What Europe's Airlines Really Need
Europe's airlines are hitting turbulence, shaking up the ill-conceived government policies keeping them in the air. While the U.S. is moving toward three or four big airlines, the Old World remains stuck with more than a dozen, mostly money-losing carriers, who stay in business more out of national pride than economic sense. The latest airline to hit rough skies is Belgium's Sabena. It faces losses this year of almost $350 million. If it had any courage, the Belgian government, which still owns 50.5% (Swissair owns the rest) of the airline, would ground this mess. Instead, provided unions cooperate, it will probably continue to pour in more taxpayer money to keep Sabena aloft.
If Europe is to be a true single market, it must accept the creation of three or four Continent-wide, globally competitive airlines. They would probably be centered around Lufthansa, British Airways, Air France, and perhaps KLM. European regulators should encourage this consolidation by outlawing the type of aid the Belgian government is proposing for Sabena. Of course, regulators should make sure that a wave of mergers doesn't hurt consumers by squeezing off competition. Low-cost airlines such as Ryanair and easyJet must have access to slots at congested airports. And to ease crowding, a single European air controllers' agency should be created.
Another important move would give the European Commission in Brussels the power to negotiate a single Open Skies treaty with Washington. At present, national governments negotiate individually. Rights for airlines to fly between the Netherlands and the U.S., for example, cannot be used by non-Dutch or non-American airlines. This was an important reason behind the collapse of British Airways' bold effort last year to buy KLM. It is time for European governments to encourage market forces, not subvert them.