"Part of our everyday work is the revolutionizing of the local market," Saling says. "To tell people what are low-cost airlines, how they can bring value to their lives, and change the way they travel."
When Good Markets Go Bad
The financial pages on Fleet Street were filled all last spring with ominous talk of a low-cost market collapse. Fuel prices, already one of the largest fixed costs in the airline business, are going through the roof, just as the price-slashing "bloodbath" RyanAir's O'Leary warns of drives tickets ever closer to free. A competitive shakeout, predicted by the experience in North America, has long been forecast. But there is a new threat on the horizon: the E.U.'s stifling bureaucracy.
Early last year, the E.U.'s Airline Commission, after hearing complaints about suddenly canceled flights, thin compensation, and poor customer service, passed regulations forcing all European airlines, low-cost or otherwise, to compensate stranded passengers with up to 250 euros per canceled flight, in addition to providing hotel, meals, drinks, and taxi service. The rule, currently scheduled to take effect in February 2005, is being challenged at the U.K. High Court in London. "This would be a disaster for the industry and for consumers," warns Wolfgang Kurth, president of the new European Low Fares Airline Association, a group that includes RyanAir, Sky Europe, and Wizz. "The prerequisite of our business model --namely, low operating costs--is at risk." Mike Ambrose, director general of the European Regions Airline Association, estimated that the ruling "will add 1.5 billion [euros] a year to air fares." EasyJet estimated its damage alone would amount to 120 million British pounds a year.
This is not the only threat facing Europe's most dynamic sector. Residents near the booming low-cost hub of Stansted, England, are hopping mad about a major planned airport expansion, and similar protests are being heard in communities that 10 years ago would have begged for the problem of overcapacity. Complaints of noise and air pollution abound, putting more draft regulations on the table in national capitals and in Brussels. "The skies above Europe," Newsweek warned in May, "are getting dangerously congested," and all it takes is one major crash (see ValuJet) for a "hot" airline or sector to go cold overnight. EasyJet and RyanAir are constantly battling state-owned airports to privatize and/or reduce fees, while attempting with limited success to protest the preferential treatment some regional airports give national airlines (especially in strike-addled France). On the other side of the coin, staggering flag carriers like Italy's Alitalia continue to be propped up by taxpayers' money instead of being left to die in the wilderness. "It is high time," International Air Transport Association Director General Giovanni Bisignani said at the organization's annual meeting in Singapore last June, "that European Union regulators took the trouble to learn about the industry they are busy misregulating."
Of course the same meddling push has been felt in the U.S. for decades, deregulatory success be damned. Congress holds hearings on tinkering with ticket prices usually once per session, and the important job of finishing deregulation--most notably, by privatizing airports (which England did back in 1987) and opening the domestic market to foreign competition--has been left undone. Meanwhile, 9/11 ushered in a new round of security rules and a whopping $15 billion airline bailout, which, notably, low-cost airlines like Southwest and JetBlue didn't even need.
"Evidence in Europe and the U.S. indicates that the leading LFAs [low-fare airlines] fared significantly better than their full-fare rivals in the wake of the terrorist attacks on the U.S.," wrote Thomas Lawton, author of Cleared for Take-Off: Structure and Strategy in the Low-Fare Airline Business, in the November 2003 Irish Journal of Management. "While established rivals cut staff, grounded aircraft and even collapsed into bankruptcy, the LFAs continue to open new routes and order new aircraft....LFAs are more resilient than traditional airlines to market downturns."
Which is why they should be enabled, not blocked. Yet blocking them is precisely what U.S. lawmakers have done. American negotiators have failed to budge in a series of "Open Skies" discussions with European trade officials, scotching the two sides' intention to announce a major new deal at a June 26 transportation summit in Dublin, and postponing any further substantive discussion until after last November's presidential election.
Would this endlessly delayed agreement allow RyanAir and other upstarts to finally fly purely domestic routes, a liberalization that Alfred Kahn, the architect of deregulation in Jimmy Carter's administration, told reason in 1998 is "our main hope" for greater competition? Alas, no. The only reform the Bush administration has even contemplated is increasing the cap on foreign ownership percentage of domestic airlines from 25 percent to 49 percent, thereby perhaps allowing Virgin's Richard Branson to launch his long-awaited American carrier, and not much else.
Sen. Trent Lott (R-Miss.), chairman of the Senate Commerce Committee's aviation subcommittee, told Aviation Daily last February that he had "security concerns" about foreigners owning domestic airlines, while the Transportation Trades Department of the AFL-CIO claimed, in a zero- sum flourish, that competition "would devastate an already ravaged U.S. aviation industry and its work force." The House Aviation Committee, meanwhile, is trying to extend the government's $700 million annual "war risk" insurance subsidy for another five years, and United Airlines is sniffing around Washington for yet another bailout, which analysts have warned could be the largest since the Savings and Loan scandal of the 1980s. And with no Open Skies deal in the offing, the struggling American carriers may face a future ban from operating between European capitals, which current bilateral agreements allow.
As painful as it may be to admit, it looks like the United States, which blazed the global trail of airline deregulation nearly three decades ago, will be choking on the exhaust of Old Europe for years to come, denying Americans the benefits that have transformed the way Europeans behave. Amazing what a little political cowardice can do.
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