Airline Weekly - June 12, 2006
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Airline Weekly - June 12, 2006

A European Success Story: Airline deregulation brings Europe closer together

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Cover Story

A European Success Story: Airline deregulation brings Europe closer together

When the architects of the European Union were devising ways to bring the continent’s nations closer together, they probably didn’t think much about airlines. But few businesses have contributed more to cross-border interaction among Europe’s 450m citizens.

From 1993 to 1997, the European Union phased in a continent-wide open skies regime that’s dramatically lowered fares, expanded access and boosted tourism, commerce and movement within the now 25-member market. Perhaps most remarkably, these developments haven’t ravaged the fortunes of employees or destroyed the financial performance of airlines to the same degree they have in North America. While airlines like Sabena have died and workers like those at Swissair suffered, many of the continent’s largest airlines avoided the sweeping restructuring that their American counterparts are still undertaking. Many carriers are hiring and both legacy and low-cost airlines are making money.

In many ways, Europe is a dream market for airlines. Average household incomes are high, workers receive long holiday breaks and high petrol taxes encourage people to travel by air rather than car. Moreover, the continent is dotted with culturally-rich cities that tourists love to visit and pleasant-weather beaches that crowd with vacationers during summers. Many Europeans even have second homes in other E.U. countries.

No group of airlines has better taken advantage of these favorable market characteristics than the low-cost carriers spawned by deregulation. Not all are profitable or sustainable—as many as 60 still exist in various niches throughout the continent—but the biggest and the best are carrying enormous volumes of traffic. The European Low-Fares Airline Association, an advocacy group, says Europe’s LCCs now transport more than 100m passengers a year, about as many as American Airlines. And many LCCs serve a large number of cities, in part because starting flights to... (304 of 1218 words)

Also Inside this Issue:

As the nations of the globe battle for the World Cup, the airlines of the globe are battling for traffic and revenue amid high fuel prices. And one of them received a big boost to its effort last week.

Cathay Pacific, after years of frustrating absence from key mainland China routes, finally got its wish and signed a deal to take control of hometown rival Dragonair. As a bonus, it will tighten its links to Air China despite the latter’s intention to join the Star Alliance.

It remains to be seen if the value Cathay can generate from the new arrangement outweighs the price it’s paying, but the strategic value in the deal is clear. Korean Air, Asiana and All Nippon have already proven the power of building a gateway to mainland China.

In the U.S., Northwest’s flight attendants put a halt to recent restructuring momentum, while Delta plans to recall some furloughed pilots as its business improves. Continental placed a big plane order, and Congress abandoned plans to block an airline foreign ownership initiative essential to a transatlantic open skies pact.

And in Europe, Ryanair posted another year of excellent results while IATA met in Paris and slammed airports for allegedly overcharging its airline clients.

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Airline Weekly is a subscriber-supported publication, paid for by readers who want a more interesting, more valuable read about the airline business. Each Monday, Airline Weekly reports who's flying where, new marketing approaches, fleet, finance and key airline and airport data. And, most importantly, Airline Weekly readers enjoy a critical context, insightful analysis and new ideas found nowhere else.

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