The Folly of the State-Owned Airline

Does every country need a full-service international airline?

If you listen to folks in South Africa, the answer is yes. And I’m not sure I blame them. Their national, government-owned airline is a mess, having lost money for six consecutive years. But few want to see South African Airways disappear. Heck, few even want to see it drop its Hong Kong flight, even though the airline’s CEO told me last week it does not perform well.

For a story published Tuesday, I asked South African’s new CEO, Vuyani Jarana, why the government is so intent on saving the airline. Wouldn’t it be better to close it and allow new entrants to fill the market? Maybe the new airlines wouldn’t fly to Hong Kong, but they’d likely fill the gap for short-haul flights. Isn’t that enough?

But he said it is not. A country like South Africa, he said, still needs a global airline, even if it’s state-subsidized.

“It’s the role SAA plays in South Africa and on the continent,” Jarana said. “It still plays a very critical role in moving people across the continent despite its own financial problems. Many people would say, ‘Well, the market would take care of this.’ But just with the size of SAA — from pure people movement — it’s not something the market could address overnight.”

What do you think? Should more governments let their national airlines fail? Or do nations have a vested interest in propping up carriers?

Let me know via email, at [email protected], or on Twitter. I’m @briansumers.

— Brian Sumers, Aviation Business Editor

Stories of the Week

Letting Troubled South African Airways Go Bust Isn’t So Simple. Here’s Why: One expert called South African Airways a “vanity project.” That’s probably accurate, because the carrier has lost money for six consecutive years. But the airline will survive, because the government wants it to. No one wants to see a national airline disappear.

Why Cathay Pacific Wants to Take On Low-Cost Carriers Without Creating Its Own: Cathay Pacific is another airline that is not performing as well as it should. It is struggling to compete against both low-cost and full-service airlines, including Mainland Chinese carriers. I asked Cathay CEO Rupert Hogg whether he would consider starting a low-cost carrier. For now, he said, the answer is no. “We are not set on sticking with just what we’ve got forever,” he said. “We’ll watch and see how that might suit. But there is a reality for us, which is that our airport is essentially full.”

EasyJet’s Packaged Vacation Push Won’t Be a Sure Thing: I’ve heard the vacation package business produces healthy margins, so it’s probably no surprise EasyJet wants a piece of this segment. But it’s a crowded market, so how much upside exists? My UK-based colleague, Patrick Whyte, takes a look at EasyJet’s chances.

High-End Airport Lounges Are Evolving to Fight Jet Lag as Flights Get Longer: I fly a lot. I spend a lot of time in airport lounges. And it strikes me that these jet lag-beating lounge amenities are nothing more than a gimmick. Yes, some lounges have spas, but there’s usually a waiting list to get inside. And yes, more lounges have healthy food and drinks. But there’s a problem. When they’re tired, most people go for the carbs, fat, and booze, no matter how many healthy snacks an airline puts out.

Marriott CEO on Tech Giants: ‘We Are in an Absolute War for Who Owns the Customer:’ This is a hotel story. But the situation is not that much different for airlines. “I think we are in an absolute war for who owns the customer,” Marriott CEO Arne Sorenson said. “It’s a long-term war, and ‘long term’ in digital space might be a few years.” Skift Senior Hospitality Editor Deanna Ting did a nice job with this piece.

Oil Prices Present Unique Challenges for Ultra-Long-Haul Routes: We’ll probably look back on the 2017–2018 period and ask, “Why were airlines so obsessed with 17-hour routes?” Fuel had been cheap for a while, and over the past two years more carriers were willing to take chances with frighteningly long stage lengths. But with fuel prices up, we might see a cooling of the ultra-long-haul market. Just last week, United Airlines trimmed its new Houston-Sydney route from daily to five times per week during low season.

Southwest Tries to Poach Customers Loyal to Other U.S. Airlines: This strategy is nothing new for major airlines. They all try to steal passengers from their competitors using lucrative frequent flyer promotions. But Southwest has played this game less often, because in the past, it wasn’t much of a competitor to Delta, American, and United. But times change, and Southwest apparently is betting it can play in the big leagues.

Keep in Touch

Skift Aviation Business Editor Brian Sumers [[email protected]] curates the Skift Airline Innovation Report. Skift emails the newsletter every Wednesday. Have a story idea? Or a juicy news tip? Want to share a memo? Send him an email or tweet him.

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