DOMESTIC AIRLINES

Denmark is not the biggest country in the world, and it's easy to get from one place to another, either by car or train. Nevertheless, there is a need for for a domestic air network, either as a feeder into the major hub at Copenhagen, for short-haul trips from Jutland to the U.K. and Scandinavia, and for domestic routes such as Copenhagen to the island of Bornholm or Copenhagen to Aalborg and the north of Jutland. A large part of that need was met by Cimber Sterling, the latest manifestation of the old Mærsk Air, bought by Sterling, and then merged with Cimber. However, on 3 May Cimber Sterling went bust, throwing the domestic market into turmoil.

The old saw in the aviation industry is that the quickest way to make a small fortune in it is to start with a large fortune. Certainly it is difficult to make money anywhere in the world unless you have a cheap, no-frills, highly efficient operation (eg Southwest Airlines, Ryanair) or protected international routes. And even then, not everyone achieves it. Cimber Sterling had its own large fortune in the shape of its owner, billionaire Ukrainian businessman Igor Kolomoisky. The company collapsed when he decided that a further injection of capital would be throwing good money after bad.

350,000 passengers have disappeared from the domestic market, and it is unlikely that many of them will come back any time soon. However, the good news for the operators that remain (SunAir, DAT, even SAS to a limited extent) is that there is a better chance of their making money. Cimber Sterling was operating a business model that was simply not sustainable; and by removing most of that capacity in one go, it allows those remaining to structure something that can be profitable. This means higher prices for consumers, but the old structure was ridiculously cheap.

In the medium-term, those most affected will probably be regional airports, who benefitted from the landing charges from Cimber Sterling's passengers. Airports are quintessentially fixed-cost businesses, so any loss of revenue flows straight through to the bottom line. However, they too knew - or ought to have known - that they were essentially part of a house of cards. Recognising that, and tackling the situation by attracting profitable airlines, must surely be in their long-term interests.

Walter Blotscher