Historically, state owned or state favoured airlines have very good at getting governments and even international law to protect them from competition. As monopolists often do, the airlines often justified their protection from competition by arguing what an important public service they were providing.
Approximately, “We fly to all these remote, out of the way places which are otherwise difficult to travel to, and if we had to face competition on our other, more major routes, we would not be able to afford to cross-subsidise our loss-making, but vitally socially necessary minor routes.
This argument was basically as big a load of crap as it sounds, but government often bought it, and thus we ended up with with restrictions on the number of airlines that could (say) fly between London and New York, and also often actual restrictions preventing low fares, in order that the profitable routes could be made more profitable, to supposedly allow cross-subsidies to occur.
Even when the single market came into being in 1993, state owned and favoured airlines obtained one last favour; the single market did not fully apply to aviation until April 1997. Only then could any EU airline fly any route it wanted to within the EU. However, after that, things changed rapidly. Mainly, this was the growth of the discount airlines, the obsessive compulsive leader of which was Ryanair.
The discount airlines figured out that short haul aviation is basically a different business to long haul aviation, and basically figured out that if you cut all the frills and just provide transport, cut costs ferociously, unbundle all the other services, charge fares that are highly variable depending on the flexibility of the passenger (and which can be very cheap), and always more or less fill the plane, you can make money on just about any route.
Even amongst discount airlines, Ryanair is something of a sociopath. As is often the case with highly successful companies that reflect the vision of a single man, it is probably better to say that Ryanair CEO Michael O’Leary is something of a sociopath. He is willing to outrage, offend, and piss off his own customers, governments, the BBC, and just about everyone, but he has been so willing to try almost anything that his airline is the one that figures out what innovations work and what don’t. Other discount airlines follow a little way behind, and are more pleasant to fly on. When O’Leary is no longer in charge of Ryanair it will no doubt turn into something more like Easyjet or Wizzair, as it really takes something extraordinary at the top to maintain an attitude like Ryanair’s. (It is easier to be nicer to people). For now it is the company that demonstrates just how low it is possible to make the cost base of an airline.
However, I have a point to make. At present, I am in Plovdiv, the second largest city in Bulgaria. Ryanair have been flying here from London for about a month. There have never been direct flights from Plovdiv to London before, and there have been few direct flights from Plovdiv to anywhere. However, the city has a runway, and has recently built a terminal, and that is all you need. The flight over here was packed with Bulgarians who were happy that they no longer had to travel via Sofia to get here. Several people over the last couple of days have commented how good it is that they now have direct flights.
Ryanair’s route map is something extraordinary. The airline flies to all kinds of places that bureaucrats would have missed back in the days when they were choosing routes that would be flown to and cross-subsidised on the basis that “social responsibility” required this. (It also flies a lot of domestic routes in Germany and Italy in particular, countries in which protected national airlines have traditionally served their people poorly with high fares and inadequate services) Not only has it been proved that a genuine free market will support routes where it has traditionally been argued that some kind of subsidy was necessary, but it has also been proved that a free market will find routes that can be made profitable, that few people even thought might be able to support air services.
Long haul routes are also being deregulated. The argument about how these cross-subsidise loss making but important routes is not heard much any more. For that, Michael O’Leary has my thanks.