Airlines, Banks No Longer Flying High
CNBC.com's Kim Khan is temporarily hijacking Eurocentric to provide blogs on the business of brewing from Oktoberfest in Munich.
Oktoberfest is in full swing in Munich Monday and there are few signs that the credit crunch and Germany's economic slowdown is impeding the celebrations.
But traveling tells a different story. The gates for low-cost airlines were packed at London's Stansted airport, while the gates for major carriers looked sparse. And it's curious to see the connection between the financial services companies and the airlines. The gangways leading to the planes of almost every European airport are sponsored by banks – HSBC and Royal Bank of Scotland most notably.
Is it purely coincidental that the fundamental business models of both airlines and financial services are under attack?
Both banks and airlines overextended themselves at exactly the wrong time. And it all boils down to housing.
Encouraged by the strong demand in travel even after the terrorist attacks of Sept. 11, 2001, airlines added to their fleets and cut costs. And financial institutions not only invested in complex derivatives based on subprime mortgages, they also flooded the market with offers for home equity loans. As soon as the housing cash machines dried up, the bankruptcies followed.
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