Why governments shouldn’t own Airlines

Over the last 30 years have the airline industry went from national Airlines operated with country based hubs to international companies with global hubs. The big countries have an advantage because of their home market, but all the traditional airlines have had challenges when they have been privatized. This has changed the market. The possibility of growth has given great completion, and the openness has given new companies the possibility to start flying. New companies has a different cost structure, and with focus on low cast travel companies like Ryanair, EasyJet and Norwegian as grown from marginal companies to big players. This completion is healthy for all players. The strongest will survive – as the customers will prefer the company that offers the most for the lowest cost the costly premium companies will need to really need to keep their premium image to keep their travelers. If the expectation becomes low quality, the only way to stay in business is to change the expectations by investing in service, or my drastically changing pricing. Low cost has an impact to the baseline of the company. If you change your income, and not your cost base – you’ll spend more money than you earn. This is not something owners will accept over time. And here is the problem with governments like the Swedish, Norwegian and Danish that owns Scandinavian Airlines (SAS). They put more money into their company changing the market conditions. If it is legal is one aspect, but basically the governments spend tax money to keep some legacy company in business – making privately financed firms suffer. Let us compare this to something else.

You own a DVD-store. Your business is going great. But the government decide that there should be sold more “not-very-interesting”-movies from some small boring town because of some culture or local political agenda. So they decide that they will open a store next to yours to sell this “not-very-interesting”-movie. The appointed store manager can market heavily for this product that isn’t in directly completion to your products – but he decides that he will please his manager by increasing sales – and starts to sell DVDs from the same selection as you. Having covered all the fixed costs (store, staff etc) the price on the DVDs is lower than yours – and you end up closing your store because you can’t compete with somebody that doesn’t need to earn money.

How can privately owned companies stay in business if they are constantly competing with somebody who doesn’t need to earn money? The dynamics in the market is wrong. The government should sell their stocks, and ensure that there is healthy completion in the market place. Because if they keep up subsiding they’ll end up with some companies that don’t feel they need to be attractive for consumers – because they will be saved if they don’t manage the competition. And everybody loose.