No sooner had British Airways announced plans to set up its own low-cost operation at London Stansted, than the howls of protest began from the existing no-frills carriers. Their complaint (writ large in whole page newspaper advertisements) is that the BA intends to put them out of business by fair means or foul, so jeopardising the low fares experiment in Europe. Some are already planning to make tracks for Brussels to argue for action.
Their US mentors are (as ever) ahead of them. The fighting in Congress for legislation to help defend themselves from the competitive onslaught from major network carriers, which they argue will end in their extinction if not curbed. They appear to be building up a head of steam, with draft legislation pending.
Their complaint is that the network carriers have been making a concerted effort to put them out of business - slashing fares and swamping markets with capacity - while enjoying dominant positions at their own fortress hubs.
The complaints are certainly backed up by heavy casualties in the sector. Air South and Western Pacific have both been forced to file for bankruptcy protection over the past few months. Others have already had a spell in Chapter 11, and virtually none is showing profits - a worrying precedent for the European start-ups which have followed faithfully in their footsteps.
Yet these failures are not, on their own, a sign that the marketplace is unfair. No-one ever said that running a low-cost airline would be an easy ride and, on past evidence, it is hardly surprising if some of the more recent start-ups now find themselves hanging by a thread. The salutary lesson from the past two decades of US deregulation is that around 70-80% of all new start-ups have failed. It is possible that some may have been put out of business unfairly by predatory pricing and anti-competitive behaviour, but many more have failed because they got it wrong. The balance between costs and yields is a delicate one for any carrier. For a low-cost airline - often a new start-up with little capital to speak of - it is a matter of life and death.
Neither have the now-struggling US start-ups helped their own cause over the last year by pressing ahead with some highly optimistic growth plans, paying scant regard to the signs in the market that their product was not selling. It is true that their efforts were not helped by an unforeseeable dive in public confidence after the ValuJet crash in Florida 18 months ago. Yet many appear to have felt that they could simply grow their way out of trouble and have paid the consequences.
If at the same time the major carriers have taken their chance of adding a turn of the knife, then few can complain. As American Airlines head Bob Crandall says, competition is "-messy and it's hard" and that in fiercely protecting their markets, the encumbant carriers are doing no more than any other rational business.
There was a time when it was the lean low-cost carriers were the dangerous competitors and the flabby majors were the victims.
Similar arguments apply in Europe. If Debonair, easyJet and others have got their sums right they should have little to fear from BA, a reluctant entrant into a market in which it has little experience. It may be vastly bigger than its competitors but in the end it can just as ill afford to lose its shirt on the new venture.
If something is wrong in the market, then it is not that competition is too fierce, but that there are no clear boundaries of how far that competition can go before it crosses the boundary into dirty tricks. A deliberate attempt to kill an otherwise able competitor in the hope of being able to raise prices and lower standards as soon as he is buried, is clearly not in the interests of the consumer and is arguably just the kind of practice that USanti-trust laws were set up to bust. Yet such predatory pricing is notoriously difficult to police and until firm boundaries are set out, then carriers can hardly be blamed for breaching them.
In such an environment, the task of legislators is not to take sides or to handicap the more aggressive players (and certainly not to attempt to move the goalposts), but simply to referee the rules of the game. If those rules were spelt out in advance, that might help too.
Source: Flight International
