2010: the year of big changes in the airline industry
A lot happened in the airline industry during 2010. Several companies ceased to exist, others were born. Let's have a look at those we find the most interesting in our insight.
A flaming discussion took place in our office about choosing five notable airlines that had gone bankrupt last year. Which ones to leave out in order to keep the article in a reasonable length? Eventually, we managed to pick the following five. Do you miss a company here? Let us know.
Mexicana Airlines – struggling to reemerge
Mexicana's case is particularly spectacular as this carrier has been one of the oldest airlines in the world. Its presence on the market dates back to 1921. It appears as though neither long tradition nor good reputation are effective remedies against financial troubles because that is what quite literally clipped the wings of Mexicana.
It was in August 2010 that the Mexican carrier ceased its operations. However the story of Mexicana Airlines is far from over. There are ongoing talks with the company's creditors and the restructured airline is to reemerge on the scene. Since no details are so far available, the time will show whether this carrier manages to make its reappearance.
SkyEurope – low profitability
We are now heading to Europe, more precisely to Slovakia where the next on our list of failed aviation businesses had its headquarter. SkyEurope Airlines was a low-cost carrier which began its operations in 2001, filed for bankruptcy eight years later – in August 2009 – and suspended all flights with immediate effect.
That the company went bankrupt was not much of a surprise to many as it had not been profitable long before it was grounded. The last effort to stay afloat was an attempt to restructure SkyEurope but neither this nor the bankruptcy protection it received from the state helped.
FlyNordic – bought up and rebranded
If we go a bit further north on our aviation map, we come to Sweden which was the home to another collapsed airline – FlyNordic. What is interesting to note about this airline is that the number of names it used was inversely proportional to its relatively short history. This carrier which operated on the market from 2000 to 2008 was known as both Reguljair, Nordic East and FlyNordic.
Interestingly enough, the operations of this small airline continued undisturbed after Finnair, then the owner of FlyNordic, placed the company into bankruptcy. Now, while FlyNordic finally did collapse, it has not totally disappeared. In 2008 Norwegian Air Shuttle which today is the biggest low-cost carrier in Scandinavia today bought up FlyNordic.
Iraqi Airways – haunted by old sins
Now for the aviation story where financial troubles are interwoven with politics and where there is a war in the background. Iraqi Airways was Iraq's national carrier and one of the oldest airlines in the Arab world. In spite of its position, the company fell in 2010. Reason? Back in 1990 during the first Gulf War, Iraqi Airways committed what can be described a good old-fashioned act of privatizing and seized the aircraft and plane parts belonging to Kuwait Airways.
The aggrieved party did give up and its legal actions led even to the CEO of Iraqi Airways being held in London. Eventually the company was closed in 2010.
Viva Macau – revoked concession
Next on our list is a carrier from the Las Vegas of the Far East – Viva Macau. Even though the company was not quite free of pecuniary troubles, it is not the very reason of the carrier's problem.
Viva Macau had a sub-concession agreement with the biggest Macanese airline, Air Macau. This concession was suspended under governmental pressure on grounds that Viva Macau did not provide its passengers with due assistance in case of flight disruptions. Subsequently the carrier's air operator's certificate got revoked which resulted in Viva Macau not being able to operate in compliance with the law. The Viva Macau story is not finished yet as the legal proceedings are ongoing in the Macau courts.
Merged airlines – three huge deals
2010 was the year of big deals in the airline industry. World's largest airlines saw the light of day in America. In Europe a competition is growing for the traditional top industry players.
Southwest Airlines + AirTran – the lowcost merger
America has seen two huge acquisitions in the airline industry during 2010. Focusing on the low-cost market first, Southwest Airlines announced the purchase of AirTran in September. Nobody saw that coming. In this $1.5 billion deal Southwest is becoming the fourth largest airline in the US. When the merger is completed in 2012, the company will fly more than 100 million passengers out of 100+ airports.
Customers of AirTran Airways will benefit from dropping the baggage fees. Southwest will maintain its no baggage fees policy as it is an important lure for passengers. Industry analysts predict a possible increase in airfares due to shrinking competition. We’ll see about that soon.
Continental Airlines + United Airlines – world's largest airline
The biggest deal of 2010. The world’s largest airline was formed as United and Continental Airlines merged into United Continental Holdings. The transaction worth $3.2 billion was completed on October 1, 2010. Both companies will operate separately until after the 2012 operational integration.
The new network will be covering 370+ destinations, relying on 10 main hubs. George Bush Intercontinental Airport (IAH) is said to be the primary. In terms of fleet size, the airline will not surpass Delta, operating 709 aircraft (Delta currently has 725). There’s still very little known on the future of customer services. What will happen to the frequent flyer miles? Will the fees change?
British Airways + Iberia – cutting costs
Moving on to Europe. We have seen this coming for a while. British Airways and Iberia have been cooperating since 1998. In 2007 there was an unsuccessful takeover bid from BA. Subsequently, both companies agreed on a merger late 2009. The deal was completed January 2011 by creating International Airlines Consolidated Group. BA holds 55% ownership of the new holding company.
Both BA and Iberia are reporting heavy losses. The merger is a logical step towards reducing costs. The combined network will be covering 200+ destinations using 419 aircraft. This will allow to better compete with the European giants: Lufthansa and Air France-KLM. Externally, both brands will still operate separately. The next step: a transatlantic alliance with American Airlines ?
Jiří Parimucha, Feb 3, 2011
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