Why Airlines Should be Allowed to Fail

I have to pick my car up from the shop tomorrow morning, so I thought I’d put my post up tonight instead. It’s amazing, but I actually do get email if posts don’t go up at the usual time. So, here you go . . . .

You always hear misguided governments argue that they need to prop up failing airlines. I’m not quite sure why that is, but combined with other government intervention (including the proposed passenger bill of rights which I don’t support) this probably helps explain why this industry will never be healthy for long periods of time. Something that happened over the last couple of weeks will hopefully help governments understand why coddling isn’t necessary. (I can always dream, right?)

Fortunately for me, it involves the airline I love to hate . . . Alitalia. I wrote a couple weeks ago about how Alitalia’s latest turnaround plan would involve significantly slashing flights at its Milan hub and moving them to Rome instead. Well, you know the government is freaking out about losing all that service in such a major city. But guess what? Where there’s demand, other airlines will come in and fill in the hole.

This time, it’s Ryanair to the rescue.07_09_16 mightyryanair Soon after Alitalia announced its retreat from Milan/Malpensa, Ryanair said it’ll come in with 12 planes based at the airport operating flights to 50 international and 10 domestic destinations within a couple years.

See, if there’s enough demand for service, when one airline goes, another will follow in its place. You argue that Ryanair doesn’t have the same level of service as Alitalia? True. But if enough people want full service, you can bet other airlines will come in and fill the need.

This has happened time and time again. Remember when Southwest set up shop at Chicago/Midway the day after Midway Airlines went under? And how exactly did Atlanta end up being the biggest airport in the world after losing Eastern Airlines almost 20 years ago? Delta and AirTran picked up the slack.

If airlines aren’t healthy enough to survive, governments should let them go. Don’t try to prop them up. Those airplanes will still exist and someone will pick them up and start flying them if there truly is demand. And if there isn’t demand? Well that would probably explain why the airline wasn’t doing well in the first place.

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5 Responses to Why Airlines Should be Allowed to Fail

  1. Bradley says:

    For an excellent article on this very subject, see the following. Your assertions are wholly supported, and I agree as well!

    Rollman, D. P. (2004). Flying low: Chapter 11’s contribution to the self-destructive nature of
    airline industry economics. Emory Bankruptcy Developments Journal. 21(1).

  2. Pingback: “If airlines aren’t healthy enough to survive, governments should let them go. Don’t try to prop them up.” « Evan Sparks’s Aviation Policy Blog

  3. RNA says:

    Believe Southwest was already at MDW before the old Midway folded. It didn’t set up shop after the old Midway folded, it simply got a lot larger.

    Also, my recollection is that ATL was already the world number one before Eastern collapsed. Then it dropped from number one, then eventually it regained its crown thanks to AirTran (ValuJet) & Delta.

  4. CF says:

    Thanks for correcting me, RNA. Southwest did start MDW service in 1985 and Midway didn’t go under until 1991. But the point remains the same – they rapidly ramped up to fill in the hole when Midway failed.

    As for ATL, that wasn’t the world number 1 until the late 1990’s. I believe O’Hare had that title for years before that, though that of course depends upon which measure you use. But yes, it was always big.

  5. WP says:

    I agree. There is no reason to keep an airline afloat if the consumer does not use it or want it. Overriding the free market aspects of usiness benefit no one. Another airline will buy their assets if they go under, so there will be no loss of aircraft to fly the routes.

    If the governemnt gets involved at all, they should regulate the routes after a filed airline goes under. Meaning, the governemnt should force the airline that buys the excess aircraft and routes to maintain those routes for a minimum amount of time (depends on what is reasonable, say a year) and announce well ahead of time their intentions of deleting that route or reducing routes (6 months ahead). Then consumers will have a chance to choose another airline or advocate with the airline ot keep a route open.

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