| Consolidation |
20 October 2003
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Air France-KLM Make a Good Deal for All
Air France bought the Dutch national carrier, KLM, for about $950 billion last week. The French as arranging a holding company structure to let the KLM brand continue (a wise move), and if regulators are wise, they'll give this merger the nod.
A national airline has always been a matter of pride, and it has been this nationalism that has prevented Europe's carriers from the consolidation that they need. The simple fact is that there are far too many airlines on the Continent if every country has its own. Even allowing for a shared system like the Scandinavian countries have with SAS, Europe has too much air capacity that is far too spread out.
Usually, this journal is suspicious of the amalgamation of power, whether political, economic or social. In this instance, though , the system demands this sort of deal to keep the planes that do fly profitable. If the price of a healthy airline industry is the end of an independent Dutch airline, all of Europe benefits by this.
Consumers, of course, may see somewhat higher airfares as the competition is reduced. However, these are the same individuals who, as tax payers, have so often been asked to bail out the uncompetitive airlines. Saving a little money in the left pocket by paying out a lot from the right pocket is not really a savings.
KLM was one of the world's better airlines -- clean, efficient, friendly, dependable. Air France wisely has chosen to keep that image, and as the French airline bids good-bye to its Concorde, this kind of branding is important to maintain. There are more such deals waiting to happen, and it is necessary for this part of the market function to breeze through the regulators.
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