few others I forget. Passenger, not pilot, alas! BUD based.
 
User avatar
XAM2175
Posts: 1156
Joined: Thu Oct 30, 2014 2:25 pm

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 7:38 pm

VirginFlyer wrote:
Another example would be Australia, where the government privatised the airlines it owned (Qantas and Australian Airlines) during the 1990s


Excuse the diversion, but I was surprised to discover recently that TN was privatised while QF was still state-owned - meaning effectively that the Commonwealth sold TN to itself and then privatised their one suddenly-much-bigger airline :p
 
User avatar
PatrickZ80
Posts: 4370
Joined: Tue Jul 13, 2010 5:33 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 7:41 pm

ExpatVet wrote:
Well, Wizz Air is de facto Hungary's national airline, in a way... (I know, it's not a flag carrier) :)


Plus the Hungarian government doesn't interfere with Wizzair, they're completely independant. If they go bust, they go bust. The Hungarian government won't save them.
 
Bongodog1964
Posts: 3542
Joined: Wed Oct 18, 2006 6:29 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 8:17 pm

mxaxai wrote:
PPVRA wrote:

I think railways are a good example for an industry where similar things can be observed, and where it is similarly difficult to enter: The US and UK both privatised their railway systems (well, partially at least) and a lot of routes were discontinued and reduced, and parts of the infrastructure were left to rot in economically less attractive regions. Which in turn drives away even more business. In Japan, on the other hand, virtually all railways are more or less private but all long-distance routes are served by one company, JR (who were originally state-run).

.


I can'r comment on the US railways, but in the UK privatisation has certainly not resulted in routes being discontinued or reduced, passenger numbers have doubled and the line mileage is increasing
 
ScottB
Posts: 7190
Joined: Fri Jul 28, 2000 1:25 am

Re: Are alternatives to state-run airlines realistic?

Wed Sep 26, 2018 8:54 pm

mxaxai wrote:
The US and UK both privatised their railway systems (well, partially at least) and a lot of routes were discontinued and reduced, and parts of the infrastructure were left to rot in economically less attractive regions.


The U.S. rail system had been privatized since the birth of the industry. Many of the metropolitan transit systems which are now government-owned originated as private concerns as well. Most of the U.S. railroads faced financial collapse in the 1960s and 1970s thanks to competition from airlines, automobiles, and intercity buses in the passenger space, as well as trucks in the freight space. Amtrak was established to take over the money-losing passenger services while Conrail was created to take over unprofitable freight networks in the northeastern U.S. which were considered critical infrastructure. After deregulation of rates in the railroad industry and government-funded rebuilding of its network, Conrail eventually became profitable and was privatized. Amtrak, however, remains dependent on the government to subsidize wildly unprofitable long-haul service -- that service, of course, mandated in order to retain Congressional support of subsidies.
 
PPVRA
Posts: 8587
Joined: Fri Nov 12, 2004 7:48 am

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 3:26 am

mxaxai wrote:
PPVRA wrote:
The industry has gotten better, not worse, with the removal of those heavy handed regulations of the past. We have more competition, lower fares and more innovative models than in the past.

The influence of the significant government backed players today is one that makes life difficult for the non-govt backed players. They are not a positive influence in the market.

Also, the air transport market isn’t the only industry with very high capital costs and slim profit margins. Not by a long shot. Furthermore, there are some very significant disadvantages with long established, larger carriers, particularly when it comes to labor costs—plenty of newcomer LCCs grow really fast.

We do have more competition today, but that is because there were high average fares, weak competitors and lots of unserved markets immediately after deregulation. There also was a lot of enthusiasm that made financing fairly easy. Without an antitrust agency, the consolidation that we've seen over the past 20 years will likely continue. Consider: How many hubs, or even countries, have more than 1 long-haul carrier? How many hubs have more than one dominant carrier at all? And if they do have more than one, on how many routes do they actively compete?

