Distressed State Airline Syndrome

Question 1

Airlines

Answer 1

As a result of deregulation, airlines are subject to competition laws
Massive political interference

Question 2

ASAs and Pooling

Answer 2

1949 - 238 ASAs
1951 - 363 ASAs
BOAC developed routes on a pool basis together with competitors with IATA maintaining fares

Question 3

DSAS Symptoms - Doganis 2006

Answer 3

Doganis created the phrase Distressed State Airline Syndrome

Main symptoms:

1. Substantial and enduring financial difficulties
   - Inefficient, lots of debt accumulated over years
   - Slow to respond to the changing industry
   - May inherit beneficial contracts for oil, landing fees etc
2. Political Interference
   - No consistency
   - Over-politicised
   - Rather than ensuring commercial success, may be to gain political gains
   - Routes flown which are unprofitable, fares are dictated by the government
3. Trade Union
   - Can be powerful
   - Influence decisions to the detriment of the survival of the airline
   - Alitalia - unions went straight to government to pressure management to back down
4. Overstaffing
   -Power of unions can lead to under productivity/over staffing
   -Harder to take back concessions/fire staff
   Aer Lingus - cut staff by 1/3 and still operate the same level of traffic
5. No clear strategy
   - No development strategy - dictated by politicians
   - Government policies reflect their handling of a state airline - a way of “showing the flag” - over extended network, unprofitable routes
   - Strategic mistakes may be more frequent - Iberia investments into Latin American Airlines in the 1990s
   - Re-equipment can be delayed = ageing fleets, higher operating costs, wrong aircraft on routes flown. Too many different types of aircraft = higher crew costs/maintenance costs
6. Bureaucracy
   - Bureaucratic, over-centralised management
   - Over-staffing, frequent management changes, political change/interference
   - Top-down decision making = ineffective and poor
7. Poor Service
   - Poor service due to under productivity, strong unions, over staffing
   - No service culture
   - Not customer oriented
   - Slow to adopt new ideas
   - Pricing strategy slow to respond to the market
   - State airlines can lose market share as a result of all this