MalevA346
Topic Author
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Joined: Sun Jun 13, 2010 10:30 pm

State run airline's loss versus its positive impact on local economy

Fri Feb 14, 2020 6:04 pm

Hello Everyone!

I’d like to hear Your opinions on my longstanding dilemma on state run airline’s economics, their potential losses versus their positive impact on local economy.

All state run airlines produce great income to their states of origin. They pay huge amount of taxes, create jobs, boost local economy and tourism by providing easier and cheaper access via their network. One part of this can be measured by the state owned airline’s own economy, but the other part, its impact on local economy, can be hardly measured due to its complexity.

I take the example of my home country’s airline, the collapsed Hungarian flag carrier, Malev. We had serious discussions back in 2012 when Malev seized their operations, if it had been beneficial for Hungary to keep Malev afloat, or let it go bust. My opinion was that the 10-20-30 million USD per year loss was way less then the total benefits to Hungary.

Subsidizing state airlines is being banned in the EU (although we know that where there’s a will there’s a way), so my dilemma remains mainly theoretical. (We could also step into the complex field of state run international train and bus routes, which will become more and more frequent and developed in the EU by the passing of time.)

This is surely not a yes or no question, but I honestly hope more ideas and more comments of Yours help me clarify at least some parts of the issue.

Thank You!
 
MIflyer12
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Re: State run airline's loss versus its positive impact on local economy

Fri Feb 14, 2020 6:22 pm

MalevA346 wrote:
All state run airlines produce great income to their states of origin.


That isn't an assertion you can make generally. Payroll taxes pay for benefits to individuals - pensions, health care, child care, etc. Business that don't make income don't pay income taxes. There are lots of ways to hide subsidies, and two prominent methods: under-cost terminal rentals, and runway access at below cost.

It's easy to point to carriers that never passed the market tests of making income routinely: Sabena had two profitable years out of ~80. Alitalia is a constant drag on the state treasury. That's not a complete list.

It's common to want to try to rationalize state spending on air carriers, just as it is to justify building U.S. sports stadiums for billionaire owners for games played by millionaire athletes while local schools go underfunded.
 
Rossiya747
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Re: State run airline's loss versus its positive impact on local economy

Fri Feb 14, 2020 6:26 pm

Don't the ME carriers get oil pretty much for free at their home airports?
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AYVN
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Re: State run airline's loss versus its positive impact on local economy

Fri Feb 14, 2020 6:28 pm

It's not all about economics. It's also question of homeland security. As long as EU is not United States of Europe, individual countries see this as security issue also.
 
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par13del
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Re: State run airline's loss versus its positive impact on local economy

Fri Feb 14, 2020 6:32 pm

Let's start off by saying that in general - my opinion - most state run airlines cost their countries a lot more than they contribute because of corruption.
Everyone knows that the airline is funded by the tax payers so the prices changed by external vendors automatically go up, managers have no incentive to control cost since the tax payer pocket is deep, routes are done on political versus national interest even when subsidized by additional government expenditure.

On the government side, various ministers will be quick to criticize the local carriers needs for subsidiary, but not bat an eyelid when foreign carriers demand a subsidy to provide service. Every government get's subsidized travel and their delegation's sometimes are larger than their entire department, flight's are delayed awaiting important government officials.

In the long run, the tax payers get so fed up that the airline is eventually killed off and folks sit in bar's over drinks recalling the good old days.

RANT Over.
 
MalevA346
Topic Author
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Re: State run airline's loss versus its positive impact on local economy

Sat Feb 15, 2020 8:36 pm

AYVN wrote:
It's not all about economics. It's also question of homeland security. As long as EU is not United States of Europe, individual countries see this as security issue also.


What do mean by this more precisely?
 
Someone83
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Re: State run airline's loss versus its positive impact on local economy

Sat Feb 15, 2020 8:55 pm

Rossiya747 wrote:
Don't the ME carriers get oil pretty much for free at their home airports?


Based on their financial account: No

And that said, you cant run a jet engine on crude oil....
 
oldJoe
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Re: State run airline's loss versus its positive impact on local economy

Sat Feb 15, 2020 9:12 pm

Someone83 wrote:
Rossiya747 wrote:
Don't the ME carriers get oil pretty much for free at their home airports?


Based on their financial account: No

And that said, you cant run a jet engine on crude oil....


and on the top of it, Dubai Emirate has no oil since years at all anymore
 
JayinKitsap
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Re: State run airline's loss versus its positive impact on local economy

Sat Feb 15, 2020 11:06 pm

If private airlines can make a suitable profit there is no reason for a state run or state subsidized airline. State run enterprises have an inefficiency cost, but may be necessary if the business economics for the private firm get tenous.

Looking at various state airlines that spend decades on the verge of collapse regularly needing bailouts by the state. Look at Italy, South America, Africa, and India, where state run airlines have been a huge drain on the state.
 
Nick614
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 12:48 am

Hungary is so small it would probably make more sense to focus on rail service since any trip is going to be =<100miles. You can even connect to Vienna airport in ~100miles.
 
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aemoreira1981
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 2:22 am

Where specifically? In some cases, the loss is offset by the fact that it's basically an essential service. One such example would be LIAT, an island-hopping turboprop airline in the Leeward Islands of the Caribbean. Another one would be state-owned carriers in the South Pacific, like Air Kiribati...the size of the land is only the size of NYC, but it's spread over 1.3 million square miles, or Vanuatu, which likewise uses small planes to transport people around the region.

