Liberalization on The Horizon :The Effect of Airline Mergers on Passengers

Although the advantages of mergers for airlines have been thoroughly analyzed, one fundamental question has been neglected : What is the impact of airline mergers on passengers? Do the admitted virtues of economies of scale and scope translate into better passenger service? Or, does service deteriorate and, more seriously, are passengers put at risk through safety problems inherent in the merger process itself?

Last September, Neelie Smit Kroes, the Dutch Minister of Transport, set out to find answers to those questions, particularly as they applied to Europe. To conduct the study, the Minister turned to IFAPA, as an organization representing passenger interests, and IFAPA, in turn, called upon McGill University in Canada and the International Institute of Air and Space Law in Leiden, the Netherlands, to provide back up research. The report, published in June, contained some intriguing findings.

Overall, the report gives high marks to mergers : 'Mergers can have a positive effect on passengers if certain safeguards are applied,' it maintains. Geoffrey Lipman, IFAPA's executive director, explains: 'We saw some good points flowing from mergers : improved connections, better choice of flights, more attractive frequent flyer programs.' And he sees a political imperative as well: 'You cannot argue, as IFAPA has, that airlines should adapt to a more competitive environment and at the same time deny them the tools to do the job.' In Europe, that means allowing airlines to get together so they can better compete internationally, particularly against the American mega-carriers, which can use their huge domestic feed and sophisticated CRS systems to channel heavy traffic flow onto North Atlantic routes and perhaps onto intra-European routes as well.

Having taken a positive view of mergers, the report set out to advise Europe on how to make them work. To do that, it suggests attacking one of the fundamental conundrums in European air transport: national ownership of airlines. Specifically, it calls for EC rather than individual country ownership of European carriers.

That could prove a tough nut to crack. Europeans have been fiercely nationalistic about their airlines, which have been seen as symbols of national virility and prestige. Even the UK government, supposedly the most market-oriented in Europe, threw up repeated obstacles to the SAS takeover of British Caledonian, largely on grounds that the Scandinavian carrier wasn't British enough.