EU Reveals Unfortunate Preference for Legacy Carriers (Guest Post)

Cardinal, Government Regulation, Guest Posts

“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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13 comments on “EU Reveals Unfortunate Preference for Legacy Carriers (Guest Post)

  1. I object to the Henhouse analogy. I strongly object to Fox and Henhouse analogies. Henhouse management as artform has been refined by Foxes over the ages!

    For the rest, a great article!

  2. The real loosers are the flying public. Use it or loose it makes sense and exceptions should be made for horrible disasters like 9/11 or acts of mother nature. But the local flying public looses out if the major carriers reduce their schedules due to hard times and another carrier can’t fill the void because the majors get to keep the slots. I can understand a reduced schedule for a certain period of time, but after that period they should have to give up their slots to others that are willing to use them.

    I understand a lot of the Ryanair/Easyjet type carriers use small out of the way airports since they cost less to use the the larger airports, but if there are carriers willing to service the major airport in a metro area they should be given the change.

    But like anything else, the big boys have friends in high places so they can get ‘favors’ that benefit them and not the little guy. The public should think about how this effects them in the way of service and price and use their voice to make changes.

  3. It would be interesting to know which of those airlines are looking to get aircraft financing since nearly all these legacy carriers (with the exception of Alitalia) have fairly young fleets so it is hardly what you would call necessary expenditure during these difficult times.

    Whilst I agree with your points about the tendency of national governments to protect these legacy carriers, you can’t blame these airlines lobbying for help when every other industry seems to be going cap in hand to governments for bailout money.

  4. EU supports Airbus directly -or- EU supports AEA airlines which in turn support Airbus. It’s nationistic nepotism either way you look at it.

  5. Must be nice for the upper crust to have their cake and eat it as well….which is why Europe remains, well, Europe (imagine my rolling eyes).

  6. I believe in Europe they eat their cake and have it, not the other way around. If you can magine such a thing (more eye rolling).

  7. God dam communists, thank God we don’t bail out the airlines, auto industry, or banks in this country…… Thank God we don’t get involved when a military contract goes to a foreign country…..

  8. It always makes me chuckle when somebody whines about how US carriers have the audacity to not serve wine in Y on international flights or the chutzpah to charge for bags unlike the wonderful EU airlines. You just wait, sooner or later your industry on that side of the pond is going to look like the hot mess we have over here. Only thing is we’ll have been through it ten years earlier by that point.

  9. I disagree with the assertion that the low-cost sector in the EU is “doing fine”. SkyEurope went bust last month (there will be others this coming winter), easyJet has flight crew on notice of redundancy and Ryanair has slashed loads of flights off its schedules and withdrawn from some airports e.g. BLK and MAN. The low-cost sector uses provincial airports because they know they can be in and out of them in less than 30 minutes. This would be impossible at the megahubs like LHR/FRA etc. and it’s why they tend to stay away from them.

    You just wait, sooner or later your industry on that side of the pond is going to look like the hot mess we have over here.

    It already is, believe me…

  10. Here in the AEA offices we fell off our seats laughing. EU institutions give preferential treatment to the AEA carriers? We wish. I’m afraid your correspondent’s insights into the European scene don’t go very deep.

    We could explain, in nice easy-to-understand terms, why schedule continuity and predictability across successive timetable seasons is a Good Thing, but we can’t be bothered. If The Cardinal can’t work that out for himself, there’s not much point.

    Anyway, thanks for the publicity. It’s nice to know that someone on the other side of the world has such a high opinion of our lobbying prowess. Keep believing.

  11. @ David Henderson:

    Ohh, so you cant be bothered? We, the public, keep your member airlines going, and I pay your salary. So you better start caring. Crakyjackass well deserved.

  12. why the attack on the French Govt handling of Air France in the early 1990s?

    Look at the subsidies and protections paid to US carriers post Sept 11

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