Malev Shows Why Countries Don’t Need Flag Carriers

While last year saw very little in the way of big airlines failing, this year is already off to a quick start with both Spanair and Malev abruptly halting flights. Malev is a particularly interesting case study, because it showcases why flag carriers simply aren’t necessary for many countries anymore. There’s always someone else to step in.

Malev was born out of World War II, becoming the flag carrier for Hungary in 1946. Though at various points in its history it had designs on longer haul flying, it learned its role in the last decade as nothing more than a regional player. In the end, Malev flew mostly 737s only within Europe along with a couple of near Middle East destinations. It successfully brought people to and from Hungary, and it was well-positioned to carry some connecting traffic through Budapest, but it usually did so at a discount.

Malev Goes Away

As part of oneworld, Malev was able to find a niche as a regional feeder. American had a flight from New York that fed Malev. (That flight was abruptly discontinued as soon as Malev failed.) It could also feed people to BA in London, Iberia in Madrid, and Royal Jordanian in Amman. This strategy sounded promising, but it just didn’t create a profitable business. After a couple of stints with privatization, Hungary nationalized the airline once again in 2010. The courts recently ruled that Malev had to repay illegal subsidies that it had received, and that was the end of the airline.

So Malev is gone, but does anyone care? Sure, the sentimentalists who remember the once proud airline and its long history will lament the death, but travelers? Not so much. Those in Budapest can continue to fly oneworld, but they won’t be able to fly Malev. They’ll need to connect through London or Madrid and they can then get just about anywhere they need. If they want to go east, Qatar and Turkish can take people just about anywhere. I’m guessing Etihad and Emirates will get there eventually. But that doesn’t help for short haul travel, so what about that?

Ryanair was quick to announce a massive new operation which, though not yet agreed upon by the airport operator, is already selling on the website. The new base will have more than 30 routes. Meanwhile, local low cost airline Wizz Air has stepped up its game as well with 10 new routes being added right away.

In other words, shortly after Malev disappeared, all the routes with significant demand were served again. Now, is there someone who wants a full service airline to take him to, say, Rome? Probably, but is there enough demand to profitably fill an airplane? Apparently not, since even Alitalia doesn’t serve that route.

In other words, Malev had a lot of capacity in the market that didn’t need to be there, but as the flag carrier, it felt compelled to have out there. There just isn’t a need for that anymore. If a route is good, someone will serve it. If it’s not, only a flag carrier would serve it because someone decided it had to for political or national pride reasons.

Does this mean all flag carriers should disappear? No. But it means that we don’t need them either. The bigger the flag carrier, the harder it would be to replace all that capacity in such a short time, but it would get replaced eventually. That goes for a big airline like, say, American, too. That’s why I’m not a fan of the bankruptcy process in the US. Airlines should be allowed to fail and then others can step in to fill the void. But that’s another story.

What’s the point to this whole post? While it’s sad to see an airline with a rich history like Malev disappear, it’s probably better for the industry. When the weaker airlines disappear, healthier ones step in to fill the void, and most travelers end up better off.

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32 Comments on "Malev Shows Why Countries Don’t Need Flag Carriers"

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Mark Lenahan
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If ever you need evidence that politicians and civil servants can’t run a business look at the airline industry. As sad as I am at a carrier going bust, state subsidies (direct or indirect) for a failing business are profoundly unfair – not only on potential competitors (who wants to compete with someone who doesn’t even need to make a profit?) but also on tax payers. (I’m not opposed to structural funding as long as there is competition at some point though – like a proper tender process) With airline subsidies you take money out of everyone’s pocket to benefit… Read more »
Justin
Guest

You mention that some people never get to see the inside of a plane, bit of a disconnect there. Businesses, even publicly owned ones are in business to make money and not give the seats away. But I can kind of see where people think they are entitiled to not “pay the freight” as it were. But come the next market crash, that entitlement will go the way of the dodo.

Xandrios
Guest
I used Malev for my flights to eastern Europe (I am based in AMS). They offered a quality product (better than, say, AF/KL) at a lower price. For that I am sad to see them go. On the other hand their usefulness was limited to a few routes only for me. After CSA started reducing flights (to almost 0 now, they will be the next to go belly up) they were the ones with the largest networking eastern Europe..but not any more. The main problem that I have with low cost airlines is that they only serve short hops. AMS-ATH… Read more »
Dan
Guest
CF, The situation in the US is a bit more complicated than you describe, but then again, I think you know that. IMHO, letting a US carrier fail doesn’t solve any problems — it just redresses the same problem in different clothing. Why? I’m convinced that the way labor agreements are structured is the biggest culprit. When I used to pay more attention to that kind of thing, it seemed that every pilot group was always thumping their chest to get “parity” with other groups. And each contract always has contractually guaranteed pay raises for the length of the contract.… Read more »
A
Guest
I have to disagree with you about the US airlines and bankruptcy. Cranky is right, airlines should be able to fail and the stronger ones will fill the void. The bankruptcy laws in the US have distorted the market. In the US airlines have used Chapter 11 as a strategic tool to gain a competitive advantage against the competition at the expense of their creditors and employees. DL, NW and UA all went through bankruptcy recently (in much better economic times) and shed costs which gave them a clear advantage over AA. Now AA is struggling partly because they can’t… Read more »
David SF eastbay
Member

“””””When the weaker airlines disappear, healthier ones step in to fill the void, and most travelers end up better off. “””””

That last line was kind of funny. Scary to think people are better off with RyanAir filling the void. I know what you mean, but people friendly they are not.

