USA Today’s Today in the Sky had THIS story about US and European airlines no longer being the biggest airlines.   The criteria is based on market capitalization and it said:

Citing the airlines’ market capitalization values, IATA says they are Air China ($20 billion), Singapore Airlines ($14 billion), Hong Kong’s Cathay Pacific ($12 billion), China Southern ($11 billion) and LATAM ($11 billion). LATAM is the holding group for the recently announced merger that would combine Chile’s LAN and Brazil’s TAM airlines.

Let’s take a look at this.  First, it’s notable that none of these airlines (with the possible exception of Singapore Airlines) plays in very competitive home markets and all (except for Singapore Airlines) receive forms of market protection and support from their home governments.  Further, each of these is able to buy aircraft and finance these purchases through low cost financing being provided by import-export banks.   Finally, all of them benefit from relatively inexpensive labor compared to other parts of the world. 

Market capitalization really doesn’t mean much in terms of size except for how people are valuing the company.  It is the value of a share of stock in the market place times the number of shares out standing and often market caps are distorted by individual owner perceptions of the company and the market it plays in.

Some like to measure airlines by fleet size or the number of markets it flies to but each of those measures can be distorted too.  Are we to equate a fleet of 250 regional jets with a fleet of 250 mainline aircraft?  Similarly, is an airline that flies to 50 markets with one flight a day going to be the same as an airline that flies to those same 50 markets 5 times a day?

A far better measure would be revenue passenger miles.  That is the number of passengers times the number of miles the airline flew those passengers.  In other parts of the world, the measure is revenue passenger kilometers but it is the same measurement. 

By that measurement, European and US airlines continue to dominate the world’s airlines.  They also enjoy a wider mix in their fleets and tend to travel to far many more markets as well.  They are airlines that are typically broad based in everything that they do. 

These airlines, however, don’t enjoy the same market caps because their governments have engineered open skies agreements with most other places or at least liberal travel treaties.  They see far more competition compared to these other airlines and most do not benefit from low cost financing for their fleets either. 

Do we really want to believe that Air China is capable of buying and operating Delta Airlines?  It isn’t.  Even Singapore Airlines would be challenged by owning and operating a US or European Airline.  It is a bad idea to compare airline size and speculate about the future on the basis of what an airline is being valued at in the marketplace.

Filed under: Airline Fleets, Airline News, Airline Service by ajax