A state-run airline can be run as a profitable enterprise if there is minimal governmental interference, especially if it desires to reach long-haul destinations. An example would be Ethiopian Airlines, one of Africa's few profitable carriers and which has become sort of a pan-African carrier. Even without reaching long-haul, you have carriers knowing their niche, like airBaltic. As for Hungary, the question for long-haul and regional haul is: for bilateral purposes, will they give LOT, and soon to be sister airline Condor, flag carrier status?
 
crjflyboy
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 2:29 am

temp subsidies if service is viable
 
Williamsb747
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 3:12 am

Oman air is another example of this. The country gains a lot more from tourism directly influenced by Oman air vs the amount that Oman air looses.
https://www.omanair.com/sites/default/f ... rt_eng.pdf
B747>A340>A350>B777>MD11>B767>B757>MD88/90>B787>A380>A330>A220>A320>B737.
CPT JNB
 
Rossiya747
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 3:28 am

oldJoe wrote:
Someone83 wrote:
Rossiya747 wrote:
Don't the ME carriers get oil pretty much for free at their home airports?


Based on their financial account: No

And that said, you cant run a jet engine on crude oil....


and on the top of it, Dubai Emirate has no oil since years at all anymore



Emirates spends about 32% of its budget on oil, but it is one of the few that are profitable
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pipeafcr
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 3:42 am

State run airlines, specially in the developing world, are essential. Colombia is a great example for this. You have a well established air market however there are destinations which are difficult to reach via road and are not profitable for commercial airlines to operate. Said destinations are covered by SATENA, owned and operated by the Air Force, and it’s route map is often updated to cover essential air services (if a private commercial airline like latam or AV enters the market, satena planes are re-allocated somewhere else). Its goal is not to make money but rather try to reach and connect all corners of the country.
Felipe Carrillo
 
Virtual737
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 4:11 am

pipeafcr wrote:
State run airlines, specially in the developing world, are essential. Colombia is a great example for this. You have a well established air market however there are destinations which are difficult to reach via road and are not profitable for commercial airlines to operate. Said destinations are covered by SATENA, owned and operated by the Air Force, and it’s route map is often updated to cover essential air services (if a private commercial airline like latam or AV enters the market, satena planes are re-allocated somewhere else). Its goal is not to make money but rather try to reach and connect all corners of the country.


This is the most important point, overlooked by most. It should, however, not be an excuse to ignore every other inefficiency that would not be tolerated, nor possible, in a private commercial business.
 
IrishLessor
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 7:26 am

Good thread topic!

I think the question is if the state run airline collapses, as in the case of Malev, to what extent do the services get replaced by another airline?

In Hungary's case they lost a lot, e.g. Transatlantic flights and the possibility of transit traffic. So years on how is BUD? Has its traffic volumes recovered?

In the main governments are not good at running airlines. They tend to become inefficient and loss making. But of course there are times when it is necessary to have state owned airlines, like mentioned above e.g. the developing world.

Alitalia is an example of where state aid rules seem to have been ignored and the firm loses money, big money. In this example the taxpayer is not getting value for money in what certainly would appear to be a market that private enterprise is happy to serve on a commercial footing.

Conversely, look at Ireland. Aer Lingus got its last bail out in 1992 and was by then exposed to the most intense LCC competition, it was profitable long before privatisation, so this illustrates that if there is willingness to turn an ailing state carrier around, in many cases it can be done!
 
raylee67
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 8:13 am

This is an interesting topic. I think it really depends:

1. For countries that have adequate infrastructure and one or more private airlines ready to step in and take over (or are already competing successfully against the government owned loss-making airline), the loss of contribution to the economy by the closure of the loss making government owned airline would be minimal. Example would be Air India, Malaysia Airlines and Olympic. In India, multiple airlines will readily step in within a few days or weeks. Disruption will be minimal and everything will then back to normal. Same as in Malaysia where Air Asia and Air Asia X will be ready to step in fairly quickly. In Greece, Aegean took over and thrived, and overseas airlines saw the opportunities to expand, The inbound tourism industry was not affected much at the end with the demise of OA.

2. In cases where (a) overseas airlines do not see a large market to expand into or (b) the loss making national carrier is coordinating closely to achieve a larger goal (e.g. any national development strategy), then it may be wise for the government to continue bank rolling the loss making airlines. Examples are Rwandair and Qatar Airways. They both play important roles in the fast development of the economy of their respective countries, and are vital to connect their countries to the world. They are essentially part of the infrastructure. You don't ask if the road that connect your house to the interstate highway is profitable.
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
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CI NH SQ KA CX JL BR OZ TG KE CA CZ NZ JQ RS
 
Toinou
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 8:26 am

I would agree with most of what was said here.
Like other services, airlines can profit more than what they would cost if running at deficit: a part of what is spent by an airlines will stay in the country (especially wages to local staff) and it will bring activity to the country (in the form of business and tourism). You could see the same question in a ski resort: ski lifts may run at a deficit but they are the raison d'être of the place so they have to run as long as the deficit is exceeded by the global benefit. The question of how to calculate the ratio and who has to pay is of course a tricky one.

For the common assumption that private entities are obviously more efficient than public ones, I would say that it is really disputable. The 2008 crises probably showed quite clearly that market efficiency is more of a (religious-like) belief.
 
