Full deregulation (in theory, at least) of European air services is admittedly only a few weeks old, but even its most ardent enthusiasts must be disappointed at the apparent lack of effect so far. Those who predicted a more obvious impact from deregulation may, however, not have long to wait. The big disappointment for them is likely to be that the impact is more measurable in the streets than in the air.
One of the first indications that the deregulation of air services in the USA was having a real effect was an outbreak of labour unrest and strikes. They were not caused by employee opposition to the principle of cheaper, more competitive and accessible air travel, but by their realisation that the key to that goal was a massive reduction in labour costs and opening up of labour practices.
Given that experience, it is hardly surprising that deregulation in Europe is being accompanied by similar outbreaks. At the moment, the unrest is most obvious in France, with unions at TAT/Air Liberté and Air France all undertaking action in support of grievances related to cost-cutting - but other airlines in other nations will not be immune to this action.
The trouble at Air France still centres on the merger of the group's former domestic subsidiary Air Inter with the main Air France regional operations, which are already on new, tighter contracts. The unions at TAT are objecting to their salaries and conditions being downgraded to match those at Air Liberté, which is now a sister company following its rescue by British Airways last year. Those at Air Liberté, meanwhile, are objecting to an erosion of even those terms and conditions, as its TAT-led management tries to eliminate losses. All this cost reduction is being pursued in the hope of keeping (or making) these airlines competitive in the new environment - but are the right people in pursuit of the right goals?
The only airlines to have made consistent benefits from deregulation in the USA are those which were not there before it was introduced - the low-cost start-ups such as Southwest. The established majors have struggled to compete, first by trying to slash their own costs, then, when that route led to losses almost directly proportional to traffic increases, by setting up new low-cost enterprises of their own. Some of those majors - notably US - are now encountering new unrest as they try to bring the benefits of low-cost operation into the mainstream of their operations.
Most of this must, of course, be obvious to European airline managements. For a long time (most people would say for far too long), Europe's airlines were shielded from competition, and built up cost structures and working practices which (as with their US counterparts) were unsustainable in the real world. They had the example of the US experience on which to base their own responses to the threat or promise of deregulation, but may not have taken full note of all the lessons.
One of those was that competition based merely on an increase in supply has no hope of success unless it generates realistic demand. The US carriers which expanded in the face of this truism learned their lessons the hard way - but the Europeans seem not to have noticed. After all, both TAT and Air Liberté were started as low-cost operations, and got into trouble (and, eventually, into the hands of British Airways) because they expanded too quickly.
Likewise, the Air France attempt to integrate the notoriously high-cost Air Inter business, with its own regional operations (themselves no paragon of economic virtue)certainly appears to fly in the face of US experience. Merging two large, established, entities does not guarantee the survival of the new enlarged operation, far less its survival as the sum of the two parts.
Europe has a problem with deregulation, anyway, in that, while services may have been deregulated, the infrastructure in which they must work has not - congestion at major hubs would have guaranteed that, even if politics did not. If European airlines truly want to make profits from offering air services within a single air-transport market, they may have to find a whole new way of doing it. Trying to emulate the failures of the US industry will not work in an environment like this.
Source: Flight International
