Adria’s collapse shows why airlines won’t cut excess capacity

 

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Only weeks ago Adria was looking forward to the new terminal at Lubijana, but it will go ahead without them

Airlines keep an eye on each other in ways that are hard to fathom for ordinary mortals. The looming issues at Adria and its inevitable doom would have been on the radar for weeks, if not months. Adria’s passenger numbers at Lubijana (pronounced Lube-y-ah-na) had dropped from 67% in 2014 to 55% last year – mostly because of stiff competition from airlines far bigger than they were.

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Adria’s capacity had gone from 2.2m seats in 2015 1.68m in 2018, trimmed continuously as competition moved in. It couldn’t maintain capacity, or afford to hold out so it surrendered more and more. In airline world, that’s a death spiral.

Based in Slovenia’s capital city (the place Trumps wife Melania comes from), Lubijana, the airline occupied 55% of the small airport’s capacity but delivered 17 routes out of around 40 and leaves the country with a gaping hole in connectivity. Imagine somebody had removed all of the airline connectivity from the Sate of Vermont. It makes things awkward for locals and visitors alike.

One of the biggest reasons airlines refuse to cut capacity is that none of them want to give up routes that are hard enough to establish in the first place, and they will only leave open to fierce competition to move in on if they abandon them. They’d rather slug it out than give in. If they can afford it. Adria couldn’t.

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And the other reason is they know that the game is a long one and the most determined, and the most willing, if they can just last another few weeks, will be right there to snap up the passengers when the competition fails.

Thomas Cook’s recent demise hasn’t been fully processed yet and won’t be for a while. Indeed it may take up to next summer to work it through.

First off, the loss of capacity is quickly going to be made up as TUI, RyanAir, Jet2 and easyJet swoop in and suck up the slack to Spain, North Africa and Turkey next year. And it will be even easier for them because Brexit will make it more difficult for European based airlines to operate in and out of the UK without being domiciled there, unless an extensive open skies arrangement gets agreed in the longer term.

In Slovenia, Adria’s collapse has been followed by an extraordinarily fast response from Lufthansa Group – Brussels Airlines and Lufthansa have already announced daily routes but it still leaves 12 significant routes from the nations capital unserved.

You can of course bet your bottom dollar that easyJet, Wizz and RyanAir are all on the phone to Lubijana Airport trying to find ways to start a route as soon as possible.

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And that’s great for customers, but its another nail in the coffin of the medium-small sized airlines. With Austria’s capital Vienna just a short distance away and the redeployment of Austrian and Eurowings by Lufthansa Group, to compete more easily with Level, and especially the huge increase in easyJet and RyanAir’s Laudamotion, Lubijana will see the eventual return of most of its services.

It’s the flexibility of over capacity that the airlines have been waiting for. They can rationalise a few other routes, in the certainty of bigger profits and margins on underserved destinations like Lubijana. Adria’s loss is only to their benefit. Like vultures, its death was all but certain and they’ve just been waiting to pick the carcass clean.

 

 

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