Air Berlin will not be the last European airline to go under
Michael O’Leary, the feisty chief executive of Ryanair, reckons that five years from now there will be just five European airlines. RyanAir of course will be one of them, he confidently predicts, as will his big rival easyJet. The other three candidates in the survival stakes are Lufthansa, Air France-KLM and IAG.
The others will disappear, either merged into one of the bigger groups or killed off by the increasingly ferocious competition currently gripping an industry that is cursed by too many seats and not enough passengers.
The low-cost German carrier Air Berlin, dogged by delays and cancellations that resulted in huge compensation costs, has just become the latest casualty, the second of the summer, after its major backer Etihad Airways, which owned 29.9 per cent, refused to continue supporting its losses. Etihad was also the major shareholder in Alitalia, another national flag-carrier which collapsed into administration. More carriers will follow before the consolidation of a traditionally fragmented industry where every country propped up its own – usually loss-making – national airline, is complete.
National pride once required every European country to have its own airline. But not anymore. IAG now includes British Airways (itself a merger of BOAC and BEA), Aer Lingus and Iberia, once the fiercely independent state-owned airlines of three European nations. Air France-KLM is a merger of another two. Romania’s Tarom and Poland’s Lot, both of them bleeding state cash, have been restructured as their respective owners accept that hard economics outweigh national pride.
Even five European carriers may be too many in an industry which is fast changing. The low-cost carriers, which have changed the order dramatically, barely featured on the scene 20 years ago. Nor did the big Middle East airlines, Emirates Airlines, Etihad and Qatar Airways, who are eating into the long-haul market where margins are a good deal higher.
Consolidation is a worldwide phenomenon. The US, where commercial air travel basically began, has already gone through the massive restructuring that state pride and legacy delayed in Europe. Forbes recently calculated that in the 30 years leading up to the financial crisis of 20082009, the US airline industry lost US$52 billion; in the 1980s alone, they lost more than they made in their entire history. It is extraordinary to think that an industry which has grown faster than any other over the past hundred years and which accounts for a substantial chunk of national budgets is also the biggest loss-maker of all time. The sobering fact is that Amazon, Apple or Google, which didn’t even exist when great airlines such as TWA and PanAm ruled the skies, are
The others will disappear, either merged into one or killed off by the increasing competition
oil, let alone $100. Any uptick in the oil price will result in another round of collapses.
Aviation history is full of heroic failures. Freddie Laker survived long enough to leave the lasting legacy of low-price trans-Atlantic flights from Britain to the US which were soon picked up in Europe. Even Donald Trump had his own airline for a time. Richard Branson managed, against considerable odds, to make a go of it after a fierce fight with British Airways, which employed every dirty trick in the book to put him out of business.
When the Irishman Tony Ryan started RyanAir in the 1980s, few gave him much of a chance. But he knew what he was doing, basing his model on Southwest airlines, which he shamelessly copied. His new airline, he decided, would fly just one plane, the workhorse Boeing 737, would have incredibly fast turn-round times (mostly 40 minutes), pay its pilots less than the national flag carriers did, and make passengers pay for every little frill, including food and drink.
He lived just long enough to see Mr O’Leary turn his dream into a reality, starting by killing off poor old Aer Lingus which, like all the state airlines, operated on an entirely different cost structure. A similar legacy still rules across a number of European airlines. But not for much longer.
Ivan Fallon, a former business editor of The Sunday Times, resides in Cape Town