Home' Trinidad and Tobago Guardian : August 21st 2014 Contents AUGUST 2014 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG29
appeared over the Indian Ocean
and MH17 was shot down over
eastern Ukraine. But these tragedies
merely hastened the struggling air-
line on its route back into full gov-
On August 8, the country s sov-
ereign-wealth fund offered to buy
the 30 per cent of shares in private
hands in order to restructure the
The root cause of Malaysia s
troubles should elicit far less pity.
Like many national carriers, it was
losing money as a matter of course.
Malaysia s is not the only gov-
ernment that persists in keeping
rickety airlines in flight.
Italy raided the state s coffers
again last year to keep Alitalia going.
Then, on the day of the Malaysia
bailout, Etihad, the flag carrier of
the United Arab Emirates, agreed
to inject a further 560 million euros
(US$750 million) into Alitalia in
return for a 49 per cent stake.
A restructuring plan agreed at
the end of July will keep Poland s
LOT in business---in return for $200
million of taxpayers cash.
The drain on public funds has a
long tradition. Airlines used to be
regarded as a vital part of transport
infrastructure, like roads or bridges.
So, until the mid-1980s, govern-
ments owned most of the airlines,
set fares and routes, and protected
flag-carriers by restricting new
But privatisation made air travel
more competitive and liberalisation
brought competition from low-cost
carriers. Most airlines in state con-
trol have failed to adapt.
The exceptions are few.
The thriving airlines of Singapore
and Ethiopia, and the Gulf carriers,
Etihad, Emirates and Qatar Airways,
all benefited from government
money but have been allowed to
operate as commercial enterprises
with minimal interference.
Such entrepreneurial thrust is
rare. Elsewhere, inexperienced
cronies often dominate manage-
ment. State employees frequently
Many carriers are obliged to
maintain loss-making domestic
routes to please politicians. Olympic
Airlines was forced to deliver news-
papers for a pittance to keep the
country s press barons happy. The
Greek national carrier went to the
wall in 2009.
Poor management, overstaffing
and strong unions have left airlines
struggling in a changing business
and with little hope of cost-cutting
Small state-owned carriers have
little clout when buying planes and
are far down the pecking order in
global airline alliances. So why do
governments keep their flag carri-
Partly because there are few
options beyond an endless cycle of
Privatisation plans are plentiful,
but rarely succeed because heavy
losses, debts and legacy costs
frighten investors away. It is cheaper
to start an airline from scratch.
Saviours such as Etihad are as rare
as an on-time departure from Bei-
The political cost of turfing out
thousands of state employees
makes liquidation unpalatable.
So do fears that vital connections
to the world will be lost forever.
These, in fact, are largely unfound-
ed.Switzerland and Belgium have
done without a flag carrier for
years. Indeed, opening up to com-
petition is likely to result in more
flights and lower fares.
But even in death, protectionist
urges are strong. Zambian Airways
was liquidated in 2009 but the gov-
ernment refuses to let foreign air-
lines use Lusaka as a hub, in the
unlikely event that the airline will
one day fly again.
@2014 The Economist Newspa-
per Ltd. Distributed by the New
York Times Syndicate
Governments keen to keep
loss-making airlines aloft
The thriving airlines
of Singapore and
Ethiopia, and the Gulf
Emirates and Qatar
Airways, all benefited
money but have been
allowed to operate as
Schoolgirls pray next to a sand art sculpture created by Indian sand artist Sudarshan Patnaik to pay tribute to the
passengers and crew onboard the missing Malaysia Airlines flight MH370, on a beach in Puri, in the eastern Indian
state of Odisha, March 25. REUTERS PHOTO
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