The just-announced merger of British Airways and the Spanish carrier Iberia is a major step in defining the future shape of the world airline industry. BA has been courting Iberia for a long time. It was an obvious and essential marriage for them. When you look at airlines as the global business they now are, two other carriers were seriously overshadowing BA: Air France-KLM and Lufthansa.
It’s all about economies of scale.
The larger the network of routes flown by an airline, the more efficiently it can operate and compete. But mergers only make sense if the route structures are complementary.
This economic Darwinism, in which efficiency is tied to size, has
finally supplanted what was a form of old fashioned imperialism. When
modern airlines spread across the globe after World War II they were
instruments of national prestige. Four empires were served by what were
called flag carriers—the sprawling remnants of the British empire, and
similarly those of France, particularly in Africa, of Holland, which
was strong in Asia, and of Spain, with its umbilical links to Latin
America.
BA, Air France and KLM built their routes on this imperial system. (While Spain was run by the Fascist dictator Franco it lacked investment in its airline). And the U.S., with no imperial system in place, used its commercial and technical dominance to clear globe-girdling routes for its two most favored carriers, TWA and Pan Am.
Now look at the world airline ecology. TWA and Pan Am are no more. France and Holland are united in Air France-KLM and now BA and Iberia lock together the old Spanish imperial interests—crucially Latin America—with BA’s huge presence on the Atlantic and its old imperial routes to the Middle East and Asia. Today BA and Iberia claim that they will fly to 205 destinations with their combined fleet of 419 airplanes.
There is an exception to this pattern. As the winners of World War II built routes (and protected them with elaborate cartel arrangements) Germany’s national airline, Lufthanasa, had no similar muscle. But over the last decade it has been more nimble-footed and aggressive than its competitors, partly because it was not handicapped by allegiances to routes that had more nostalgic ties than business logic.
Lufthansa has also been clever at nipping at the heels of other carriers in their own backyard. At London’s Heathrow, for example, where they were locked out of gates—the price of entry to any market—by the dominance of BA and U.S. carriers, they bought the feisty regional carrier BMI, which delivered gates and profitable European routes. In the U.S. they bought 19 per cent of JetBlue, which has given them an immediate and useful pipe into a popular domestic network, both for feeding Europeans into the U.S. and Americans into Lufthansa’s world network.
Interestingly, the other former member of World War II’s Axis, Japan, has a national airline, Japan Airlines, still so wedded to the flag carrier concept that it has been taking a beating. In the last six months it has been forced to cut back routes and lay off staff.
What does all this mean for travelers? Mostly, I think, it is good news. The old imperial system defended stitched-up routes and vastly inflated fares possible only when monopoly ruled. In the jungle that is the world airline business, the biggest also have to be the fittest, and they will wage endless war against each other, to the benefit of passengers looking for the best levels of service and value.
The U.S., in fact, is left looking like the last bastion of nationalism with a market still ludicrously ring-fenced against foreign competition.
Related links
Star Alliance: 25 of the world’s top airlines were lining up to welcome Continental Airlines into their fold
BA, Air France and KLM built their routes on this imperial system. (While Spain was run by the Fascist dictator Franco it lacked investment in its airline). And the U.S., with no imperial system in place, used its commercial and technical dominance to clear globe-girdling routes for its two most favored carriers, TWA and Pan Am.
Now look at the world airline ecology. TWA and Pan Am are no more. France and Holland are united in Air France-KLM and now BA and Iberia lock together the old Spanish imperial interests—crucially Latin America—with BA’s huge presence on the Atlantic and its old imperial routes to the Middle East and Asia. Today BA and Iberia claim that they will fly to 205 destinations with their combined fleet of 419 airplanes.
There is an exception to this pattern. As the winners of World War II built routes (and protected them with elaborate cartel arrangements) Germany’s national airline, Lufthanasa, had no similar muscle. But over the last decade it has been more nimble-footed and aggressive than its competitors, partly because it was not handicapped by allegiances to routes that had more nostalgic ties than business logic.
Lufthansa has also been clever at nipping at the heels of other carriers in their own backyard. At London’s Heathrow, for example, where they were locked out of gates—the price of entry to any market—by the dominance of BA and U.S. carriers, they bought the feisty regional carrier BMI, which delivered gates and profitable European routes. In the U.S. they bought 19 per cent of JetBlue, which has given them an immediate and useful pipe into a popular domestic network, both for feeding Europeans into the U.S. and Americans into Lufthansa’s world network.
Interestingly, the other former member of World War II’s Axis, Japan, has a national airline, Japan Airlines, still so wedded to the flag carrier concept that it has been taking a beating. In the last six months it has been forced to cut back routes and lay off staff.
What does all this mean for travelers? Mostly, I think, it is good news. The old imperial system defended stitched-up routes and vastly inflated fares possible only when monopoly ruled. In the jungle that is the world airline business, the biggest also have to be the fittest, and they will wage endless war against each other, to the benefit of passengers looking for the best levels of service and value.
The U.S., in fact, is left looking like the last bastion of nationalism with a market still ludicrously ring-fenced against foreign competition.
Related links
Star Alliance: 25 of the world’s top airlines were lining up to welcome Continental Airlines into their fold
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