February 16, 2015
Irish politicians were almost unanimously delighted to abandon our national currency and join a currency of countries with which we do modest trade and with whom we have almost no traditional demographic links. These same politicians appear to be unwilling to sell their bit of our national airline to the one carrier that makes commercial sense.
Why is this?
Why would you wholeheartedly give away the currency – which affects everyone’s lives profoundly – to Germany, yet fight tooth and nail for a national carrier because it is being bought by a British carrier? This despite the fact that Britain is our most significant economic, social and cultural partner and Irish visits to Britain and vice versa are the single biggest source of air traffic?
Would there be a similar level of local opposition if the buyer were German? Just asking!
If Aer Lingus is to be sold to anyone, we all know that BA is the obvious partner.
Don’t get me wrong: I love flying Aer Lingus and I get a real feeling of coming home when I fly back to the country on Aer Lingus. For years, Aer Lingus was, in my head anyway, synonymous with home. It still is, but given what is happening to the global airline business, it is hard to see the future for the company without the significant balance sheet, access to cash and access to routes of another bigger carrier. That is just the way the airline business is going.
Maybe the best way to safeguard Aer Lingus is to sell it.
Before I come back to that substantive point about the future of the airline and the trends in the airline business, it might be worthwhile addressing briefly the concept of the ‘national interest’.
For some 1950s reason, airlines are the property of the national project. By this I mean that in many people’s imaginations, proper countries have national airlines – yet, given the way we embrace Ryanair, we like the idea of a national carrier but are quite happy to fly with anyone! Patriotism alone isn’t enough to secure Aer Lingus’s future.
We don’t think this way about cars, or trains, or even shipping.
National airlines are an industrial fetish, a bit like the economic equivalent of Fifty Shades of Grey.
The plain vanilla commercial reality is that, unfortunately, it is not who owns them that determines whether they thrive or not, but how many choose to travel with them.
So the national interest is whether the airline has a solid future.
Think about it from another perspective. Many people continue to argue that “we need links to the outside world” and therefore having a domestically-owned, or at least part domestically-owned, national carrier is essential.
Why should this be?
Has it ever crossed your mind that Ireland became an exporting and trading phenomenon without a national shipping company, yet the vast majority of our trade goes by sea?
This is because we don’t need the hyper-nativist approach to transport or economics. Many shipping companies use our ports. They are competitive, they do the job and do you have any idea what they are called? Do you care? The same goes for air transport. You don’t need a government-controlled airline to be a normal country plugged into the world; nor do you need a government-controlled shipping company to be a trading economy.
Once we appreciate this fact, it’s easier to see what is in the best interest of Aer Lingus, the company and its staff. The single best underwriter of Aer Lingus will be the number of passengers.
We have seen unambiguously that people are travelling in a totally different way these days. The main beneficiaries in Europe are the low-cost airlines. Even today, people think of Ryanair as the upstart and Aer Lingus as the incumbent, and yet Ryanair will carry 90 million passengers to Aer Lingus’s nine million. The upstart is ten times bigger than the old hand.
Even BA, a company indelibly linked with British air travel, is only the third biggest carrier in Britain, behind Easyjet and Ryanair. In fact, Ryanair’s ambition is to grow to 150 million passengers by 2020 and next year to knock Easyjet off its number one perch across the water. Ryanair is three times bigger than BA and 30 per cent bigger than German giant Lufthansa.
If you look around Europe, you see that low-cost airlines are the only ones really growing in Europe. What this tells us is that the low-cost model of airline travel is winning. Ryanair has spawned copycat airlines such as Norwegian, Pegasus Airways, Wings and Wizz, all challenging conventional carriers. The future of mass-market air travel in Europe is low cost. And the trick the low-cost carriers stumbled upon is a bit of consumer psychology that we never thought about: people don’t so much travel to destinations as travel at a price – and if you make the price low enough, people will take a chance.
What does Aer Lingus do in this context?
It is a small carrier much like SAS, LOT and Finnair. Its growth is constrained by the national market. The national markets are not growing in the mid-price section and the national populations aren’t growing either. Therefore, it has to figure out another strategy.
The smaller national airlines above all talk about having an Asian strategy – tapping into the only mid-priced market that is growing, namely Asia, by flying Asians to and from Europe using their national airports as hubs. This seems to be a pretty crowded market and it also strikes me as a ‘me too’ strategy.
Looking at Aer Lingus, for years the idea was that Aer Lingus would use its slots at Heathrow to propel Irish people out into the great world. However, Heathrow isn’t the only hub in the world. There are plenty of others. In fact, tying Irish travellers to Heathrow because you want to preserve the ownership structure of the company is strange bit of logic.
This is made all the more odd when you think that the company that wants to buy Aer Lingus is BA, the dominant player in Heathrow. As long as the routes are busy, where’s the problem? Aer Lingus is also being promised by BA that nothing will happen to the slots for five years. Would another suitor promise this?
Then, you think, if it is unlikely that Aer Lingus remains on its own for long, who would be a better suitor? Maybe there is one, but it doesn’t look like that to me.