Blerg
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 8:29 am

Take Serbia as an example. Jat Airways was a disaster which cost the country roughly €70 million each year. Then in 2013 the airline was re-branded as Air Serbia and losses have actually come under €20 million while state subsidies have also decreased. Had the government shut Jat down, Serbia would have lost long-term. Today Air Serbia is growing and has a decent and competitive onboard product which can become financially self-sustaining in a few years. Onboard product consists of locally manufactured products which helps boost local economy as well.

It also helps in promoting Serbia as a tourist destination while offering competitive schedules for local businesses, not to mention that JU operates some routes which LCCs could never sustain without subsidies.

All in all, this topic can't be generalized. A national carrier can work and subsidies can be justified as long as the airline is actually trying to make something of itself. Then again you have disastrous national carriers which seem to be beyond any hope of recovery (Air India, Montenegro Airlines, Croatia Airlines, Thai, Malaysian...).
 
Blerg
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 8:31 am

raylee67 wrote:
This is an interesting topic. I think it really depends:

1. For countries that have adequate infrastructure and one or more private airlines ready to step in and take over (or are already competing successfully against the government owned loss-making airline), the loss of contribution to the economy by the closure of the loss making government owned airline would be minimal. Example would be Air India, Malaysia Airlines and Olympic. In India, multiple airlines will readily step in within a few days or weeks. Disruption will be minimal and everything will then back to normal. Same as in Malaysia where Air Asia and Air Asia X will be ready to step in fairly quickly. In Greece, Aegean took over and thrived, and overseas airlines saw the opportunities to expand, The inbound tourism industry was not affected much at the end with the demise of OA.

2. In cases where (a) overseas airlines do not see a large market to expand into or (b) the loss making national carrier is coordinating closely to achieve a larger goal (e.g. any national development strategy), then it may be wise for the government to continue bank rolling the loss making airlines. Examples are Rwandair and Qatar Airways. They both play important roles in the fast development of the economy of their respective countries, and are vital to connect their countries to the world. They are essentially part of the infrastructure. You don't ask if the road that connect your house to the interstate highway is profitable.


I think Ethiopian is a fantastic example for your second point. They have done wonders for both the Ethiopian and African economy, they made so many different areas accessible either through non-stop or one stop connections in ADD.
 
AYVN
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 9:37 am

MalevA346 wrote:
AYVN wrote:
It's not all about economics. It's also question of homeland security. As long as EU is not United States of Europe, individual countries see this as security issue also.


What do mean by this more precisely?

In crisis situation you don't want that whole country's airline fleet fly away to safety to their home bases. During military crisis civilian aircrafts are needed as troop carriers or cargo planes for military. It doesn't have to be state run airline, but at least airline that is/are under some government control ie registered in that country. It's not only aircrafts that are part of security of supply. Seaside countries governments are usually equally interested who owns maritime fleets. Government might even list who owns tractors or off-road vehicles, so some of them can be taken to military use if s**t hit's the fan.
At the moment individual countries in EU, that are not members of NATO, can't fully rely that current EU would give much more than moral support during military crisis. So, as long as individual countries have to secure their survival even in armed conflicts, those countries should be interested who owns their airline carriers.
 
Caymanair
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 10:21 am

AYVN wrote:
MalevA346 wrote:
AYVN wrote:
It's not all about economics. It's also question of homeland security. As long as EU is not United States of Europe, individual countries see this as security issue also.


What do mean by this more precisely?

In crisis situation you don't want that whole country's airline fleet fly away to safety to their home bases. During military crisis civilian aircrafts are needed as troop carriers or cargo planes for military. It doesn't have to be state run airline, but at least airline that is/are under some government control ie registered in that country. It's not only aircrafts that are part of security of supply. Seaside countries governments are usually equally interested who owns maritime fleets. Government might even list who owns tractors or off-road vehicles, so some of them can be taken to military use if s**t hit's the fan.
At the moment individual countries in EU, that are not members of NATO, can't fully rely that current EU would give much more than moral support during military crisis. So, as long as individual countries have to secure their survival even in armed conflicts, those countries should be interested who owns their airline carriers.


In the case of an island nation (and here I'm thinking of Cayman), part of the justification is the need to provide emergency public service, such as evacuations in advance of hurricanes and the provision of relief and transport post-storm. A prime example was after Hurricane Ivan which caused unprecedented damage. Had we been reliant on foreign airlines, we would most certainly have experience much more hardship. After the hurricane, Cayman Airways used it's market position to prevent airlines price-gouging, which every US carrier attempted to do in the wake of the hurricane. KX has been referred to numerous times as an 'insurance policy'.

Cayman Airways also provides inter-island transport to a level that facilitates economic development in smaller communities where the private sector could not, and has been key to developing virtually every major tourism-related route from the country.
Every. Single. One.
At a price well below what it would have cost the public purse to provide revenue/profit guarantees to other airlines that almost every other Caribbean country has had to pay.

There are also a handful of important services (HAV, LCE, RTB, MBJ, KIN) that serve local VFR and business interests and require reliable service where the private sector has not been able to deliver. Where it competes with foreign carriers it is key to keeping airfares reasonable. Cayman Airways further provides diverse employment, allowing locals to pursue careers that would otherwise be impossible to pursue locally.

It loses money 90% of the time, but it allows the government to effectively purchase all the above benefits for under $10m per year. Lots of inefficiencies exist and they need to be resolved, but on balance it has been deemed worth the cost.
 
