EU Reveals Unfortunate Preference for Legacy Carriers (Guest Post)

“The Cardinal” is back once again with another guest post here on Cranky Flier. I’ve been absolutely swamped with Cranky Concierge’s launch (adding new clients daily), and he had something he wanted to write about. Here, he’s taking on the EU.

The European Union (EU) has generally done a decent job in pursuing European airline deregulation. When European airline deregulation has been stymied, it’s generally been through the actions of individual European governments, often in Southern Europe, where, for some odd reason, airlines are viewed as a symbol of national virility. Cranky’s done a good job of covering the machinations of the Italian govt to keep Alitalia flying, but he could have just as well picked on the French govt for its blatant subsidy of Air France in the early 1990s (which, trust me, the French govt would do again in a heartbeat, if it again became necessary) or the Greek govt for its support of various versions of the chronically loss-making Olympic Air/Airways/Airlines over the past 20-25 years (during this time, Olympic has been overtaken by private Greek carrier Aegean, though Olympic was itself finally sold to the private sector last month…). We should mention that the plucky Belgians, by contrast, let their late, unlamented flag carrier, Sabena, crater in 2001. Yay Belgium. Boo Italy. Boo France. Boo Greece.

However, with the downturn the EU has, unfortunately, come to the rescue of the traditional carriers. And of course, the traditional carriers want even more.

Europe’s traditional carriers are represented by the AEA — the Association of European Airlines — which bills itself as the alleged “trusted voice of European airline industry for over 50 years.” Yeah, like we’d trust the fox with the henhouse. The AEA is the rough equivalent of the US ATA — the Air Transport Association. The ATA represents the likes of American, United and JetBlue (that JetBlue pals around in the same trade association as American & United is another indication that notwithstanding its hip image, at heart JetBlue is the youngest legacy major). Similarly, the AEA represents dinosaurs such as British Airways, Air France, KLM (which has a separate membership, despite being the same company as Air France), not to forget the ultimate European throwback, Alitalia. European low cost carriers have their own organization, the ELFAA, which is where Ryanair and EasyJet, among others, hang out.

So what has the EU done for the AEA and what does the AEA want it to do?

Many European airports, particularly the big main airports (e.g. London Heathrow, Frankfurt, etc) are slot controlled, and of course these are the airports where AEA airlines play. EU rules say airlines have to use such slots 80% of the time or lose them. That the traditional airlines have most of the slots (and the European low cost carriers don’t) provides the traditional types with a degree of protection from the barbarians. The barbarians are largely relegated to the alternative airports, despite which they’ve done a great job of eating the AEA’s intra-European lunch.

The problem is that in a downturn like this, the AEA carriers can’t afford to keep using all their slots 80% of the time. So surely this means a breach in the city walls through which the barbarians can enter?

Oh, except that the EU has waived those rules to accommodate the AEA. Life is tough, says the AEA, you should let us off the hook and let us keep our slots even if we’re not using them. And the EU did just that. City walls intact, barbarians largely remain mostly outside them.

This, of course, is pungent bull-merde (appellation controlee, no doubt). Use-it-or-lose-it becomes meaningless if the moment the traditional airlines can’t afford to use the slots, the EU allows them not to. There are airlines in Europe doing just fine, they, unfortunately, just happen to be low-cost airlines. God forbid they should somehow gain better access to the biggest airports. Frankfurt might become overrun with airlines that don’t (shock!) offer business class. And where would we all be then?

Unfortunately, there’s a precedent for such sordid and blatant protectionism on the part of the EU for the AEA. It did exactly the same thing for the AEA after the airline downturn after 9/11. Again, there were
European carriers that continued to make money at the time, they just happened to be, from the point of view of the AEA, the *wrong* airlines. Yeah, Ryanair and that rowdy bunch.

The EU should know better — putting your finger on the scales of economic justice once just encourages the beneficiary to ask for more (just ask the Obama administration about all the favors they’re being asked to do for their Wall St pals after having pulled their undeserving chestnuts out of the fire).

In particular, now the AEA wants the EU to, get this, finance aircraft for its members. Yes, the AEA wants the European Investment Bank (EIB) to step in and provide credit to its members to purchase aircraft. This, of course, is ridiculous. If AEA members can’t finance aircraft purchases, then said members should make do with what they have. Period. Again, it’s not as if aircraft finance is unavailable to all airlines — it’s just that the financeable airlines happen to be the same barbarians (e.g. Ryanair) who don’t offer business class on their flights. If AEA members were profitable, chances are they’d be able to finance their aircraft. That they’re not profitable suggests that they need to either shrink or die. But going back to the issue of airlines as symbols of national virility, Seinfeld-style shrinkage is not something many European governments view with equanimity.

Unfortunately you have to imagine that such financing is, at the very least, a distinct possibility. Many AEA orders are for aircraft made by… wait for it… Airbus. So by financing AEA airlines, the EIB would also be helping out Airbus. We cannot rule out the EIB financing aircraft deliveries even to antediluvian specimens such as Alitalia. Also, to be thoroughly cynical (but probably not totally wrong) if the barbarians end up killing too many AEA members, EU bureaucrats might have to travel with the great European unwashed (there’s a cheap joke here, but I’ll leave it be) on the likes of Ryanair and EasyJet.

The only silver lining to the gruesome prospect of the EIB financing aircraft for Alitalia is that it would provide Cranky with rant material for the foreseeable future. I like Cranky, but that would be so not worth

The Cardinal is a long time industry observer, who is currently a [redacted] at [redacted]. Prior to working at [redacted], he worked at [redacted], [redacted] and [redacted]. He resides in [redacted] and in his spare time enjoys [redacted with extreme prejudice].

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