Taking Flight from Competition: Europe's Protectionist Airlines Are Reluctant to Face the Reality of Deregulation

By Eglin, Roger | Management Today, February 1994 | Go to article overview

Taking Flight from Competition: Europe's Protectionist Airlines Are Reluctant to Face the Reality of Deregulation


Eglin, Roger, Management Today


Europe's protectionist airlines are reluctant to face the reality of deregulation.

Over the years Europe's state-owned airlines have wrapped themselves in the protective cocoon of a remarkable monopoly. Almost every scheduled route, bar a couple of dozen, has been operated by two airlines which have carved up the traffic, revenues and capacity between them with impunity and the backing of their government owners.

This cosy protection has created a high-cost industry riddled with inefficiency. Flying much the same sort of aircraft as American airlines, European costs are about half as much again. Wage costs are often spectacularly high. A Lufthansa pilot gets $152,000, almost twice as much as one at BA, and well above the $95,000 a pilot at American Airlines enjoys. Even this palls beside the $209,000 an Iberia pilot flies off with. And fat pay scales apply across the board. With the exception of BA among the big European carriers, cabin crew, maintenance and sales staff generally get paid 50-100% more than their US counterparts.

High costs show in the fares the Europeans charge. It is almost three and a half times as much per mile to fly from Paris to Munich as to travel from Los Angeles to New York - and greater competition means fares on transatlantic routes are around one-fifth the level of those on busy intra-European routes.

Given this sort of overcharging, the big European carriers ought to be able to make some sort of profit. But recession has left them woefully exposed. In 1992, the Community's flag carriers had a net loss of over $1.6 billion. If BA's $298 million profit is taken out of the equation, the real loss figure is close to $2 billion. Without the backing of their government owners, it is difficult to see how airlines like Iberia (loss $340 million), Air France ($617 million) and the gaggle with losses running at around $200 million or worse, such as Aer Lingus, TAP and Olympic, can keep going.

The panic climb-down of the French government when the unions blocked the runways at Charles de Gaulle in protest over a proposed reconstruction package is an extreme reaction but other governments, particularly in Spain and Italy, are still reluctant to come to terms with the crisis. What has frightened the protectionists is the fact that deregulation is now an established fact in the European Union and more competition is a certainty.

Since January 1993, Europe's airlines have been free to fly and charge as they wish on international routes. From 1997, this freedom will spread to domestic routes.

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Taking Flight from Competition: Europe's Protectionist Airlines Are Reluctant to Face the Reality of Deregulation
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