Scotron12
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 10:32 am

SQ is probably the best example. Is profitable and brings invaluable benefits to Singapore.
 
EFHK
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 11:13 am

I think we need to make a distinction between "state run" and "state owned".

There are "state run" airlines that are total basket cases with endless losses, and then there are "state owned" airlines that don't actually have government interference pretty much at all, that operate just as a private airline would.

I find AY to be a good example of the latter one. Majority of the airline is still owned by the government, but the government doesn't really tell them anything what to do (not counting the occasional bonus money for directors outrage (politics)). AY is not hugely profitable, but still has lately been somewhat profitable, and it's effect (combined with the effect of HEL as a whole) to the national economy is huge in a small country such as Finland. Even if AY turned a modest loss, I find the benefits of having it greatly outweighing the potential losses, especially because situations where the government would be putting more money into the company have not happened according to my memory.

I think it was a shame that MA went under, in the longer term they could have been in a great spot to become a strong Eastern European network carrier.
 
MalevA346
Topic Author
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Re: State run airline's loss versus its positive impact on local economy

Sun Feb 16, 2020 9:47 pm

Huge thanks for all of You guys for adding to this topic.

When Malev went bust, Wizzair popped up suddenly. Some said, that there was a direct link (politically motivated - though can't call it corruption without knowing more) between the two happening pretty much parallelly.

Some routes were nicely picked up by competition, but frequencies, destinations, the overall accessiblity of BUD got a huge hit with all the code shares and interlines lost. I believe their would have been enough space for LCC and a flag carrier for at least a few years more. Hungary was not developped enough to loose its flag carrier at that time.

In the other hand, I agree that a small EU country's loss making flag carrier can be closed down, but it is surely not the EU who should decide this!

If the times comes, when it is hard to find a national rational reason to keep it afloat, and when the surrounding airmarket is developped to a level to replace the loss making flag carrier's role, the story should/could be ended.
 
moa999
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 12:19 am

Personally think it's more important for state owned airports versus airlines.

As noted upthread, the market will likely deliver a replacement for a state owned airline (indeed I suspect this was part of Qatars thesis for investing in Air Italy (oops) and Singapore into Vistara).

Whereas the size of the airport ultimately determines the number of flights that come in which is a more direct impact on tourism and business which impacts tax $s.

We've seen this in Australia where almost all the major airports have been privatised. The airports invest in things with short term returns (like carparks and new shops) but struggle to fund longer terms projects (like terminal expansion, or new runways)
 
dstblj52
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 12:26 am

MalevA346 wrote:
Huge thanks for all of You guys for adding to this topic.

When Malev went bust, Wizzair popped up suddenly. Some said, that there was a direct link (politically motivated - though can't call it corruption without knowing more) between the two happening pretty much parallelly.

Some routes were nicely picked up by competition, but frequencies, destinations, the overall accessiblity of BUD got a huge hit with all the code shares and interlines lost. I believe their would have been enough space for LCC and a flag carrier for at least a few years more. Hungary was not developped enough to loose its flag carrier at that time.

In the other hand, I agree that a small EU country's loss making flag carrier can be closed down, but it is surely not the EU who should decide this!

If the times comes, when it is hard to find a national rational reason to keep it afloat, and when the surrounding airmarket is developped to a level to replace the loss making flag carrier's role, the story should/could be ended.

no when a nation reaches that level of development they the airline should merely be told that they will get no more state money and sink or swim
 
argentinevol98
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 1:46 am

I can't speak for the whole world here but what I can share from somewhat personal experience is that state-owned carriers can open you up to a huge range of corruption opportunities, issues and even damage your aviation sector.

In Argentina, nearly immediately after AR was re-nationalized by the K government it began to be used for massive corruption (renting out thousands of hotel rooms for employees that didn't exist in hotels that happened to be secretly owned by Cristina Kirchner for example). This was coupled with the governments obsessiveness in "protecting" AR from actual market forces to the point of aggressively harassing LATAM (state-owned airport services frequently "showed-up late" to LATAM aircraft) and even the US3 (it happened to me twice that AA EZE-MIA legs were delayed hours due to "detected security threats" by "security staff", UA to EWR also was hit both times by the "security threat" while AR to MIA/JFK was not). The government would also not tolerate the creation of desperately needed ULCCs in the country either (with Argentine wages ULCCs are the only way many people can travel on a plane). All of this was in addition to the completely incompetent "management" of the airline itself. Things improved a lot with the Macri government in all of those terms but are once again at risk of returning to the pre-2015 situation. I should add that I can't even understand why anyone believes that Argentina even needs a state carrier.

Currently I am living in Bolivia where on a similar note the previous Evo-lead government used the state carrier BoA to defraud taxpayers and also acted in a protectionist manner to prevent any real international competitor from developing (no ULCCs here either). There's probably a better argument for a state carrier here as rail links between major cities are impossible and road travel takes obscene amounts of time relative to distance, while simultaneously the air routes are hard to generate a profit on. Still even with that I am not convinced BoA needs to exist.

I guess my point is for a lot of countries the risk of damage of a state carrier is a whole lot larger than just the money they tend to bleed. It can open up a whole can of worms on its own. I can't speak for everywhere but that has been my experience here in South America.
"He sospechado alguna vez que la única cosa sin misterio es la felicidad, porque se justifica por sí sola"-Julio Luis Borges
 
Blerg
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Joined: Tue Jan 09, 2018 11:42 am

Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 6:37 am

MalevA346 wrote:
Huge thanks for all of You guys for adding to this topic.

