June 6th, 2011
06:18 PM GMT
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Singapore (CNN) – The airline industry is tough. No doubt about it. Between 2000-2010 the group of 230 airlines that make up the International Air Transport Association (IATA) managed to post just three profitable years as a group. In 2006, 2007 and 2010 they collectively earned $39 billion dollars. In the other seven years they racked up losses of $68 billion dollars, according to IATA figures. Yes, billion.

Yet during that time only a handful of well-known carriers - Swissair, Varig, Ansett, Sabena, Mexicana and Aloha among others - disappeared. How did the others manage to survive?

There are still about 1000 carriers worldwide, says IATA. The question is why.

How can a business that has been so profit-challenged sustain so many big players? Compare this global industry with a couple of others. There are perhaps 60 carmakers globally, a few dozen big pharmaceutical companies, but still 1000 airlines.

To find part of the answer look at cross-border mergers regulations. They are still virtually banned. The Europeans can take each other over within the EU, as can U.S. carriers, and there can be some strategic tie-ups across oceans, but the bottom line is that the worst-performers continue to limp along, unmolested by predatory rivals.

According to IATA, the reasons go back to the end of the World War II when a ravaged Europe put protective barriers in place to stop the cash-rich U.S.airlines dominating the global industry.

A lot of those restrictions remain in place and IATA wants them eliminated. Ironically, they probably offer more protection for cash-strapped U.S. carriers these days, but does that make any sense.

One argument is that it is in the national security interests to keep airlines out of the hands of foreign owners. But IATA argues the time has come to rethink the whole issue. After all, it would probably benefit travellers if the industry had fewer big operators so they could concentrate more on economies of scale, which should mean savings for passengers.



soundoff (14 Responses)
  1. Mile Madinah

    Your question, How can a business that has been so profit-challenged sustain so many big players? becomes more relevant when you even club together the private chartered planes, which itself has had gained quite a moment just before resession. In UAE and KSA itself, you find not only royals but also number of successful entrepreneurs are having their own private jets. It's not merely considered a luxury, but a realistic demand for doing buisness at a right place and at a right time.

    Thanks
    Mile Madinah
    http://www.mile.org

    June 6, 2011 at 7:55 pm |
  2. T

    One thing is for certain. Europe, Asia and the middle East do not need more USA carriers. They need more Asian carriers. As business and tourist travels already know, the USA airline industry ranks at the bottom from everything from Comfort, Friendly attendants, customer service, on time take off and landing etc..

    I hope this article does not imply that what the airline industry needs is more USA airlines in more countries, because most of the world will go out of their way to not take a USA airline once they understand the American standard of service.. Sorry folks, please don't shoot the messenger.

    June 7, 2011 at 2:53 am |
  3. Mack

    So do US airlines lose money due to their lousy service, or do they have lousy service because they don't make money? Well let's see. When the airlines made money hand over fist in the days of regulation, they tried to outdo each other in service, luxury and amenities. When they lost massive amounts of money in the recent downturn they cut staff, pay, amenities and levels of service and instituted all manner of fees in order to keep afloat. Over the last ten years the industry has suffered a net loss while effectively subsidizing air travel to the public at below the airlines costs. Ironically the traveling public is actually getting more than what it has paid for, while demanding better service and lower airfare. The invisible hand of the market has no power in the dysfunctional and counter intuitive US airline industry business model. LOL!

    June 7, 2011 at 4:55 am |
  4. YG

    ... fewer big operators ... economies of scale??? savings for passengers??? I don't think so. Sounds more like less choice for me as a pax, and hence at the mercy of big boys upping price as they wish.

    June 7, 2011 at 5:41 am |
  5. HW

    More than anything else , the airline industry represents a national identity. Every sovereign nation wants a national carrier.
    This alone accounts for a large % of the losses and in turn subsidized by those same countries thus creating an unfair market as the private airlines end up fishing in the same pond.

    June 7, 2011 at 10:32 am |
  6. Walter Koenig

    Well, to put all the airlines on an equal footing, the U.S. airlines are NOT government subsidized. Other airlines are because they couldn't and still can't complete, particularly in safety. Now, that makes it fare to compare.... I'd take a U.S. carrier over about any other, I'd like to get there alive. You are more than welcome to fly podunk country airline, better get that life insurance up to date though....

    June 7, 2011 at 11:05 am |
  7. Dervid

    This article didn't make any sense at all. "Big Players" can offer "economies of scale" - but they can also impose a monopoly. There is nothing forbidding competing airlines from "group buying" to keep costs down. The airline industry is a racket, period. Prices are WAY to high, even with higher oil prices, because there is no competition. Nationalized airlines seem to be doing the best ... their motive isn't to be profitable, but to break even and bring tourists to their countries where they will spend billions as tourists. We need nationalized airlines (although nothing wrong with private if they can compete too). The question is, if nationalized airlines can keep prices down without incurring lawsuits for price gauging. So far, customers are NOT benefiting from the current system. The cost of flying has gone UP over the last 30 years, per capita, not down.

    June 7, 2011 at 11:11 am |
  8. franky

    Mayday,mayday

    June 7, 2011 at 10:26 pm |
  9. FEARLESSLY FAITHFUL

    Soon I will own and operate a great and economical trans expance Global airline. With impecable exclusive service for GOD fearing meke at heart clientel.

    June 8, 2011 at 5:58 am |
  10. FEARLESSLY FAITHFUL

    We will cater camel ribs, burgers and steak.And whatever might be left over of the beast.then we will all whistle dixie as we pick our nose and teeth.

    June 8, 2011 at 6:16 am |
  11. Traveler

    When they were touting the benefits of deregulation back in the late 70"s, they said it would create more competition, which would in turn lower prices. Since then we have seen the disappearance of many airlines through failures, bankruptcies, and mergers. Now they are trying to tell us we would be better with just a few global airlines? How does a monopoly benefit the consumer?

    June 14, 2011 at 3:29 am |
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