By choosing a German airport as its new European hub, no-frills airline Ryanair has challenged Lufthansa in its own backyard and burnished its image as a sparrow hawk in an industry of albatrosses.
While Ryanair predicted that it would add 1.5 million new passengers during its first year of operation at Frankfurt Hahn airport, Alitalia's board of directors were begging the Italian government for help to save their money-losing carrier from extinction.
PHOTO: AP
In terms of financial health, the bulk of Europe's airlines are crowded somewhere in between the profitable Irish upstart and Italy's chronic cash-burner.
And that's the problem -- these companies are a crowd.
"We have 14 national flag carrier airlines in Europe. It is clear that this number is not sustainable in the future. Soon, we are going to see a reorganization of the aviation sector in Europe," said EU Transport Commissioner Loyola de Palacio.
"We must stop thinking in terms of national carriers and think instead in terms of European carriers," she said.
Because of their high fixed costs, many European airlines were already suffering from the global economic slowdown before the Sept. 11 terrorist attacks on the US. However, unlike Alitalia and other long-haul carriers, low-cost airlines like Ryanair and Britain's easyJet and Go fly just within Europe and have suffered little from the collapse in transatlantic travel that followed the attacks upon the US on Sept. 11.
With more carriers running low on cash, consolidation -- in the form of takeovers, mergers or alliances -- appears inevitable. Many analysts predict that within a few years' time, Europe will have as few as three international long-haul airlines.
The most likely survivors are Lufthansa, Air France and British Airways.
However, aviation is a highly political business, particularly in a region where governments often own big chunks of stock in their national carriers. The Italian government, for example, holds a 53 percent stake in Alitalia, and Air France is 56 percent state-owned.
Issues of national pride and employment, therefore, have long outweighed financial logic. Carriers that should have failed are instead propped up, historically with state money.
The result has been a plague of overcapacity and weak profit margins.
"Weak players don't leave the industry, they just get recapitalized," said analyst Matthew Stainer of Societe Generale in London.
The European Commission in Brussels is trying to shut what it calls the "Pandora's box" of state aid, by forbidding governments to directly support troubled airlines.
At the same time, however, politicians are impeding airline consolidation by blocking foreign competitors from acquiring weaker rivals.
"In no other industry -- not even in defense and aerospace -- are cross-border mergers obstructed by national governments to such an extent," said Gerald Khoo of BNP Paribas.
Although Italy's Industry Minister Antonio Marzano called last week for Alitalia to raise emergency funds by issuing stock, he objected to Air France's possibly taking a stake in the company.
Marzano told the Italian daily La Repubblica he wouldn't favor partial ownership by Air France even though the two carriers signed a partnership agreement in July.
The bankruptcy earlier this month of Belgium's Sabena may augur an end to the era of old-style protectionism. Sabena, owned 50.5 percent by the Belgian government, blamed its demise partly on the collapse of co-owner Swissair, which failed to invest a promised US$123 million.
Swissair, itself badly indebted, went bust in October and is currently operating a much-reduced network.
Another state-owned airline, Ireland's Aer Lingus, is likely to run out of money by January. The Irish government has said a partial sell-off to private investors is its last hope because of the European Commission's expected veto of state aid.
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