When Malev went bust, Wizzair popped up suddenly. Some said, that there was a direct link (politically motivated - though can't call it corruption without knowing more) between the two happening pretty much parallelly.

Some routes were nicely picked up by competition, but frequencies, destinations, the overall accessiblity of BUD got a huge hit with all the code shares and interlines lost. I believe their would have been enough space for LCC and a flag carrier for at least a few years more. Hungary was not developped enough to loose its flag carrier at that time.

In the other hand, I agree that a small EU country's loss making flag carrier can be closed down, but it is surely not the EU who should decide this!

If the times comes, when it is hard to find a national rational reason to keep it afloat, and when the surrounding airmarket is developped to a level to replace the loss making flag carrier's role, the story should/could be ended.


Just like Jat Airways, Malev could have been reformed and modernized. What went on behind closed doors no one knows at this point. We will have to see what happens with LO now which is trying to build a hub in BUD. Even though Budapest and Hungary should profit, long-term I think Poland will profit much more. Planes are still registered in Poland and if I am not mistaken all revenue from ticket sales goes straight to their accounts in Poland, not Hungary. But I guess in terms of connectivity BUD and Hungary do gain some advantage compared to what they have now.
 
holczakker
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 10:19 am

MalevA346 wrote:
When Malev went bust, Wizzair popped up suddenly. Some said, that there was a direct link (politically motivated - though can't call it corruption without knowing more) between the two happening pretty much parallelly.

Khm, Wizz was already around for 8 years when Malev went bust, there was no sudden 'popping up' at all.
It was only a possibility for Wizz to boost its operation just like Ryanair (who promised to do so but failed to deliver, had only 2 aircraft based in BUD instead of the 6-8 promised).
 
holczakker
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 10:30 am

Blerg wrote:
We will have to see what happens with LO now which is trying to build a hub in BUD. Even though Budapest and Hungary should profit, long-term I think Poland will profit much more. Planes are still registered in Poland and if I am not mistaken all revenue from ticket sales goes straight to their accounts in Poland, not Hungary. But I guess in terms of connectivity BUD and Hungary do gain some advantage compared to what they have now.

As long as their long haul from BUD performs beyond expectations they won't make much money... neither for Hungary nor for Poland. Chicago already suspended for poor loads, both New York and Seoul will be covered by competitors as well (now that Korean announced BUD flights starting on May). Most probably Wizz is doing a lot more money "for Hungary" with their 26 hungarian-registered aircraft based in Poland than LOT with their limited ops in BUD.
 
Blerg
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 10:35 am

holczakker wrote:
Blerg wrote:
We will have to see what happens with LO now which is trying to build a hub in BUD. Even though Budapest and Hungary should profit, long-term I think Poland will profit much more. Planes are still registered in Poland and if I am not mistaken all revenue from ticket sales goes straight to their accounts in Poland, not Hungary. But I guess in terms of connectivity BUD and Hungary do gain some advantage compared to what they have now.

As long as their long haul from BUD performs beyond expectations they won't make much money... neither for Hungary nor for Poland. Chicago already suspended for poor loads, both New York and Seoul will be covered by competitors as well (now that Korean announced BUD flights starting on May). Most probably Wizz is doing a lot more money "for Hungary" with their 26 hungarian-registered aircraft based in Poland than LOT with their limited ops in BUD.


And how long has it been since Wizz Air opened their first base in Poland and how long has it been since LO opened their base in BUD? Please stick to comparing apples to apples.
 
TheEuphorian
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 10:46 am

Meanwhile, TG in Thailand brings lots of tourists here, but with the cost of being extremely unprofitable.

At this point, it's probably best to pull a SR-style move by liquidating and letting WE,which is a TG subsidiary, to take over operations completely.
 
peterinlisbon
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 11:24 am

I guess it depends how much it is costing and what the benefits are. It looks to me like the disappearance of Malev hasn't harmed Hungary in the long term and in fact it's cheaper to fly there now than it was in the past, with Wizzair and Ryanair filling the gap and bringing even more tourists. Emirates and other middle eastern airlines provide good connections to Asia and American carriers provide flights to the USA with connections to all kinds of places.

It could even be argued that having national airlines and protectionist governments can harm a country's connectivity and trade as they make it expensive to fly there, whilst protecting certain business interests. If you look at this map, you can see that BUD is pretty well connected to the world. If Malev was still flying or came back and took over some of those routes, then you would lose the onward connections that the airlines from those countries provide (for example, Shanghai airlines to Chengdu provides connections to all over China).

https://www.flightsfrom.com/BUD
 
holczakker
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 11:41 am

Blerg wrote:
holczakker wrote:
Blerg wrote:
We will have to see what happens with LO now which is trying to build a hub in BUD. Even though Budapest and Hungary should profit, long-term I think Poland will profit much more. Planes are still registered in Poland and if I am not mistaken all revenue from ticket sales goes straight to their accounts in Poland, not Hungary. But I guess in terms of connectivity BUD and Hungary do gain some advantage compared to what they have now.

As long as their long haul from BUD performs beyond expectations they won't make much money... neither for Hungary nor for Poland. Chicago already suspended for poor loads, both New York and Seoul will be covered by competitors as well (now that Korean announced BUD flights starting on May). Most probably Wizz is doing a lot more money "for Hungary" with their 26 hungarian-registered aircraft based in Poland than LOT with their limited ops in BUD.

