Europes smaller flag carriers start to feel the pinch, while the strong get stronger
06/11/2008|9:18:00 AM|Centerforaviation
Tuesday, 10 June 2008´╝ÜSeveral smaller European carriers are reporting spiraling pressures on their earnings from the soaring cost of oil, while the leading network airlines and LCCs are expanding amid of the turmoil.

Aer Lingus stated it would break even “at best” this year, due to pressures from rising fuel costs, the slowing economy and the weakness of the Sterling. The airline has also reversed its growth plans for 2009, stating it would no longer add to its long-haul fleet, while services to Los Angeles will be suspended in Nov-08, as part of plans to reduce long-haul Winter capacity by 15%.

Aer Lingus CEO, Dermot Mannion, stated, “there is no doubt in these days of very high fuel prices there is going to be casualties across the industry”, but added Aer Lingus is in a “very strong position” and would not be a casualty. KLM CEO, Peter Hartman, forecasts that the increasing price of oil will accelerate the pace of airline consolidation in Europe, including some LCCs, which he expects to most affected by the surge in oil prices.

Alitalia’s survival prospects have darkened, with Air France-KLM Chairman and CEO, Jean Cyril Spinetta, declaring the company´s interest in a takeover of the Italian carrier a "closed chapter", as it concentrates on “internal problems” caused by the surging oil price. Lufthansa is meanwhile continuing to swoop on the former Alitalia hub at Milan Malpensa, with plans to base six new E-195s at the airport next year (to be operated by subsidiary, Air Dolomiti). Pressure is also mounting on the European Commission from rival airlines opposed to the Italian Government’s emergency financial package to Alitalia.

Austrian Airlines forecasts a net loss of up to EUR90 million for the 12 months ending 31-Dec-08, while its forecasts for 2009 are “outdated”, adding that making further accurate forecasts is “impossible" in the current period of fuel price volatilty.

Meanwhile, Air France-KLM reported a healthy 6% increase in passenger traffic in May-08, which outstripped capacity growth of 5.8%, while it recorded a further rise in unit revenue, excluding currency effects. The airline reports a strong 6.6% increase in demand to Asia, where it expanded capacity by 8.1%.  

Lufthansa also confirmed it would maintain current capacity levels, which include a 6-7% increase in capacity to the Asia Pacific region this year, despite high fuel prices.

Ryanair and easyJet continue to flex their muscles in Europe’s short-haul markets. easyJet handled 3.9 million passengers in May-08, up 15.9% year-on-year, with passenger load factor easing only slightly to a solid 83.2%. Ryanair confirmed it has been in talks for the last six months with Boeing and Airbus regarding new narrowbody orders, but has yet to make any progress on price. On potential long-haul operations, CEO, Michael O’Leary, added, “if there´s some sort of a downturn in the [long-haul] industry and aircraft are parked up in the desert, the possibility of a long-haul, low-cost, low fares carrier will get closer."

Overall, the high cost of oil is provoking heightened competitive responses, as stronger carriers probe for signs of weakness. For Europe’s weaker second-tier carriers, the challenges could become insurmountable.