Therecent bankruptcy of Airberlin is symptomatic of this: there is no room for two national airlines in the same country. The reasons are multiple, and essentially structural: no, it is not the offer nor the product that is the problem, but the market. Decoding the reasons why the countries of Europe are neither the United States nor Russia…
Successful airlines have a different philosophy
Fortunately, there are some happy stories in the creation of European airlines in the last twenty years. We can mention Ryanair (Irish airline), EasyJet (British airline) or Vueling (Iberian airline).
You will notice that these 3 airlines have a common characteristic: they are so-called low-cost, meaning that they were built from scratch with the ambition of having the lowest possible operational costs, both in terms of aircraft, fuel, crews and ground operations. If these airlines tend to become more premium over time (hence the emergence of ultra-low-cost airlines such as Small Planet Airlines or Blue Air), they offer a basic, no-frills experience to European passengers, who love it! Beyond the operational costs and the basic service, these airlines have a real difference in philosophy with the traditional airlines: they do not have a hub, and offer point-to-point flights, without connections, and therefore without ensuring the heavy logistics in case of irregularity.
It is this difference in philosophy that makes their success: to have the lowest possible constraint, to minimize the interactions between passengers and the airline once the ticket is sold, the complete opposite of what a traditional airline offers.
A second classic airline, a guaranteed failure?
There are many examples of the failure of conventional airlines to compete with the national incumbent. It’s simple: there is no success!
- In Great Britain, it is bmi that tried to compete with British Airways for years without success. The airline operated on short-, medium- and long-haul routes as a traditional airline, as a member of the Star Alliance and with an extremely advantageous frequent flyer program. But after several years of colossal operating losses, the shareholders accepted the takeover offer from IAG (parent company of British Airways and Iberia) and the transfer of the routes to the British national airline, as well as the takeover of the too few slots at Heathrow
- In France, we have a long history of bankruptcies: let’s mention AOM, Air Liberté, Air Littoral for example, Air Liberté having gone from being independent to a subsidiary of Swissair and then British Airways through alliances prefiguring the Star Alliance and oneworld of today…
- In Spain, Spanair went bankrupt, totally exsanguinated and never recovering from the crash of its MD-82 at takeoff in Madrid-Barajas
- In Italy, Lufthansa Italia is giving up after a few years of operation from the Malpensa hub
- In Greece, Olympic Airlines and Aegean merged before the financial crisis to strengthen their operations
There are many precedents for the Airberlin case. And today, no traditional airline remains in Europe as a complement to a national airline. For one simple reason:there is no market large enough to accommodate both.
Passengers are always the big losers
As usual in case of bankruptcy, the passengers are the big losers. And the more loyal they are, the more they lose out.
Indeed, during bankruptcies, passengers are among the last creditors to be served: therefore, almost no chance for tickets to be honored and/or refunded… Unless they have booked through a travel agency, and that includes Online Travel Agencies like Expedia for example. Therefore, the travel agency must propose an alternative route to take you to your destination.
And for loyal passengers, the pain is immense: in addition to the loss of status, all the miles acquired become null and void and the efforts made are therefore in vain… And it is usually these loyal passengers who tend to book directly with the airline. It is therefore a double penalty.
Conclusion
There is no room for two traditional airlines in the same country in Europe. If the emergence of low-cost airlines has created a healthy competitive dynamic, it has slowed the development of traditional alternative airlines and doomed their success for the next decade. The concentration movements on a European and even global scale validate this reasoning. What is the next step? Will Delta take over its historical European ally? How will IAG and Lufthansa Group divide the cake of Europe’s drifting airlines? 2018 is likely to be a pivotal year in global air travel!
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