And how long has it been since Wizz Air opened their first base in Poland and how long has it been since LO opened their base in BUD? Please stick to comparing apples to apples.

It's not a comparison, it's a mere fact.
 
Blerg
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 11:58 am

holczakker wrote:
Blerg wrote:
holczakker wrote:
As long as their long haul from BUD performs beyond expectations they won't make much money... neither for Hungary nor for Poland. Chicago already suspended for poor loads, both New York and Seoul will be covered by competitors as well (now that Korean announced BUD flights starting on May). Most probably Wizz is doing a lot more money "for Hungary" with their 26 hungarian-registered aircraft based in Poland than LOT with their limited ops in BUD.

And how long has it been since Wizz Air opened their first base in Poland and how long has it been since LO opened their base in BUD? Please stick to comparing apples to apples.

It's not a comparison, it's a mere fact.


It's a misplaced fact put in the middle of a comparison which makes no sense. LO has been flying out of BUD for like a year and a half now while Wizz Air has been present in Poland for a decade and a half. Obviously Hungary has more advantage from W6 in Poland than Poland has from LO in Hungary. What we have to see is in what direction LO develops in the future in BUD and who profits more from what..
 
hinckley
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 12:21 pm

How is the airline business different from any other business? By the OP's premise, state ownership of an airline business provides more financial benefits than costs, so doesn't it reason that it would be beneficial for the state to own all businesses? Oh wait, wasn't that tried once in Hungary?
 
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aemoreira1981
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 12:41 pm

Caymanair wrote:
AYVN wrote:
MalevA346 wrote:

What do mean by this more precisely?

In crisis situation you don't want that whole country's airline fleet fly away to safety to their home bases. During military crisis civilian aircrafts are needed as troop carriers or cargo planes for military. It doesn't have to be state run airline, but at least airline that is/are under some government control ie registered in that country. It's not only aircrafts that are part of security of supply. Seaside countries governments are usually equally interested who owns maritime fleets. Government might even list who owns tractors or off-road vehicles, so some of them can be taken to military use if s**t hit's the fan.
At the moment individual countries in EU, that are not members of NATO, can't fully rely that current EU would give much more than moral support during military crisis. So, as long as individual countries have to secure their survival even in armed conflicts, those countries should be interested who owns their airline carriers.


In the case of an island nation (and here I'm thinking of Cayman), part of the justification is the need to provide emergency public service, such as evacuations in advance of hurricanes and the provision of relief and transport post-storm. A prime example was after Hurricane Ivan which caused unprecedented damage. Had we been reliant on foreign airlines, we would most certainly have experience much more hardship. After the hurricane, Cayman Airways used it's market position to prevent airlines price-gouging, which every US carrier attempted to do in the wake of the hurricane. KX has been referred to numerous times as an 'insurance policy'.

Cayman Airways also provides inter-island transport to a level that facilitates economic development in smaller communities where the private sector could not, and has been key to developing virtually every major tourism-related route from the country.
Every. Single. One.
At a price well below what it would have cost the public purse to provide revenue/profit guarantees to other airlines that almost every other Caribbean country has had to pay.

There are also a handful of important services (HAV, LCE, RTB, MBJ, KIN) that serve local VFR and business interests and require reliable service where the private sector has not been able to deliver. Where it competes with foreign carriers it is key to keeping airfares reasonable. Cayman Airways further provides diverse employment, allowing locals to pursue careers that would otherwise be impossible to pursue locally.

It loses money 90% of the time, but it allows the government to effectively purchase all the above benefits for under $10m per year. Lots of inefficiencies exist and they need to be resolved, but on balance it has been deemed worth the cost.


Staying in the region, you could also say that LIAT functions similarly, with its small fleet of AT46s and AT76s. Also, what about TAM in Bolivia until it shut down?

The flip side would be SABENA, which lost money almost every year after Belgian Congo gained independence. The creditors ultimately gained control of Delta Air Transport to shut down SABENA.
 
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zkojq
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 1:56 pm

Well it depends a lot on the country, doesn't it.

Hungary has neighbours very close by and a multitude of European airlines flying to Budapest, so it's very hard to justify spending tax dollars subsidising a state airline. Especially when under EU Openskies, somebody like Easyjet or Ryanair can open a base in Budapest very easily.


On the other hand Tahiti is in the middle of nowhere, is very highly dependent on tourists and has literally three non-Tahitian airlines who fly there (AF, UA and NZ). Thus it's not unreasonable at all for the government to subsidise the (small) losses of Air Tahiti Nui when you consider all the tourists it brings in, all the payroll taxes it generates, the hundreds of locals it employs and the destinations it flies to that competitors don't (eg Japan).

Of course you also have to consider that an airline's hub is more valuable than the sum of it's individual routes.

EFHK wrote:
There are "state run" airlines that are total basket cases with endless losses, and then there are "state owned" airlines that don't actually have government interference pretty much at all, that operate just as a private airline would.

I find AY to be a good example of the latter one. Majority of the airline is still owned by the government, but the government doesn't really tell them anything what to do (not counting the occasional bonus money for directors outrage (politics)).