I think railways are a good example for an industry where similar things can be observed, and where it is similarly difficult to enter: The US and UK both privatised their railway systems (well, partially at least) and a lot of routes were discontinued and reduced, and parts of the infrastructure were left to rot in economically less attractive regions. Which in turn drives away even more business. In Japan, on the other hand, virtually all railways are more or less private but all long-distance routes are served by one company, JR (who were originally state-run).

I would agree that it is best if the government doesn't interfere with the day-to-day operations but there is some government guidance, and sometimes support, neccessary.


You have a lot of misconceptions about the airline and the rail industry. To give you a counter example, look the the extremely successful American freight rail industry. A model for the planet. It is vibrant, profitable and they’ve been investing billions of dollars a year to fix the damage caused to railroads by government pricing regulation, which was finally deregulated together with the airlines.

I really hate the term deregulation the way it is used. The term regulation implies a better working state, which it obviously was not. It was government law and interference in the industry that nearly destroyed the freigh rail industry, meaning that it was government that created the deregulated mess that it used to be during the regulatory dark ages. Once those law went away, the industry put itself back together, in an orderly, well self-regulated manner. And it is a well self regulated and oiled machine today.

It was too late for passenger rail, however. That died before President Carter “deregulated” much of the US.

An interesting anectode is that during the early 1900s, US passenger rail was just as fast as European rail. They were neck on neck competing in terms of speed. And as mentioned above, they were private.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
mxaxai
Posts: 2146
Joined: Sat Jun 18, 2016 7:29 am

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 7:44 am

Re UK railway privatisation:
While nominally a ‘private’ company Network Rail's financial viability has depended on government guarantees to underwrite its bonds. [...] growth in the debt burden shouldered by Network Rail to fund infrastructure improvements – from just under £9636m in 2002/2003, to £30,358m as of March 2012

[...] a re-worked subsidy system that has enabled train operating companies (TOCs), which run passenger franchise services allocated through competitive bidding processes, to achieve fictitious profitability without increased direct state subsidy. [...] dependent on various forms of public subsidy. [...] The British rail network has never at any point in recent history managed to cover its costs from passenger fares. Government in recent years has reportedly set a target of recovering 75% of costs from passengers, a figure achieved only once since privatisation

underlying driver [...]: how to meet the expense of a capital intensive industry which produces diffuse social and economic benefits, but cannot recover costs from passengers without pricing much of the population off the railways.

fatal rail accidents, [...] serious underinvestment in track and signalling, [...] aggressive outsourcing strategy which raised the real-terms costs of new investment projects to 2–3 times. [...] Reduced speed limits

this will enable Network Rail safely and effectively to tackle the legacy it inherited from Railtrack [the fully private company]: a legacy of poor planning and project delivery; inadequate arrangements for managing suppliers and subcontractors; inadequate levels of maintenance and renewal activity; poor customer focus; and an insufficient grasp of the causes of and cures for poor day-to-day performance.

https://www.sciencedirect.com/science/a ... 8214000416
Standard single fares have increased by up to 208%. On average, train fares per journey cost 2.7% more in real terms in 2011–12 than in 1994-5

Critics have pointed to the fact that many of the franchises have ended up in the common ownership of the few dominant transport groups. [...] many of the private companies are themselves owned by the state-owned transport concerns of other nations, including the largest freight operator

https://en.wikipedia.org/wiki/Impact_of ... itish_Rail
There are times and places where it is better to go with as little government interference as possible, but not always. Infrastructure is one of those exceptions, be it aviation, rail or road. I'm not arguing to operate everything by a state-owned company, but that you need some governmental oversight. As you noted, the US government did eventually step in and fund key railways. They also funded most of the airports and roads, just like most other countries did and do.
As noted, there are airlines that are state-owned and profitable. Meanwhile, lots of privately-owned airlines in deregulated markets failed.
 
aviationaware
Posts: 2858
Joined: Mon May 19, 2014 12:02 pm

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 8:18 am

Everything government touches dies. Before it dies, it becomes outrageously costly. Private enterprise is the only way for any business to operate viably, including airlines.
 
