Wednesday, 11 January 2012

2012 The Year of European Airline Consolidation ©

This year is certain to be one of consolidation in the European airline sector as the industry is continually being buffeted by events as the European debt crisis continues with record unemployment levels and austerity depressing demand across the EU, the new EU ETS Scheme took effect from the 1st of January, and the evolving situation in the Middle East over the Iran nuclear program. These events are likely to accelerate the pace of the consolidation in the sector, as airlines grapple with rising costs and slowing demand.

The cornerstone of the re-structuring of the European airline industry begun with the winter schedule, as many airlines adopted their strategies to evolve with the rapidly changing market conditions, to focus on their core market strength, which is creating new market opportunities for LCC carriers, to fill the gaps.

Ryanair has first mover advantage to seize the market gaps having announced new bases in Billund as Cimber Sterling re-focuses on the domestic and regional market, and in Paphos taking advantage of the new Cyprus government route incentive scheme and the re-structuring of Cyprus Airways.

On the 22nd of December Air Baltic announced it was re-focusing its Riga Hub to focus on Eastern Europe and the Nordic market with a reducing its fleet from 33 to 24 aircraft, announcing plans to phase out its 2 Boeing 757-200s and 5 Fokker F50s, the Boeing 737 Classic fleet to be replaced by A320s or B737NG’s (Aviation Week 22nd December)

Its Nordic neighbour Danish carrier Cimber Sterling announced on the 14th of December it would be adopting a new strategy to focus on domestic and regional traffic within Scandinavia deepening co-operation with its sister company Skyways to operate Regional Jets (CRJ/ERJs), while disposing its fleet of Boeing 737-700s (Reuters 14th December).

CSA Czech Airline announced that it was transferring flying from the parent company to its CSA Holidays Airlines subsidiary with 11 ATR72/A320s in order to reduce costs (ATW 8th December), while Malev Airlines was given a loan of $21 million by the Hungarian government pending the sale of the airline to a strategic investor, while the Serbian government announced it will be downsizing JAT Airways after being unable to attract an strategic investor, interestingly Adria Airways and Croatia Airlines signed a co-operation agreement to share aircraft and routes on the 19th of September.

In the Med Cyprus Airways announced it was returning its two A330-200s to ILFC replacing them with A321s while enhancing co-operation with Olympic Airways and Virgin Atlantic Airways, Air Malta announced a re-structuring plan on the 18th of December.

The turbulent market conditions have impacted on major EU Carriers with Air France-KLM after reporting a small Q3 profit of €95 million down 95% year on year the carrier is expected to announce a new cost reduction strategy in early 2012 to follow the ‘Challenge 12’ program. The Air France-KLM subsidiary Martinair exited the passenger market after 60 years at the end of October phasing out its Boeing 767-300s to focus on cargo operations, also Lufthansa is expected to announce a new cost reduction plan in early 2012 which the Lufthansa CEO Christoph Franz described as ‘The new and constantly changing environment’ (CAPA 19th December).  

The European Consolidation process began in earnest on the 19th of December when Etihad Airways announced that it would be increasing its stake in Air Berlin from 3.3% to 29%, strengthening the position of the carrier in the market, this was followed on the 22nd of December with the announcement Lufthansa reached agreement to sell BMI Airlines to the IAG Group which will strengthen the position of the IAG Group amongst the three European mega-carriers enabling the carrier to grow its long-haul network.

It will be an interesting year as Etihad Airways looks for further acquisition opportunities in the EU, recently media reports suggested Qatar Airways is interested in acquiring up to 49% of Spanair, while SAS Airlines denied it was in talks with the airline. As part of the EU/IMF plans in Ireland and Portugal the government shares have been earmarked for disposal to raise cash, also CSA Czech Airlines and Malev Airlines are seeking strategic investors, while Alitalia Airlines may yet merge with Air France-KLM.

The market place stress is further evidenced by Flybe announcing a profit warning yesterday stating UK domestic demand is weak and it is unable to increase fares (Bloomberg 10th January), to reduce dependence on its home market, it continues to seek opportunities for M&A in the EU to build on the launch of Flybe Nordic.

The question that has to be asked is who will be next in line to consolidate?


Irish Aviation Research Institute © 11th January 2012 All Rights Reserved.

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