:checkmark: Same for Air New Zealand. Infact the government had made multiple times the sum of money that they used to bail them out with back in 2001. Airlines are of course best when the politicians keep their hands off them and this works well for Air New Zealand.
First to fly the 787-9
 
Toinou
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Re: State run airline's loss versus its positive impact on local economy

Mon Feb 17, 2020 4:36 pm

TheEuphorian wrote:
Meanwhile, TG in Thailand brings lots of tourists here, but with the cost of being extremely unprofitable.

At this point, it's probably best to pull a SR-style move by liquidating and letting WE,which is a TG subsidiary, to take over operations completely.


I can't remember exactly what was the economical outcome of SR liquidation for the Swiss taxpayer.
For LX, what I can say is that the lost something that has a pretty high value: customer fidelity. Many Swiss people where agreeing to pay some premium to fly SR. From my own, very limited, look, this decreased sharply with LX.
 
MalevA346
Topic Author
Posts: 40
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Re: State run airline's loss versus its positive impact on local economy

Tue Feb 18, 2020 3:57 pm

holczakker wrote:
MalevA346 wrote:
When Malev went bust, Wizzair popped up suddenly. Some said, that there was a direct link (politically motivated - though can't call it corruption without knowing more) between the two happening pretty much parallelly.

Khm, Wizz was already around for 8 years when Malev went bust, there was no sudden 'popping up' at all.
It was only a possibility for Wizz to boost its operation just like Ryanair (who promised to do so but failed to deliver, had only 2 aircraft based in BUD instead of the 6-8 promised).


You are right, I did not take the time to express myself in the requested amount of complexity. WizzAir got its first decisive and major boost thanks to the collapse of Malev. Without a "flagcarrierless" big (home) market, Wizzair never had the chance to build up itself that fast (and beat off RyanAir), investors and banks never had invested that much of a capital/financial support to expand. WizzAir's immediate reaction to Malev's collapse was way better preorganized then market conditions and situations have predicted.

These amounts of money do not change pockets just by themselves in this part of the world. You can call it lobbying, corruption or bribery depending on Your point of view.
 
MalevA346
Topic Author
Posts: 40
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Re: State run airline's loss versus its positive impact on local economy

Tue Feb 18, 2020 4:12 pm

peterinlisbon wrote:
I guess it depends how much it is costing and what the benefits are. It looks to me like the disappearance of Malev hasn't harmed Hungary in the long term and in fact it's cheaper to fly there now than it was in the past, with Wizzair and Ryanair filling the gap and bringing even more tourists. Emirates and other middle eastern airlines provide good connections to Asia and American carriers provide flights to the USA with connections to all kinds of places.

It could even be argued that having national airlines and protectionist governments can harm a country's connectivity and trade as they make it expensive to fly there, whilst protecting certain business interests. If you look at this map, you can see that BUD is pretty well connected to the world. If Malev was still flying or came back and took over some of those routes, then you would lose the onward connections that the airlines from those countries provide (for example, Shanghai airlines to Chengdu provides connections to all over China).

https://www.flightsfrom.com/BUD


To be honest, rather the opposite. With Malev's ability to work with code shares, we did have intercontinental flights, even to China. When Malev collapsed, we had nothing for many many years. Only with low oil prices and boost in global economy has this recovered.

Never forget about LCC's inability to share market, share risk of opening and sustaining routes. You cannot replace a state carrier with an LCC, it is way more complex due to code shares, JV's, interlines, connections, etc...

LCC and full service carrier presence should be well balanced at bigger airports. For many years Hungary was only about low costs and was indeed difficult to reach with business or VFR needs. Now it is getting healthier, but still...
 
MalevA346
Topic Author
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Re: State run airline's loss versus its positive impact on local economy

Tue Feb 18, 2020 4:26 pm

hinckley wrote:
How is the airline business different from any other business? By the OP's premise, state ownership of an airline business provides more financial benefits than costs, so doesn't it reason that it would be beneficial for the state to own all businesses? Oh wait, wasn't that tried once in Hungary?


Simple. A state has more income from running the same business then a privately run business with the same operation.
It is due to the fact that it is the state who receives the tax paid from the all business in a country, so we can consider this tax as an extra income from the state as owner's point of view. Probably the accounting rules should be changed for state run companies? :)

And yes, You're right. Hungary did try once running its economy by the state ownership system, though most people know it was only in a light part by its own intention.
 
mjoelnir
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Re: State run airline's loss versus its positive impact on local economy

Tue Feb 18, 2020 4:48 pm

There is a lot of western hypocrisy. Most of the western world started out with state run, or subsidised or market protected airlines.

Than when there are private airlines making profit, suddenly it is frowned upon there being state run airlines in other countries.

The airline industry is still full of protectionism and government control even in the most open market in the world, the European Common Aviation Area.
Even though there is full access to the market by airlines inside, outside access to this market is controlled, international flights by outside airlines are controlled. Some governments in single countries still help their flag carriers.

The USA protects it's domestic market and international routes are under control, even the though the USA having open skies with a lot of countries and the EEA as a block.

If we would talk about full blown capitalistic approach, their would be no domestic markets protected from foreign competition and no control over international flights, but safety aspects.

The airline markets are more open and deregulated than in the old days, but not comparable to a normal market. Transport, be it by air, ship or other means, is still looked at a strategic government regulated resource, to be protected. Only open to limited and controlled capitalism.
Some countries wield more control, some countries less, but their is no country in the world that does not keep the air travel market partly controlled and protected.
 
marosbts
Posts: 121
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Re: State run airline's loss versus its positive impact on local economy

Tue Feb 18, 2020 7:12 pm

In general, the consensus is, that in developed countries the state owned airlines are obsolete and represent a too high burden on the tax payer.

