Simon Calder: Ignore all these chauvinistic howls of horror

'These unfair subsidies are keeping afloat airlines whose raison d'être is ego, not economic'
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The Independent Online

Swissair and the pound – what do they have in common, besides £1 being the approximate current value of the Swiss national airline? Plenty. The same chauvinistic howls of horror that the Save the Pound campaign employs have been echoing around the Alps. How could an icon of state prestige such as ... (insert name of local currency or loss-making airline here) be so cruelly lost to the nation? Because we now live in a global 21st-century economy, that's how.

Emblems can no longer be preserved for reasons of national self-interest alone. There may be a plausible economic argument for maintaining a national currency, but there is no economic case for running a national airline with a cost base the size of the Matterhorn – or, in the case of the Belgian carrier Sabena, debts that are bigger than a Eurocrat's expense account. In the 20th century, it was seen as every European nation's right to run an international airline. From Aer Lingus to Olympic Airways, from Air Portugal to Finnair, carriers have been established in countries with populations lower than London.

From small bases grew big ambitions: no need to stop at domestic or regional flights when the skies of the Americas, Africa and Asia beckon. This winter, Olympic Airways, the most habitual loss-maker of all, will take you to Australia and back in business class for less than £1,500 return, courtesy of endless subsidies from the Greek taxpayer and, it is whispered, European regional funds via roundabout routes.

I have luxuriated aboard an Olympic jumbo with just one in 10 of its seats occupied, and jolly good fun it is too. Every passenger enjoys an entire row on which to stretch out. But the longer such economic nonsenses persist, the more the market is distorted and the poorer the rewards for airlines that seek to function as profit-making entities rather than phenomenally expensive vehicles for flying the national flag.

The British airline industry is kicking up a fuss about unfair subsidies to keep afloat carriers whose raison d'être is ego, not economic. It has a strong case. But Europe also needs to unravel the tangle of restrictions whose prime purpose is to stifle competition – from which several UK airlines benefit directly.

Since 1997, Europe has, in theory, enjoyed open skies. Any airline from any EU nation can fly to, from or within any other EU country. The Irish carrier Ryanair, the biggest no-frills airline in Europe, has profited hugely from this freedom. But its speciality is flying to places you didn't know you wanted to go. Low-cost airlines are in effect locked out of Heathrow – the world's most desirable airport – by a shortage of slots. Authorities in France, Germany and Italy, the low-cost airlines claim, restrict access to the major airports to protect their national carriers.

Once you look beyond the borders of Europe, the skies get even foggier. Take the busy route from London to Warsaw. Anyone wanting to fly between the British and Polish capitals can choose between British Airways and the Polish carrier Lot. When the main rival is the Eurolines bus from Victoria coach station, which takes 24 hours to cross northern Europe to Warsaw, driving down air fares and taking on the competition is not top of either airline's corporate priorities. No-frills airlines could cover the ground for a lot less than the £150 base fare that has prevailed for the past 30 years, but bilateral agreements prevent them.

British Airways and Virgin Atlantic are grumbling loudly about the $15bn aid package that their American rivals stand to receive from Washington. But they are less vocal about the iniquitous Bermuda II agreement between the Untied States and the United Kingdom.

These two governments have connived to maintain a treaty that permits only BA, Virgin, American Airlines and United to fly from Heathrow to destinations in the US. One reason these airlines are hurting so much now is because of a fall in sales of the artificially high fares fostered by this cosy oligopoly. Had a free market prevailed before 11 September, they would not be squealing so much now.

The sight of stranded passengers at Zurich airport will deter some travellers and the loss of a Russian jet will scare away others, but yesterday evening at easyJet's headquarters in Luton, the phones were humming and six out of every seven seats were filled. The emergence of an airline industry that delivers good value will ultimately mean more tourism, not less.

Bloated, jumbo-sized business models, which might have worked in the highly regulated 20th century, need overhauling and downsizing – starting with expensive city-centre store fronts. Yesterday, I took a walk through airline country in central London, past the opulent offices of Malaysia Airlines, Korean Air and Air Malta to the Swiss Centre, which until recently hosted Swissair.

Goodbye Piccadilly, farewell Leicester Square. It's a long way to a windswept warehouse on the fringe of Stansted airport, but the future of aviation lies there.

simon.calder@independent.co.uk

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