I’ve always liked the name Wizz Air, but I think the Wizz part is lost on the Europeans. At least they went with purple colors and not yellow….lol

Allplane
Guest

The other airline that went bankrupt this week was also a flag carrier of sorts or I would rather say a project of flag-carrier, of Catalonia (although currently an autonomous territory within Spain, Catalonia, capital Barcelona, has a strong national identity of its own, a bit like Scotland in the UK). It was bought by the Catalan government about three years ago with the idea to build a hub at BCN. These efforts ahve obviously failed, so like in BUD is going to be Ryanair and Vueling filling the gap.

Sanjeev M
Guest

But unlike BUD, there was steady demand to BCN. However, Spanair’s costs were too high, the 2008 crash hurt them, Vueling was eating their lunch and when Ryanair came it, it was over. Why on earth would QR even consider investing in a failing carrier in a mature, overserved market like Spain I don’t know.

J.Kuipers
Guest

Malev will definitely be missed, and as you mentioned, they seemed to have something going as a regional feeder. I flew the American BUD-JFK flight a half dozen times and at least anecdotally, it seemed that the majority of passengers were transferring in BUD. I think the real losers here are the folks in smaller Central/Eastern European cities that used BUD as a transfer point. You’re right, BUD still has plenty of options especially with increases from LCCs, but places like Cluj Napoca, Romania are stuck with few and expensive options.

DesertGhost
Guest

I remember reading that J.P. Morgan once said that too much competition destroys all competition. The airline industry is (and the railroad industry Morgan spoke of was) a classic example of this. That’s the nature of “mature” industries that once grew too much (the “dot-com bubble” was another example of a growth industry that collapsed). That’s why you’ll see more consolidation in the airline industry here.

DesertGhost
Guest
I recently saw a piece by Peter Greenberg on YouTube (commenting on the AMR bankruptcy and the prospects for rising fares) that the U.S. airline industry has cut the capacity equivalent of a “major” airline over the last 10 years or so. The “let them fail” argument was also prevalent when US Airways, United, Delta, Northwest, et.al. were in Chapter 11. But it seems the U.S. industry hasn’t needed a Chapter 7 liquidation. Yet, much airline capacity has essentially been liquidated. So we are “liquidating” excess capacity in the U.S. without liquidating companies – yet. There will be more “liquidation”… Read more »
Dan
Guest

In the strictest sense, you’re right about liquidation. A bit more loosely, though, and one realizes that TWA pretty much got liquidated when AA purchased them.

Dan
Guest
I worked for a UA regional about 10 years ago. Regional dynamics are not much different than major dynamics, just played out a bit under the radar. Regional airlines pay their pilots just like the majors do — contractually guaranteed raises every year. Back when capacity purchase agreements/fee for departure (no risk flying) was the norm, the regionals could let their costs creep up. Then, when they get too expensive, the majors switch to a different subcontractor. So what happens? Regional carrier B gets a new contract that Regional carrier A used to fly. Regional carrier B hires a lot… Read more »
Planereality.com
Guest

Agree with you wholeheartedly Cranky. The principles you highlight are also why the US does NOT need (and eventually will not have) 10+ carriers.

explanethings
Guest
Is the word ‘flag-carrier’ valid in this case? What is a flag-carrier these days? Do they still have any significance? I understand what a flag-carrier used to be (and in some less liberal minded parts of the world, probably still are). My idea is of a State-owned airline that had a monopoly, or at least the lion’s share, of all the prime routes out of a nation; like BOAC, Air France, Qantas and even PanAm and TWA back in the day, ‘though I realise these last two were not state owned but certainly had privileged positions in Washington’s mind and… Read more »
Jim
Guest

Countries in the EU, which basically functions as a single economic bloc, don’t need their own flag carriers any more than California or Texas needs a flag carrier. But the EU is the exception, not the rule. In other parts of the world, countries need to either have a flag carrier, or allow foreign airlines unfettered access to the market, which most countries won’t do.

Sanjeev M
Guest
@Xandrios, AB, Niki, and Vueling all offer transfer products Some thoughts: -Airberlin and NIKI coming online for oneworld should help the Eastern Europe feed. -BUD just built a huge connection facility which is now basically a waste -Malev costs were probably too high -BUD doesn’t have too much premium demand, or demand in general as show by Wizz Air’s reluctance to open new routes even though its HQ in Budapest. -Malev needed smaller E190’s or something like that My biggest thought is that Oneworld didn’t support Malev enough. I don’t think RJ even flew there from AMM. In general oneworld… Read more »
yo
Guest

My only flight on a Tupolev 154 was on Malev, from Prague to Budapest. Bummer, nice airline, nice people.

NoBeogradBudapestConnection
Guest

This is bad news for people traveling on AA/BA to Serbia via Budapest.

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