'Airlines' Archive
Barring a last-minute rescue of bankrupt Alitalia, Italy could be without a major international airline to call its own. Alitalia is suffering from some of the same trouble as the rest of the airline industry, such as high fuel prices and weakening demand. Plus, the carrier’s cost structure has become increasingly unsupportable. But if the Alitalia brand really does disappear from the skies, you can also blame the carrier’s reluctance (and that of the Italian government) to participate in the European trend toward multinational airline holding companies.
The largest of those holding companies, Air France-KLM, agreed to buy Alitalia earlier this year, but backed out when it was unable to win enough cost-cutting concessions from Alitalia’s unions. Alitalia would have retained its brand and its hub in Rome as part of the larger company, but the carrier’s fleet would have been reduced and a number of jobs would have been lost in the integration.
The approval of the Italian government, which owns 49.9% of Alitalia, also would have been required. Although the deal had the blessing of his predecessor, Prime Minister Silvio Berlusconi campaigned this spring against the prospect of Italy’s top airline falling into foreign hands. Berlusconi’s hoped-for Italian buyer surfaced in August, after the government ushered Alitalia into bankruptcy protection. But once again unions’ objections proved to be an obstacle.
Officials in the Netherlands, by contrast, saw the acquisition of the formerly state-owned KLM by Air France as a way to preserve the carrier’s status. Gaining approval from regulators wasn’t easy, but Air France and KLM made the case that the combined company would strengthen the European airline industry as a whole and would still have plenty of competition.
Which it does, primarily from British Airways and Germany-based Lufthansa. And both of those carriers have sought to follow Air France-KLM by making their own border-crossing purchases of other airlines. Lufthansa acquired SWISS, Switzerland’s primary international carrier, in 2007; in addition, it has agreed to buy a stake in Brussels Airlines that could lead to full ownership and has expressed interest in Austrian Airlines and UK-based British Midland. Lufthansa has even been floated as a potential acquirer of SAS, which by combining airlines from Denmark, Norway, and Sweden can be considered a pioneer of multinational ownership. For its part, British Airways is negotiating a merger with Iberia, Spain’s leading airline.
A buyer may yet emerge for Alitalia. But if none does, Italy may wish to reconsider the benefits of having an airline that flies under more than one national flag, vs. an airline with a flag that has nowhere to fly.
Regular air travelers can be forgiven for being short on sympathy for the airline industry. Unexpectedly high fuel prices have led to service cutbacks and fee increases, and you can expect more of those as carriers implement their fall schedules. But airlines, already beleaguered, might feel as though the rug had been pulled out from under them if a proposed federal auction of landing rights at Newark Liberty International Airport takes place.
The US Department of Transportation has formally recognized what business travelers have known for some time: New York’s three main airports are a bottleneck in the air transportation system. It’s a problem of supply and demand. The airports — JFK, LaGuardia, and Newark, all run by the Port Authority of New York and New Jersey — serve a high-demand market where space to add runway capacity is in short supply (read: nonexistent).
So the auction option has emerged as a way to allocate a scarce resource. The bankruptcy earlier this year of a start-up transatlantic airline, Eos, made the Newark runway slots available. Regulators hope an auction will be a precursor to a comprehensive redistribution of takeoff and landing rights at the New York facilities.
So where do we place our bids? On eBay? Not so fast. The auction idea has attracted fierce opposition from airlines, who say they don’t have money to bid for something they had previously been able to trade among themselves. Other naysayers include the Port Authority and members of Congress. Legal skirmishing heated up during August, and the chief counsel of the Federal Aviation Administration decided last week to halt the auction, which had been scheduled to begin today. The FAA order gives the airlines more time to press their case but does not rule out the possibility that a sale will proceed.
Even if it goes nowhere, the idea of auctioning runway slots is a useful reminder of one of the facts of life in the airline business: Though officially deregulated in 1978, the industry still remains subject to government regulations of all sorts, just as it remains the beneficiary of massive public investment in infrastructure. Fees paid by airlines to airport operators help keep runways paved, but without public money there wouldn’t be many runways to pave.
Meeting the demands of the market and the demands of public safety is hard enough even when fuel prices are historically low. Nowadays, it’s a bear. But if you fly much, you knew that already.