Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Nationalised National Airlines?

Written by johnleemk on 3:37:36 pm May 3, 2007.
Categories: ,

One of the trappings of national sovereignty for many countries is the national airline. Every country, be it Singapore or the United Kingdom or Malaysia or Qatar, must have their own flagship air carrier.

However, the poor service and high ticket prices in many airlines may be because of the fact that a substantial number of airlines in the world are national airlines. These national airlines are usually nationalised, i.e. run indirectly by the government through a government-owned company.

In other words, there is no incentive for these national airlines to buck up or improve their service. Because the government-owned company won't go under, it has no reason to step up its act if it is underperforming relative to other airlines.

Because these nationalised national airlines can afford to charge high prices for poor service, they also drag down the quality offered by non-nationalised airlines. These private firms will only charge lower prices than the national airlines, and offer better service, but this is all relative to the quality available from the national airlines.

If the national airlines were eradicated, and the market deregulated, the equilibrium price and quantity/quality of service would be lower and higher, respectively. This is because with the national airlines gone, the only frame of reference for competition would be other private firms, who are all charging low prices and providing better service — with the result that they have to compete even harder to gain customers.

However, is it politically feasible to shut down national airlines? For many countries, the national airline is a national symbol in itself, and a number of countries — Thailand and Singapore are two — have developed a reputation for excellent service in their national airlines. It would seem to be a shame to privatise these firms.

The United States is one of the few countries in the world without a national airline, but its airlines do not have a reputation for excellent service. Still, this is not an indictment of privatisation — the American airline market is an oligopoly, despite having been deregulated decades ago, and the main airlines are competing only with each other, so their frame of reference for good service and pricing is limited.

The Americans have also been trying to keep foreign competition out of the US airline market, mainly through laws banning foreign ownership of airlines. This has infuriated foreign entrants, especially Virgin, which have tried to bring up the standards of quality in the American market to global standards.

Still, should national airlines be maintained? If there is no other alternative course available, the answer has to be a grudging yes. However, this does not mean that national airlines should remain nationalised.

Effective privatisation means that the airline can remain funded by the government, but that the company which runs the national airline is not fixed. Because there is no monopoly on who runs the national airline, there is competition to see who can run the national airline most effectively.

The government contracts out the management and administration of the airline to the lowest bidder, so as to prevent the development of a monopoly. This way, the symbol of national sovereignty can be preserved without sacrificing efficiency.

Nationalised national airlines often end up as political footballs — and costly ones, at that. Malaysia Airlines has been a consistent money-loser for the country in recent years, to cite just one notorious example.

It is best to reduce direct government intervention in the market as much as possible — and privatising national airlines would go far to achieving this goal, with an end result of greater efficiency and better service.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.

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