Burying Air Berlin: The Curious World of French Pragmatism, German Statism

We are living in strange times: On the one hand, we have a new French president who decides to throw centuries-long state traditions overboard and instead boldly announces that he wants to pursue Pan-European solutions to problems in his country’s train and shipbuilding industries.

However, while Emmanuel Macron opted for an Italian partner for the battered French navy company FTX France and while France’s proud Alstom railway division with its TGVs was merged with Siemens, the Berlin government – presumably a beacon of market thinking – did the opposite.

It saw to it that practically everything that is of value in the failed, but popular discount airline Air Berlin was offered up to Lufthansa. For all the talk of European unity, European competitors were systematically left out in the cold.

Appearing “strategic”

To make matters worse, the German government sought to appear “strategic.” Hence the eager talk about Lufthansa as a “national champion.” Outdated as that concept is, it used to be the refrain of poorly designed moves in French – not German – industrial policy.

This role reversal, though very positive on the French side, is not exactly a welcome development for Germany.

Why is the handling of the failure of Air Berlin so important? Because the political apparatus of the Berlin Republic once again showed its ugly face.

The outgoing grand coalition government of CDU/CSU and the SPD had an easy time aligning their respective partisan interests amicably: The SPD wanted to stand by the Ver.di union, to secure the preservation of virtually all Air Berlin jobs at existing wage levels within the Lufthansa empire.

This hope has now been dashed, both in terms of the number of employees and their pay level. But that does not matter so much, as the mere hope for a better outcome was enough for the SPD to put itself firmly into the Lufthansa camp.

The CDU/CSU, for its part, was keen on Lufthansa as a “national champion,” as the then-transport minister Alexander Dobrindt put it frankly. In the unwinding of Air Berlin, the Merkel government thus operated on the basis of the principles which have been tried and tested in the automotive industry, that is, focusing on the big incumbent(s) in whatever industry it is dealing with.

The losers? Air travellers

And who is the loser in this game? We are – Germany’s citizens, consumers, air travelers. Since we live in a country which features very high levels of taxes and social contributions, we have a strong interest in flights not becoming unnecessarily more expensive.

But that is exactly what Lufthansa will be doing, even according to the admission of its own CEO. Everything else would be a violation of his fiduciary duties to his shareholders.

The Lufthansa camp and its governmental enablers are eager to state that, even with a 94% market share for Lufthansa, there will still be enough competition in Germany. In this context, people like to point to the Bundesbahn as a competitive factor.

However, prior to Air Berlin’s demise, in many cases it was not only faster, but also significantly cheaper to fly Air Berlin than to take the train.

This price disadvantage of the railway runs counter to Germany’s oft-stated objective of being environmentally responsible and thus moving most domestic air traffic to the railway system.

With Air Berlin’s best routes integrated into the LH empire, it is likely that the German railways will profit from a significantly higher concentration in air travel, but in a perverse manner for consumers: The increase in Eurowings ticket prices makes the railways relatively more attractive, because the system’s steep prices are now less steep (when compared to airlines tickets).

The French example

France proves that this can be done differently. While the country is not at all friendly to budget airlines in the domestic market, it gets its railway pricing structure right, based on my experience this past summer.

For example, even TGV tickets booked at short notice were usually priced at below the level of flight prices. In other words, France not only has a much better high-speed rail network than Germany, French pricing policy also gives people an incentive not to get onto the plane.

What is to be done? In the interests of consumers, one can only hope that European antitrust authorities rein in the German government in its collusive stance vis-à-vis Lufthansa. Berlin acted as if Lufthansa (and all airlines) was still state-owned.

Inside the EU, the distinction between the domestic market and the other inner-European destinations should finally be abolished.

The German mentality of circling the wagons, which came to light in the cartel-like stance of Lufthansa and the federal government, is not only embarrassing, but – unless unwound – will cost us consumers dearly.