Call for 'one last subsidy' as airlines head for sell-off

BY RUSSELL HOTTEN

Airline subsidies are back on the agenda as Neil Kinnock, the new European Commission transport head, faces intense lobbying over Spain's plans to pump £700m into Iberia.

It is the latest in a long list of battles over governments' attempts to defy the laws of economics and prop up their loss-making state airlines. Iberia and Air France have in the past promised that all they need is just one more cash injection to solve their problems. But there are good reasons to think that promises of "one last time'' are worth something this time.

The European airline industry is about to undergo massive change, and last week's news that Swissair is to invest in Belgium's Sabena, and that American Airlines is considering taking a stake in Iberia only underline the turbulence engulfing Europe's air industry.

The UK government and private-sector airlines such as British Airways and Sweden's SAS complain that last year's subsidies to Air France and Greece's Olympic Airways distort the market, and are against the European Union's free trade laws.

But their opposition often has little impact in Brussels, where wider economic issues and trade-offs between member states have to be considered. Seeing the subsidies issue as just a case of pumping taxpayers' money into lost causes is too simplistic. Air France, Alitalia and Iberia are being asked to undergo radical surgery to bring them back to profitability.

European governments may once have been able to afford to keep loss- makers in the air in order to sustain national pride and avoid the political fall-out of big job losses. But those days are over and in Paris, Rome and Madrid there is a growing belief that eventually market forces will have to decide.

France and Spain, which are carrying massive budget deficits, are asking for one last subsidy to help restructure the airlines before they are spun off into the private sector. And at Alitalia, the state holding company, IRI, has refused to provide fresh funds, leaving the airline to tap the capital markets.

The real concern of BA and British Midland is not that Air France may be breaching European trade rules, but that they are going to face a revitalised competitor which they would rather see fail.

In 1997 the skies over the European Union will be deregulated, giving virtual free access for airlines to fly anywhere, a move that will create war between the airlines.

The airlines have been jostling for position for some time, through a rush of alliances and partnerships such as BA's stakes in German and French operators and United Airlines' link with Lufthansa.

Some in the airline industry fear that deregulation will create a bloodbath similar to that seen in America in the 1970s. However, while deregulation in Europe is going to create a tough market, there are good reasons why the consequences will not be as severe as in the US. There are important differences between Europe and the US: geography and demographics, and competition from other forms of transport, such as Eurotunnel.

Nevertheless, the intensity of competition likely to take hold later in the decade means there will be casualties. And with more European airlines set to fall into private ownership there will be less political incentive to bail out the weakest.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower