Business | Aviation

European airlines scramble to get their numbers right

Drop services on under performing routes

  • Reuters
  • Published: 12:58 August 28, 2012
  • Gulf News

London/Frankfurt: Air passengers face higher fares, fewer flight choices and crowded aircraft as European carriers trim seating capacity growth or cut routes altogether, as they battle to salvage profits and fend off the impact of rising fuel prices.

With jet fuel prices near record highs at the same time as taxes and airport charges rise, airlines are curbing the growth of capacity and the frequency of some flights to lower costs and not drive away customers already spooked by rising fares. According to the Association of European Airlines, capacity among its member airlines eased by 4.6 per cent in the first-half of this year compared with the year-earlier period.

But that decline comes after an increase of almost 23 per cent between 2004 and 2011, driven by new aircraft ordered by airlines when demand was much stronger than it is now. “We have 10 to 20 per cent overcapacity in Europe, based on the number of seats offered,” Philipp Goedeking, managing director and airlines expert at consultancy AlixPartners, said.

Deutsche Lufthansa for instance added more than 50 per cent capacity between 2007, the airline industry’s last peak, and 2011, according to Reuters data, boosted by the acquisition of carriers including Brussels Airlines and Austrian Airlines.

The low-cost segment has been growing even faster, with Irish low-cost carrier Ryanair adding 72 per cent more seats and British peer easyJet growing by 59 per cent.

Expansion has slowed dramatically this year, with Lufthansa adding only 2.3 per cent capacity in the half of 2012 and British Airways owner IAG 2.6 per cent. Easyjet added 5.9 per cent more seats in the first nine months of its fiscal year.

Some airlines are now retiring older aircraft sooner than planned, delaying delivery of new planes or selling some smaller aircraft to shrink their fleet, but none want to be caught out with too little capacity when demand picks up again.

Australia’s Qantas Airways cancelled orders for 35 Boeing Dreamliner jets as part of a plan to cut costs at its loss-making international business. The airline said it would eliminate loss-making routes and make cuts in jobs and spending, having posted its first annual loss in 17 years.

Most airlines saw profitability drop during the global financial crisis as demand for air travel fell faster than they could cut capacity. Since then they have regained ground, but there is concern a further deterioration of European economies will lead to a repeat.

Many airlines are focusing on axing some of their less- profitable routes, especially short-haul services to secondary cities in Europe, hitting travellers who rely on regional airports.

In Britain, regional airports have also had European services cut by airlines because higher airport charges that came into force this year have made it unprofitable for budget carriers to offer short flights to neighbouring countries.

They have also been hit by the UK’s air passenger duty (APD) and the winding down of low-cost carrier bmibaby after its parent was bought by IAG. It plans to scrap several Bmi routes after the summer, due to “poor revenue performance”.

Data from industry bodies IATA and ICAO show average fares globally increasing 1.4 per cent between 2005 and 2010, during which time the price of oil - a key factor for airlines costs - rose by more than 40 per cent. Not everyone admits to viewing such trends in a negative light.

“I love price competition,” Ryanair chief executive Michael O’Leary said on a recent conference call. “It... means the competition blow their brains out even faster than would normally be the case.”

Gulf News
Quick Access

  1. Markets

  2. Economy

  3. Property

  4. Aviation

Business Top Stories

  1. Abe announces subsidies for hydrogen fuel car

  2. Emirates NBD’s net profit up 30% to Dh2.35b

  3. A new GM recall covers 800,000 more cars

  4. Gold below $1,300 for first time in a week

  5. Market dynamics and the business of misery