European airlines simply don’t want to see what’s right in front of their faces. There are too many of them serving the same routes, too many of them not making enough profit and too many of them trying to secure slots into airports that can barely cope with the pace of year on year demand.
The trouble with that demand is it’s not passengers. There numbers are growing, but not at the frantic pace that airlines are putting on new routes and slots that make those routes potentially viable.
There are too many routes from single airports to specific destinations. Prime examples of over-routing are Birmingham, Manchester, Düsseldorf, Amsterdam, and Vienna, where between three and six airlines fly to one destination – places like La Palma and Malaga stand out. There are many more.
There is a scramble for market share and route dominance all over Europe, as airlines big and small do their utmost to keep themselves relevant and provide their financiers with the figures that will keep them viable. Often offering ticket prices that long-term, will hasten their own demise.
Smaller airlines have no excess aircraft, all of them have to be permanently flying, day and night, especially in the busy summer season, which is about to hit full peak. These days a small airline is anything with less than 50 aircraft. If you can’t make that figure you are going to struggle to remain viable unless you have a unique selling position – like AirBaltic for example. Its aircraft, its service, its frequencies and its customer base are all different from everyone else.
Those airlines that don’t have the ability to deal with an aircraft going technical suffer disproportionately. They often simply find it easier to abandon the passenger’s flight and let them claim compensation, which in many cases most of them never end up paying unless a bailiff turns up. The bad publicity is drowned out on social media, and it’s frequent enough that it’s seen as just one of those things customers have to deal with.
Larger airlines – Lufthansa is an example – have up to 37 second line aircraft available to deal with day-to-day issues.
It’s important to look at Lufthansa Group as Europe’s principal airline. It sets a standard that most of the others can barely get near. Its airline portfolio covers a huge number of routes and cities around Central Europe, its Eurowings “low-cost” operation has grown at a phenomenal rate, and is seen as having a qualitative edge that easyJet and others simply haven’t got. With 205 aircraft and growing, it’s turned into a major force.
There are too many weak airlines in the rest of Europe. SAS has been around for decades but its financial weakness is a constant, it never seems to be able to break out of its chains, with constant staffing issues, high costs, old aircraft that are taking too long to replace and severe competition from the usual suspects.
Norwegian is possibly the weakest airline in the mid-tier. Its finances are permanently weak, its costs are slow to come under control and its debt horrific. Other issues beyond its control – the 787 Rolls Royce engine debacle and now the 737Max, have severely skewed its plans and it doesn’t have forever to balance the problems, with the realities of its own plight.
Another issue that affects Norwegian – and other mid-low-cost airlines, is the response of the legacy carriers. They have not been idle. IAG group airlines BA, Iberia and Aer Lingus have learnt from their Vueling acquisition. Changing fare structures, buying inter-operable narrow bodies that can be redeployed as needed to any airline in the group in three days flat. Combine the benefit of major fleet cost reductions, fare and service re-structures, and huge airline loyalty programmes, and they have an attraction that low cost airlines struggle to beat. Equal maybe, but beat? It’s now almost impossible as everything has been boiled down to the lowest levels.
The realities of airline ownership have troubled the Thomas Cook Group for years, as it piled on so much debt it could barely get from one year to the next. In the end it’s taken the path of selling the whole thing off before it buries the holiday company parent itself for good. That will likely see Condor back with Lufthansa and the rest of its UK and European operations may go the same way. If not they’ll be sold off piecemeal. Again, the legacy carriers are the ones picking up the pieces.
Air France has exhibited some sign of life lately, effectively culling its Joon brand – nobody ever knew what it was for or about (with the exception of beating the unions), and trimming its domestic operations as high-speed trains continue to eat into their viability. More than that, only in the past week it has gained an agreement from the pilots unions to start expansion discussions on the Transavia brand.
This has been tried once, but failed miserably because of the unions, high costs and high prices that kept it from making inroads into the low cost market. This time it will be different.
All of these activities pressure the LCC’s and ULCC’s still harder. When RyanAir finds it hard work trying to make real profits, something serious is happening in the aviation sector, well beyond what’s happening on the fuel cost front.
The sad part is, that only the very largest groups and airlines have the cash, the flexibility and the depth of business to win. The irony is that the LCC and ULCC revolution is over.
The disruptors are now themselves facing disruption. They have been aggressive, they have upturned the market, but they didn’t take down the dinosaurs. They have evolved, aviation Darwinism forced them to. Now they’re back, and they’re the ones who in the long run are going to win.
Alitalia’s future still looks bleak, it cannot go on as is indefinitely, in a state of bankruptcy. None of the other airlines really want the burden of its unionised work force, who have an alarming propensity for self harm when things don’t go as they want.
No matter what happens, others are already plying alternate routes and have the resources to pick up the slack. There’s little real attraction to keep the airline flying, only right-wing populism and Italian politics have stopped it vanishing – some things never change.
There is one barrier to massive mergers – the EU Competition Commission. It’s not likely to be a fan of monopoly airlines and reduced consumer choice. But when the push comes to a shove, it won’t stop a merger if it means one side will collapse and damage the market and jobs. Big mergers will happen.
Wizz is big but it’s not strong enough, and its routes in the East are highly complimentary to say, easyJet in the West. SAS is ripe for a buyout – and its routes and geography would probably not be allowed to go to Lufthansa. An IAG buyout is far more likely longer term. they have done well in turning round national airlines, as Iberia proves. Never be surprised by what might happen. Volotea, TUI, Aegean, Wizz, SAS, even easyJet in the right circumstances, are all up for grabs. All it takes is a crisis, a recession, an oil price spike, a financial crash; you never know who will be next or why. But there will be consolidation one way or another. And I still think Norwegian is right at the top of the list.