Why Do Carriers Want to Get Bigger and Bigger?
I ask myself this question every time I see a company buying another. It may be the rule of life but, to tell the truth, I don’t always see the point of it. Recently, the Turkish company Pegasus Airlines bought the Czech national carrier Czech Airlines after having acquired the country’s “low cost” airline in the past: Smart Wings. Of course, the Turkish carrier is doing well and its government is doing everything to develop its air transport, in notable contrast with the European authorities.
This is not the only example. Not only are we seeing large companies ready to devour smaller ones, but we are also seeing that good-sized operators are looking to be bought out by larger ones. ITA has been sold to Lufthansa, SAS is in the process of being absorbed by the Air France/KLM group and TAP is making eyes at the three European majors. What are the players looking for in this desire for rapprochement even if they don’t really need it?
ITA, the Italian company born from the disappearance of Alitalia, which, for once, could not hope to survive given the way it was managed for the sole benefit of its employees and friends of the government, has demonstrated its capacity for healthy and rapid development. We do not see why the Italian state did not simply let its national carrier continue its growth, which was virtuous and profitable. There is no doubt that the Lufthansa group has made a good deal.
The Portuguese government has launched a search for buyers for its company TAP Air Portugal. After a bit of a difficult few years, the Portuguese carrier has made a spectacular turnaround and is now in good health. Its size is respectable and it sits on a southern transatlantic network that is just waiting to grow. Why then want to sell what is profitable and bears the colors of the country? Because make no mistake, the buyer, whoever he is and whatever his promises, will only act for his own benefit, even if it means limiting the development of his new subsidiary.
The trend towards rapprochement, or consolidation, which means nothing, has never shown its virtues, neither for the companies it buys nor for the buyers, except in the case of a defensive strategy as is the case for Air France/KLM. In the United States, we have witnessed the demonstration of this phenomenon. The merger of most regional airlines, some of them of good size, into three major groups, United Airlines, American Airlines and Delta Air Lines, has not proved to be a success. It should be remembered that the three groups that finally won the competition all went through Chapter 11, i.e. the bankruptcy filing.
We must also remember the disastrous strategy of Etihad Airlines, whose bulimia almost proved fatal to the company. By wanting to grow too much, we end up creating disparate and ultimately ungovernable ensembles. Of course, I can always be opposed to the undeniable success of the IAG group, but for this to happen, the major carrier, British Airways, had to agree to leave the general management to a Spaniard, and it is difficult to see a German operator doing the same with an Italian, for example. And let’s add that the IAG group has a real international connotation where each component can be found, whereas this is not the case for the Lufthansa group.
And we can also ask another question: wouldn’t the companies of the same group achieve just as good or even better results if they were independent? One thing is certain, however, that countries that sell their national carrier lose in one way or another a formidable tool for the promotion of their country. This is what some states such as Qatar, the Emirates or Turkey have understood for example. Their national carrier and even for Turkey their “low costs”, largely supported by their government, have demonstrated their capacity for development. And the more their carrier develops, the more the country’s image carries estimable values.
Of course, some states are too small and too weak economically to support a company capable of carrying their image on an international level. This is what is happening in West Africa, or in certain Asian and South American areas. But there is always the possibility of creating and developing domestic and regional air transport for the best benefit of their populations.
An airline is valuable not only for its economic contribution, but also because it is a powerful cultural vehicle.
