The sick of Europe

It can be quite interesting to view the health of a country’s economy through the results of its flag-carrier. An airline is unlikely to make large profits if its home economy is doing badly and, if an airline is losing money due to some bad habits (over-staffing, corruption and simple bad management) then it is highly likely that those same traits extend to other businesses and government itself. The airline business is a pretty perilous one at the best of times so problems will probably surface in an airline well before the country itself is aware its own economic mess.

In Ireland, Aer Lingus hit the financial skids well before the country itself lost its Celtic Tiger label. Interestingly, whilst the airline is still not completely out of the woods (how could it be with the Irish economy in the state that it is?), it has done much of the hard work to give it a decent platform to stay in business.

The bankruptcy of Olympic came well before the fall of Greece and anyone who saw the fantasy accounting, gross over-staffing, political cronyism and outright corruption that went on at that airline can hardly be surprised that the rest of the country’s institutions were in a similar state. Did those who kept lending money to Greece really believe that Olympic was some sort of aberration and the rest of the country was run on sound principals?

Iberia’s problems were spotted before the Spanish banking crash and the airline has started to make the serious adjustments necessary to survive in the 21st Century. Ironically, the management of International Airlines Group will probably find it easier to push through the measures needed because the rest of the country is in such a poor state. Ordinary people will not have much sympathy for pilots or cabin staff who have been earning much more and working less than their colleagues in other countries.

Which brings us to France. Air France has finally acknowledged it has a problem and must seriously cut costs. Unfortunately, I doubt that the cuts are big enough to solve even the situation as the airline sees it at the moment. Air France remains heavily “helped” by the government in all sorts of ways that its competitors in other countries are not. If this financial support were stripped away, the airline is in a much bigger mess than it acknowledges now. 

And what about Lufthansa? On the face of it, Lufthansa is highly successful but there are some worrying signs. Its passenger service on longhaul has been well below the level of its competitors for many years – only now are they introducing longhaul Business Class standards that BA and Virgin had at the turn of the century. The company has lost large sums on ill-conceived acquisitions in Europe. The fiasco over the new Berlin Airport has been heavily downplayed in Germany and compared to the issues faced by Heathrow Terminal Five. Delaying opening by a year, with only a few weeks notice is on a totally different level of cock-up to T5. The Berlin farce will cost well over a billion Euros in extra operating costs alone. Air Berlin was swift to demand compensation but Lufthansa has been rather quieter on the subject – as a tacit acknowledgement of how much support the airline still receives from the state. New management at Lufthansa seems fully aware of its current weaknesses and is working to address them.

So, looking into the crystal ball, what does the current state of the airlines suggest about the economies of Europe? 

Spain – in a serious mess, but at least they acknowledge it and are doing their best to get out of it and will probably succeed.

France – in a much, much worse state than currently accepted.

Germany – sound but not without some issues and not quite as rosy as seen from the outside.