There can be short-, medium- and long-term investors in any business, but how much influence should any investor bring to bear on management strategy and can they turn into a ball and chain?
So who owns this place, anyway? The query sometimes comes from angry passengers, sometimes from outraged legislators, but the answer in reality isn't the one they want. Airlines, bizarre a business as they are, are owned by their shareholders, who usually are investors, sometimes are governments and always are overwhelmingly interested in one thing: themselves.
For investors, this means returns, usually in the form of higher market values for their shares or direct payback in the form of dividends or payouts. Investors tend to become talkative when they feel that managers aren't managing their properties properly and can resort to flexing their muscles publicly.
That happened recently when an Icelandic investor group went public in urging AMR, the parent of American Airlines, to "increase shareholder value" or boost share prices by selling off the AAdvantage loyalty programme. AMR bit its tongue, thanked the FL Group and kept quiet until it decided not to sell AAdvantage but to spin off its American Eagle regional airline unit.
AMR said that it had been thinking of the sale for some time (meaning before FL's agitation). The frosty Icelanders were less than happy and promptly sold off almost their entire AMR stake (which had reached 9.1%).
Unlocking value by selling key assets is a strategy pursued by Robert Milton at Air Canada/ACE Aviation and now by Geoff Dixon at Qantas. In the Australian case, it took a failed takeover bid by hungry private equity types to trigger the Australian carrier's selling spree. Airline boardrooms often review moves like this. For them, the decision comes down to timing and whether the asset is deemed strategic. But it is a decision they want to make for the longer-term health and vision of the company, not for a short-term shareholder fix.
Shareholder "activism" can be useful as demonstrated in the USA where shareholders, including public-employee pension funds, brought attention to such management misconduct as excessive executive compensation. That, alas, has not been the case in the airline industry.
Other forms of activism come not from shareholders but from those who can claim "sweat equity", the employees. Ironically the most vocal of these are at United Airlines parent UAL, where employees once did actually own the airline and used their ownership to destroy shareholder value in the carrier and put it on course to bankruptcy. At least with their emotional buy-in to a company, employees probably have a longer-term perspective and a deeper self-preservation drive than do hedge fund managers.
But the emotional ownership claim can be deceptive, or at least questionable, when it is a government that owns an airline. National pride easily melds with the governmental self-deception of imagined competence to keep a critical patient on oxygen rather than subjecting it to the necessary but painful surgery that might let it walk or fly on its own.
The Italian government has just such a dilemma with its ailing flag carrier Alitalia. Its choice came down to bids from Air France-KLM and an Italian group led by domestic player Air One to make Alitalia a private, for-profit organisation. Gone are the private equity tycoons at this stage, probably to the relief of Alitalia's workforce. But while airline partners supposedly with the longer-term revival of Alitalia at heart may be more favourable suitors, few are any under illusions about how deep the knife must cut.
The Franco-Dutch group has already proved it has a long-term vision for consolidation in Europe. Its interest in Alitalia easily dates back a decade. Not all carriers or investors have the relative luxury of the long view, as they seek to deliver shareholder returns over the next 12-24 months. Many have fallen out of the race for Alitalia, which is seen as a highly risky play with political and labour baggage.
The good news for the airline business is that there seems to be no shortage of investors eager to take part in this dynamic industry. It seems that getting the cash is not the hardest part. The tough bit is, and will probably remain, being allowed to invest it the way you want to.