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    • Sat Apr 12th 16:31 PM
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      Customer Omega for the Airlines
      Having traveled a lot in the US and Europe i think the basic problem is protectionism. Both US and continental European airlines have been far to protected for far too long. Chapter 11 bankruptcy protection and the ban on foreign ownership are blatant means of propping up failing airlines. Airlines in chapter 11 have only one desire- cashflow to survive. They don't care about profitability but about paying the wages next week. The result is that they cut prices to unsustainable levels to fill seats, resulting in unfair competition for airlines not in Chapter 11. Bankrupt airlines should be allowed to go out of business, reducing capacity and bringing supply and demand back into balance. People pay $199 NYC-LAX return because they can. A true free market would take away that option.

      Its not just in the US that this is a problem. Air France, Alitalia and other European airlines were subsidized by governments for years, keeping excess capacity in the air for far too long. The result is exactly as described in the blog. On routes with no low cost carrier, prices are ludicrously high. On routes where there is a LCC, the network airlines can't command a premium because they've cut all the extra service that would allow them to justify one.

      The model that works is the free market. In the UK, the emergence of the low cost carriers in the 1990s led to network carriers like British Airways cutting routes and capacity and positioning themselves as premium players whilst the likes of Easyjet and Ryanair took big shares of the mass short haul market. The result is that both business models work. BA is the world's most profitable airline by profit and Ryanair by margin. Meanwhile customers can decide whether they want value or service- but whichever they choose, the price is a sustainable one within the context of profit making businesses.
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