User avatar
neomax
Topic Author
Posts: 945
Joined: Fri Dec 01, 2017 3:26 am

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 8:33 am

aviationaware wrote:
Everything government touches dies. Before it dies, it becomes outrageously costly. Private enterprise is the only way for any business to operate viably, including airlines.


I wouldn't say government necessarily is the cause of problems. However, corruption is and it usually comes from the government so I take your point. When done right, government businesses are often more successful than their private counterparts.
 
spannacomo
Posts: 128
Joined: Wed May 30, 2018 5:38 pm

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 10:38 am

PatrickZ80 wrote:

However there are also airlines in Italy that aren't state-run and in general I'd say they're performing better.

Not really, because alitalia unfair competition destroyed the market, and continues to destroy it. When alitalia want to compete on a route they do it no matter the price to pay, they do not need to be profitable. Many italian companies went bankrupt for this reason, the last one being meridiana, who is trying to launch a hub in MXP under new owners and under air italy name but I fear their success is strongly related to alitalia demise, which is improbable in spite of their continuous losses.
 
jfk777
Posts: 7418
Joined: Tue Aug 22, 2006 7:23 am

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 11:24 am

Today the only acceptable scenario for a state owned airline is the economic survival of the country. An island nation far away from anywhere needing tourism dollars, Euros, Yen or Pounds. A situation where the employees are paid in local currency but the airline brings tons of hard currency.

Even such a situation may not warrant a local airline, many islands in the Caribbean rely on tourism but the airline bringing the tourists are foreign. Barbados has no more BWIA but the tons of British tourists fly BA, Virgin, TUI or Thomas Cook. Aruba and Curacio rely on KLM almost exclusively. There is no "Air Bermuda" either.
 
jfk777
Posts: 7418
Joined: Tue Aug 22, 2006 7:23 am

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 11:30 am

SAA has always been in the wrong alliance, if they were in OW many competitor airline would be "friends". BA, Qatar, and Qantas would all have been helpful to SAA. AA in America, what does United do for SAA ? UA doesn' fly to JFK and IAD is not a the best Untied hub, if SAA flew to Newark,Chicago or Houston then those are the UA mega hubs. IF SAA was in OW they would fly to MIA and JFK, two great AA hubs( whatever AA is at JFK is better then UA at JFK).
 
Jasmin81
Posts: 12
Joined: Sat Sep 10, 2016 9:27 pm

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 11:56 am

A lot of focus here is on large markets. I'd argue that the reality is that whether state run or private depends on the area and sector involved. In Europe, where the market is huge, and alternative to air travel are fairly easily come by (high speed rail, excellent roads etc.) the need for a state-owned airline is fairly minimal - the LCCs do a good job of keeping fares low and running a dense, convenient network, and there's plenty of alternatives. (airports are another matter, as they tend toward being a natural monopoly, especially in areas with scarce land, so state ownership here makes sense to prevent a Sydney airport type extortion situation).

By contrast, small, remote markets - like Polynesia, Micronesia, outback Australia etc. have literal lifeline air routes that would be impossible to run a solely private/for-profit venture, giving you two options - either a state owned airline (i.e. Air Tahiti, Air Kiribati, Our AIrline) or a privately owned airline running routes under a government contract (i.e. the RASS for the Australian outback routes). Both have pros and cons and reflect the reality of the situation - remote Pacific communities rarely have private GA companies based locally who can fulfill the contract, so it's simpler, cheaper and easier to have a state owned operation. Even in remote areas of Australia, there are a good number of GA companies running mining charters and the like, so it's simpler to contract with them rather than run the whole show directly (the federal structure of Australia also encourages this, many routes are contracted via state/territory governments, even if the money is ultimately from Commonwealth funds).
 
