The bloodbath begins.
Troubled Italian airline Alitalia may start grounding flights today, amid growing concerns about the impact of fuel prices.
The possible collapse of Alitalia has come after thousands were left stranded by the collapse of XL Leisure Group and experts have warned that other airlines face failure because of the credit crunch.
Over the weekend Germany's Lufthansa moved to take over Brussels Airlines (formally Sabena), purchasing a 45 percent stake for $91.4 million, the companies said Monday.
Previously the German carrier took over Swiss International Airlines.
The crisis at Alitalia and Brussels Airlines came after British Airways chief executive Willie Walsh warned that 30 more airlines could go bust before Christmas in an interview with the Irish Examiner.
Walsh believes that this is the worst trading environment that the industry has ever seen.
"We have already seen 30 or so airlines go bust this year and it would be fair to expect a similar number of casualties worldwide over the next three to four months," he said.
"This industry is in crisis -- a deeper, more protracted, more fundamental crisis than 9/11, the Gulf War or any of the previous shocks that have beset the industry since the age of mass air transport began in the 1970s."
"This is a difficult trading environment and some of the airlines that we have become used to will not survive," he warned.
Airline mergers are never good for the traveling public.
The bosses always do what's best for the airlines, and the public be damned. Travel is going to be even more of a nightmare than it already is.
And it's going to cost passengers more money in the long run.
The world is heading for a two or three airline cartel, which will then systematically eliminate all remaining carriers opening the way for astronomical price hikes.
Economics 101: Less competition means higher prices, decreased customer service, crowded flights, and serious disruptions in the event of labor disputes or maintenance issues.
As a result, of mergers and bankruptcies, competition in dozens of cities will disappear and there will be increased pressure on existing airline passengers because of fuller planes and higher prices.
When major airlines eliminate competition from a specific city, prices are higher. A report issued a few years ago by the Department of Transportation found that in dominated hubs, passengers paid, on average, 41% more than their counterparts in markets with low-fare competition.
When a single carrier dominates a market, bad things happen. Travel managers and the traveling public have no bargaining power, planes are always full, and service deteriorates.
Without competition, airline giants will hold the traveling public hostage.
This kind of predatory behavior is why new airlines have such a difficult time breaking into a market.
This latest merger frenzy is driven by $100-a-barrel (plus) oil which none of the carriers predicted -- or hedged for. Fuel is the largest item on an airline balance sheet. Over the last year the large airline stock prices have dropped an average of 50%, battered by high oil prices and exorbitant debt which they can't afford.
The larger players Lufthansa, British, and American have access to the credit markets (and government help) and are using this opportunity to gobble up weaker stuggling competitors
One Caveat, the new Open Skies Treaty, which allows increased access to American cities for foreign airlines, holds some promise for international flights, there's little hope for domestic flights. Airlines already charge practically identical prices through secret computer signaling.
Government supported, virtual monopolies should not be allowed to crush their competitors. Our free market economic system is built on competition. If airlines want to increase market share, the big guys should have to earn it by winning the business and loyalty of their customers, not by gobbling up competitors or driving them out of business with cutthroat pricing and government loans to cover up bad business decisions.
22 Airlines have already closed so far this year:
Airline-------------------Country---------------Existence------------Employees
Futura Gael-------------IRE---------------------1989-2008-----------------90-----XL------------------------GBR--------------------1994-2008-----------------1,700-Zoom--------------------CAN--------------------2002-2008-----------------600----Oasis---------------------HK---------------------2005-2008-----------------700----Skybus-------------------USA--------------------2007-2008-----------------450----Silverjet----------------USA---------------------2006-2008-----------------420----ATA Airlines------------USA---------------------1973-2008-----------------2,200--Aloha Airlines----------USA---------------------1946-2008-----------------2,000--Champion Air----------USA---------------------1995-2008-----------------750-----Air Midwest------------USA---------------------1967-2008------------------3,000--Boston Maine----------USA---------------------1999-2008------------------250-----EOS Airlines-----------USA----------------------2004-2008-----------------100-----Maxjet------------------USA---------------------2003-2008------------------200----Bigsky------------------USA---------------------1978-2008------------------500----Skyways----------------USA---------------------1994-2008------------------1,000--Nationwide------------USA---------------------1991-2008------------------800----LAB Airlines------------BLV---------------------1925-2008------------------1,000-Aerocondor------------PRT---------------------1984-2008------------------90----Gemini Air Cargo-----USA---------------------1995-2008------------------200----Euromanx--------------GBR---------------------2002-2008-----------------100-----
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