As always, there are good and bad examples. Someone mentioned Ethiopian as a good example. There are multiple bad examples. E.g. Austrian was making losses while under government control and became profitable once bought by Lufthansa. Malev, Tarom are other examples of badly run state airlines.

However, nowadays it is virtually impossible to get private airlines to enter certain markets and this represents for some countries major issues. I will take Slovakia as an example (my home country). The country has a history of being underdeveloped by air carriers for decades and after the bankruptcy of SkyEurope lost most of its connections.. Today, while the numbers recovered to 2008/9 levels, the country still lacks several major connections. It is the only EU capital with no connections to an airline hub, it is the only EU capital which has no connection to Brussels.

There is most likely about 2 mil. pax annually who travel to/from Slovakia by using the airports in Vienna and Budapest. Would there be an economic benefit of getting the pax to travel from airports within the country? Sure. First of all, you would get the airport tax revenue to be paid in country, which would account for somewhere around 20 million EUR annually. Secondly, you would get income from landing charges. Assuming a 737 at 78% LF, this would correspond to about 5 million in those fees. Then there is handling fees, navigation charges, fuel, catering, services etc, not to speak of the income taxes from the employees salaries of all the people you got to hire locally. So the benefits are massive with generating direct and indirect jobs. Furthermore, good connectivity to major cities / hubs is often the criteria for investors, when selecting locations for their manufacturing plants / branches etc.

If I take even the simpliest math, 1 mil. pax x 70 EUR average fare and would consider that 2/3 rd of the revenue is spent locally, we are speaking about quite a benefit for the local economy, not speaking of further indirect benefits like tourism.

Now comes the tough part. State run airlines are typically the worst run companies, full with corruption, lots of people assigned to managment positions because of politics and not skills. Route decisions would be done primarily by politicians and not because of economics. This will most likely end by generating large losses which would have to be covered by taxpayers and furthermore its against the EU law (unless you are Alitalia). So it would end up in a Malev like situation, where EU would force the company to return unlawful aid which would lead to bankruptcy.

For smaller countries which are left without a national carrier this means a big issue on long term. There is very few startups currently to serve those secondary markets and even those which still exist, have too little capital to invest into such new routes. Low cost carriers do not want to serve certain routes which are important for the development of a particular country but are not profitable. So the only under EU law legal option is to offer subsidies to airlines using PSO, which gives you a chance to operate a route your region needs at limited exposure. On the other hand it still puts you at the risk that the airline folds or it pulls the route as soon as the subsidies expire.
 
holczakker
Posts: 47
Joined: Sun May 26, 2019 7:34 pm

Re: State run airline's loss versus its positive impact on local economy

Tue Feb 18, 2020 7:42 pm

MalevA346 wrote:
holczakker wrote:
MalevA346 wrote:
When Malev went bust, Wizzair popped up suddenly. Some said, that there was a direct link (politically motivated - though can't call it corruption without knowing more) between the two happening pretty much parallelly.

Khm, Wizz was already around for 8 years when Malev went bust, there was no sudden 'popping up' at all.
It was only a possibility for Wizz to boost its operation just like Ryanair (who promised to do so but failed to deliver, had only 2 aircraft based in BUD instead of the 6-8 promised).


You are right, I did not take the time to express myself in the requested amount of complexity. WizzAir got its first decisive and major boost thanks to the collapse of Malev. Without a "flagcarrierless" big (home) market, Wizzair never had the chance to build up itself that fast (and beat off RyanAir), investors and banks never had invested that much of a capital/financial support to expand. WizzAir's immediate reaction to Malev's collapse was way better preorganized then market conditions and situations have predicted.

These amounts of money do not change pockets just by themselves in this part of the world. You can call it lobbying, corruption or bribery depending on Your point of view.

By the end of 2011 Wizz had a fleet of 34 aircraft on 15 bases (in 9 countries) carrying 10 million passengers a year vs. Malev with 22 aircraft on a single base and 3 million passengers. It was hardly the bankruptcy of Malev which gave Wizz a chance to built up itself... Indigo invested in Wizz in 2004/2005 already, 7 years before Malev went bust (that's why it was already 2-3x the size of MA by 2012).
The illegal state aid Malev was obliged to pay back was more than a full year worth of its revenue. Used for lobbying, corruption, bribery and to cover continuous losses and theft by the employees/airport staff.
 
Blerg
Posts: 3040
Joined: Tue Jan 09, 2018 11:42 am

Re: State run airline's loss versus its positive impact on local economy

Wed Feb 19, 2020 5:56 am

Don't forget that LCCs might stimulate the market but they can take it only so far. A legacy carrier can attract transfers by creating artificial demand which further contributes to the local economy. More transfer passengers means more employees at the airline and the airport, more income from taxes, more shops at the main hub and so on. Look at what happened in Sofia once the war between W6 and FR ended. The market started to stagnate and both airlines have more or less maintained the same level of business. Wizz Air has even stopped growing in a massive market such as Sofia-UK, they added LGW but at the expense of one LTN. My guess is that for an airport the best would be to house both kind of airlines.

In the end, there are many examples of well-run national airlines. After all, isn't LO a government owned airline that is making money? What about Finnair? Turkish government owns 49% of TK yet they seem to be doing just fine. There is a difference between a government owning an airline and running it.

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