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Thursday, 13 June 2013

The ultimate dogmas about aviation in The Netherlands pt II: letter from a reader

Today, I received a letter from ‘Sergei’, a Russian guy who lives in The Netherlands. He responded to yesterday's article upon the aviation industry in The Netherlands. I print this letter and my response to it, for the benefit of the discussion.

 Dear Ernst,

I always enjoy your blog and usually agree with your views.
Sometimes to get profit in one place, one needs to run an unprofitable business elsewhere. IMHO, this is the case with KLM/Schiphol and the modern
economy in general.

I think it would be interesting to estimate the combined profit from the Dutch aviation sector and figure out who gets this profit. Hopefully, this would be the tax-payers.

Dear ‘Sergei’

Thanks for your response.

I want you to know, that I am not opposed to aviation, by itself. 

It made 'the world a smaller place' and gave us the chance to get acquainted with people from the other side of the globe. When my wife and I visit Russia, we also travel by plane, of course. Going by car is simply not an option for this distance: too many borders and too much potential delay on the route. 

On top of that, flying by plane takes only a few hours.

Besides that, aviation is an enormous driver for jobs, direct and indirect. That is where I totally agree with you and what I tried to explain in the introduction of yesterday's article.

It would be interesting indeed to investigate how many jobs are driven by Schiphol Amsterdam Airport and aviation in The Netherlands in general, directly as well as indirectly. 

It would also be very interesting to see the correlation between the size of an airport and the number of jobs that it provokes. Unfortunately, I don’t have the data for such an investigation, but it would definitely be an interesting subject for research.

In my opinion, there must be an optimal size for Schiphol and any other airport. If the airport becomes bigger than this optimal size, the ‘number of extra jobs per million Euro of investment’ will reduce again. 

When an airport would be (much) smaller than the optimal size, it might miss jobs, because aviation companies would not want to have it as a destination. Also international businesses might consider it less attractive to establish a subsidiary there. It would be cool to investigate this.

Still, I do have some objections against the whole aviation industry.

What I am opposed against, is the business model of most aviation companies.  Within this business model, passenger tickets are sold at prices (almost) below cost-price and the sales price per ton of freight is also not enough to run a structurally healthy business. Aviation companies are battling for the cheapest tickets and tariffs, in a race to the bottom.  In the end something has got to give. This ‘something’ might be the airplane maintenance and – as a consequence – ‘passenger safety’.

You can never run a sound industry, when the sales price of your product is not enough to earn back your fixed and variable expenses and a decent profit on top of it. When you look at it from a distance, the problem of low freight tariffs and low ticket prices seems to spur efficiency.
 In reality, it could lead to erosion of quality and passenger safety. In my humble opinion, this is what is going on in the aviation industry.

As far as I’m concerned, the only solution for this problem is, that a giant shakeout of aviation companies takes place: the strongest companies with the strongest cash flow and reserves survive and the others simply perish. After this shakeout prices have to go up to sustainable levels. This process might take ten years at least.

The second thing that I'm opposed against is the enormous excess capacity of airports, in countries all over West-Europe. These airports are often built with millions/billions of Euro's in community-money, but will probably never earn back their initial investments. The capacity of these airports as 'job factories' is quite limited, IMHO. All service and maintenance workers, shops, cafe’s and restaurants need planes and passengers. When both stay away or go to a different airport nearby, the whole jobs driver vanishes.

Third, I don't agree so much with the growth plans of Schiphol. It is good for Amsterdam and The Netherlands to have a large airport nearby, as this attracts international companies and spurs employment in the neighbourhood.

What I don't understand, however, is why Schiphol should be a main hub for international transit flights:
  • Why do 'we' have to compete with Dubai, for the number one position of gateway between the USA and Asia?

  • Why do we have to sacrifice so many important things in life, in order to enable the growth plans of Schiphol, when Schiphol in its current form is 'large enough': the environment, the safety and health of people living close to the airport, the destruction of nature near the new charter hub Lelystad Airport?
When Schiphol would keep its current form or even grow slightly smaller, it would still be an airport to reckon with and a serious driver for jobs. But Schiphol doesn’t have to be European champion, in my opinion, as being European Champion doesn’t bring you much more profits and prosperity. Schiphol airport should be a means and not a goal in itself.
That is how I think about it, but I appreciate it when you have totally opposite thoughts about this. Wisdom often comes in the discussion between people.


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