June 6th, 2011
06:18 PM GMT
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.
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