With low oil prices in the past years, we have seen many airlines thrive and grow. Good for the travel industry but is it sustainable? Considering fuel prices makeup between 20 and 35% of the total cost structure of an airline, any increase in fuel prices will have a big impact on their operations. In this article, I look back and forward to the developments in the European aviation industry.
Challenges for the sector as a whole
- Brexit is still unclear: What will happen with traffic rights? Ownership structures (51% of any European Union airline must be owned by European based shareholders) and the demand to/from the UK and its impact on routes.
- Tradewars: China, the USA and other countries have increased tariffs for European airlines.
- IATA growth alterings: IATA traffic forecasts have been decreased (About 1,4 billion less than earlier predicted)
- Strikes: 2017 and 18 have seen numerous strikes putting a lot of stress on the operational ability of airlines.
- EU261 compensation obligations: Delays are part of the industry but 1 big incident may cause more costs (claims) than a whole (newly) started route may ever bring in.
Low-cost airlines are less prone to market changes due to the flexible nature of the business concept. Nevertheless, also these airlines are at the dawn of a period where important decisions have to be made.
Ryanair is by far the biggest European Low-cost airlines and had its fair share of struggles in the last year: Strikes, union recognition, fuel cost increases, increased cost for labour and a profit warning issued show the airline is not imume for changes in the environment.
On the other hand; new bases in Bordeaux and Marseille and the opening of a base in London Southend shows the airline still sees potential in the European market. And don’t forget they now fly as far as Jordan in their own network; impressive! (but I still hate their model)
The UK’s largest is the second player in the European low-cost market. The easyJet story is a bit different than Ryanair’s which was supported by very strong financial numbers for 2018. The demise of AirBerlin also helped the airline who took over most of the Berlin Tegel operations and is now Berlin’s biggest carrier.
Other plans and rumours are the openings of more routes, a potential candidate to take over the domestic/short haul operation of Alitalia and a rollout of the “worldwide by easyJet”” connecting ticketing product.
Wizzair is the low-cost carrier from eastern-Europe and has expanded massively in the past 10 years. Focus has always been the eastern part of Europe, traditionally areas where both Ryanair and easyJet were weak.
Wizzair has also posted a profit warning for the 2018 book year with an expected decrease in profits over the year of about €50 million. What helps Wizzair is shareholder Indigo Partners (also involved in Frontier from the USA and Volaris from Mexico). A big order that was will possibly benefit the faster growth if required. Next to this; the order consists mostly of AirbusA321’s that seat way more (220 pax max) compared to the 189 seat planes that Ryanair and easyJet operate. This allows them to lower operating costs with a lower unit cost.
Next week I’ll cover the second part of my analysis including the major 3 network airlines and some niche players that will enter interesting times as well. For now, lets hope in the meantime airlines continue to innovate!