Airline mergers and competition policy
Today we heard of another instance of consolidation in the European Union aviation industry. Lufthansa has agreed with Michael Bishop, founder of BMI to up their stake in the UK airline from 30 per cent to 80 per cent by buying out Sir Michael’s own equity stake in the business.
Having acquired Swiss Airlines a while back Lufthansa continues to build a broader base for its operations, and in buying BMI it gains a well established mainly short-haul operator which has a significant number of scarce and hugely valuable landing slots from Heathrow. Lufthansa will emerge as the second-biggest carrier behind British Airways at Heathrow. Virgin has 3 percent of slots at Heathrow, the main airport for London; bmi has 12 percent and British Airways more than 40 percent. These land slots represent an important barrier to entry for airlines wanting the green light to expand their operations at chosen airports.
Just as a few weeks back, when the government nudged Lloyds TSB into mating with embattled bank HBoS, at times of great economic and financial uncertainty, many mergers and takeovers are born of necessity rather than excessive optimism.
And this creates a possible headache for the Competition Policy authorities who must make a judgement about whether to allow the integration to proceed without intervention or insist that the newly enlarged business divests some of their operations to ensure that the markets remain competitive.
When the survival of a business is at stake and with it thousands of jobs, are the competition authorities more inclined to turn a blind eye? The answer is probably YES and there will be many more mergers in the airline industry before the current economic crisis is over.
BAA faces break up after Competition probe
Michael O’Leary, CEO of Ryanair has called it the ‘best decision in the history of aviation ever.’ Colin Matthews, Chief Executive of BAA has slammed it as ‘flawed’. The Competition Commission has delivered a report which suggests that BAA should see three of its UK airports including two in London and one at either Edinburgh or Glasgow.
Cross elasticity: High speed rail and oil prices
Forget a third runway at Heathrow, we need another Terminal at St Pancras! That is the message from Carl Mortished in his world business briefing in the Times this week. Demand for hi-speed rail services is soaring as people desert short-haul flights in response to the fuel surcharges and hassle of getting through security. Traffic growth on Eurostar has increased by over a fifth in the first quarter of 2008 and revenues are up by more than 25%. Consumers are realising the advantages of travelling by hi-speed rail for cities 600 miles or less apart. His article is here:
High-speed trains seize short-haul market as fuel cost cripples the airlines
A new era for air travel
Today marks a momentous triumph for competition over protectionism. Anti-competitive practices dating back to the 1944 Chicago Convention will finally be scrapped for the new Open Skies agreement between the European Union and the United States. Currently, only British Airways, Virgin Atlantic, United and American Airlines are legally allowed to offer direct flights from Heathrow Airport to the US. But after the deregulations of transatlantic air travel, the market will at last be open to competition from challengers.
read more...»Economics: Sunday Paper Selection
David Smith looks at the performance of the UK economy over the last fifteen years referencing a work published alongside the Budget Report last week: Resilience in the UK and other OECD economies
Jeff Randall writing in the Telegraph argues that “the unwinding of the Great Debt Delusion still has a long way to go and many more victims to claim.”
Will Hutton on a a deluded Wall Street threatens the world economy
The Mail on Sunday has a stunning aerial photo of Heathrow Terminal 5 - superb for using when teaching economies of scale and the law of increased dimensions!
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