User avatar
enilria
Posts: 10373
Joined: Fri Feb 22, 2008 7:15 pm

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 8:09 pm

ScottB wrote:
enilria wrote:
There are VERY few countries where both the flag airline and the airports are privatized. Usually it is one or the other. The USA is certainly not in that group (with govt airports). Air travel is a way of creating economic development. Countries can use running airports or airlines to help push that agenda. The USA chose airports and they are used very heavily by govt to push economic development in the USA. New Zealand is a case where both are private and the airports and airlines are having a shoving match that is leading to less air service.


To be fair, it's not entirely clear that privatizing airports necessarily leads to a better experience or lower prices to the consumer. SIN is rated the best airport in the world and it's government-owned. BKG is privately-owned and it has been a money pit for the owners. Given that airports tend to use a lot of land, have external environmental impacts, and draw passengers from a wide area, it's also not clear that intense competition between airports is desirable or even economically sustainable; i.e. is it beneficial to invest in the public infrastructure (highways and/or transit lines) needed to connect to a secondary airport if the primary airport will have adequate capacity for the foreseeable future.

Even in the case of a "privatized" airport like LHR, it's obvious that government still has a heavy hand in matters since the airport cannot on its own choose to construct or not construct a new runway. And some level of government regulation is required to ensure that competition isn't hindered by deals between the airports and airlines. I suspect that there has been little privatization of airports in the U.S. simply because the overhead of government (inefficiency, corruption) running an airport is lower than the overhead of a corporation (higher borrowing costs, profits, executive bonuses) running an airport.


The point is that in the USA, airports are absolutely used by government to facilitate economic development by making decisions that are not in their own financial best interest, but are in fact in the airlines' best interest or the community's best interests. Facilities and runways are routinely (maybe almost always) built without a clear expectation of a return on that investment, and all U.S. airports use government grants or direct assistance from other government entities to fund these projects as well as economic incentives to airlines. This is a mirror image of what foreign, government owned airlines are accused of. Running flights that lose money to prop up the local economy. No different than building runways or terminals that have no real plans by airlines to justify their construction. Delta in its white-paper accused Dubai Airports of using airport duty free revenue to subsidize airline fees, thereby making Dubai airport fees much lower than they would otherwise be. Welcome to America. That's verbatim how it works at nearly every airport in the USA and in many it is explicitly set up that the airlines must make up any shortfall in concessions revenue or receive a refund if concession revenue exceeds expectations. There really is no difference...

In terms of Qatar, I don't know how they make their financials work, but there is no law that says an airport can't provide free ground handling(many small ones do it in the USA) or free rent (also common in the USA) or free landing fees (also common in the USA) or free marketing of the flights (super-common in the USA), so if somebody is paying for these things other than Qatar Airways it isn't unheard of even in the USA. Again, there's no WTO rule that says an airline can't get free catering or free anything from anybody... And I don't know that they get any of those things for free, but they could and there's no law against it.
 
ODwyerPW
Posts: 1624
Joined: Thu Dec 09, 2004 6:30 am

Re: Are alternatives to state-run airlines realistic?

Thu Sep 27, 2018 10:03 pm

Exeiowa wrote:
Transportation in general is a slightly different economic reality than some other sectors, as the economic impact is often greater than the ability to generate revenue. Therefore in many cases it would make sense to operate some aspects of transportation at a loss for the greater benefit. That leaves only one type of entity capable of doing so at a loss because of other income. That would be government with taxation. The problem is if the express need to provide additional transport options get repurposed for other less wholesome outcomes (ie corruption).


I enjoyed reading your comment very much. If air transport could be viewed as a public service for the greater good, a zero sum game, without someone being tempted to misuse assets and resources, then publicly owned air service and infrastructure could succeed. But publicly owned infrastructure means no one really has any skin in the game... hence no drive or real success. unfortunately.
learning never stops.

Who is online

Users browsing this forum: arfbool, AS737MAX, B595, Coronado990, dimsteen, drerx7, factsonly, Google Adsense [Bot], hkg82, Ishrion, James67, jetblastdubai, LGeneReese, mfamguy79, nry, orlandocfi, ramprat320, ScottB, SESGDL, tcfc424, TWA85 and 268 guests

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos