Why four airlines bust in one month
One of the biggest names in travel, Thomas Cook’s demise marked the end of more than 150 years of package tour success. Aigle Azur’s high profile investors of HNA Group and David Neeleman could not save it from failure.
Slovenia’s Adria Airways had been bumping along at the bottom for some time, but finally had to call it a day last week. And Laurent Magnin’s vision of long haul low cost was brought to a grinding haul as XL Airways closed its doors also.
Of course, these are not the only casualties of the currently volatile European market. 2017 saw the collapse of Monarch, Air Berlin and Alitalia, who were joined by Cobalt and Primera last year. So far this year, we’ve said goodbye to Germania, Flybmi and Wow Air.
UK regional airline Flybe was only saved by the skin of its teeth by the Virgin Atlantic consortium and has had to undertake some brutal cost-cutting in a bid to stave off the losses. And those are just the well-known airlines.
While a multitude of factors have come into play to make the European aviation market a tough place to do business, one of the fingers of blame has to be pointed at the European Union. Its programme of airline liberalisation has effectively opened up the airspace and made it possible for all carriers to compete in all markets.
This has seen the likes of big conglomerates such as Lufthansa and Air France-KLM competing with low-cost rivals Ryanair and EasyJet right across the continent. While this has been welcome news for passengers, driving fares ever lower, it has made it tough for carriers to turn a profit, something Lufthansa’s chief Carsten Spohr has been eager to point out.
While larger airline groups find it easier to absorb changes in costs and revenues, smaller carriers struggle. Despite this, the European market is still far less concentrated than, for example, North America. According to research by CAPA, North America’s seven largest carriers account for 82 per cent of the market; in Europe its just 55 per cent.
While some sort of consolidation is almost natural, the speed at which airlines are going belly up has been dramatic. With winter schedules just weeks away, it begs the question, are we done yet?
Ryanair chief, Michael O Leary, predicted months ago that Europe would see numerous more bankruptcies before the period of European consolidation was done. He forecast a final four or five large airline conglomerates, like IAG, Lufthansa and the Ryanair Group’s own expanding army. Whether this is taking it a step too far remains to be seen, but for many airlines, the tough period is not over yet.
Last week’s attacks on Saudi oil supply infrastructure has facilitated a price spike, something which will inevitably have a knock-on effect on the price of kerosene. With jet fuel prices already running high, this will be an extra cost some airlines will struggle to absorb.
A weak Euro against the dollar is making life even tougher for carriers, adding to the already expensive outlays of fuel and aircraft leases, both typically priced in dollars. The looming specter of Brexit at Halloween is adding fuel to the uncertainty and will be impacting British carriers more than most.
As we enter the winter season, typically a more difficult time for airlines in the northern hemisphere, it’s almost certain we can expect to see more difficulties in the European aviation sector. While airline bosses will undoubtedly be presenting a positive front, you can bet they’re also looking over their shoulders and wondering, ‘who’s next’?.
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