August 18, 2014 in Daily Bulletin
The Economist took a look at state airlines:
- Even before the recent disasters Malaysia airlines was no different from most other state airlines in its struggles to be profitable.
- Countries got into the habit of keeping state airlines because they were believed to be an important part of a country’s transport infrastructure.
- However in an era of low cost carriers and competitive management, state backed carriers have failed to adapt.
- This is because they are usually run with political motives in mind. Government cronies are appointed to manage the carriers and planes are forced to serve unprofitable routes.
- They are also hamstrung with rules such as free rides for politicians.
- Meanwhile they face higher costs than other airlines as they are usually too small to negotiate good prices on aircraft.
- In addition to the bad press associated with firing thousands of workers, some politicians fear that shutting down state airlines will cause vital connection to other countries to disappear.
- However countries such as Switzerland and Belgium indicate that the absence of an airline does not harm a country’s prospects.
Read about the bailouts that debt ridden Italy had to provide its airline, why Greece’s Olympic airlines was forced to deliver newspapers, and why abandoning state airlines might make countries better connected to the rest of the world over here.
Source: The Economist