Airline Weekly - February 24, 2014
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Airline Weekly - February 24, 2014

When Pigs Fly: For the airlines of Portugal, Italy, Greece and Spain, the yoke of Europe’s long slump is lifting

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Cover Story

When Pigs Fly: For the airlines of Portugal, Italy, Greece and Spain, the yoke of Europe’s long slump is lifting

It’s not a very flattering term, and it wasn’t intended to be. The four economies of southern Europe—Portugal, Italy, Greece and Spain, came to be known collectively by the unfortunate acronym formed by the first letters of their names: the PIGS. Since the turn of the decade, all have experienced recession, indebtedness, joblessness and—indeed—airline sector turmoil.

But after a half decade of darkness, the PIGS see signs of light. And although economists aren’t yet ready to call them rabbits, Portugal, Italy, Greece and Spain, with great help from their airlines, are starting to bring home the bacon. During the fourth quarter of 2013, in fact, in a dramatic turnaround, airport traffic in all four countries increased. Prior to that, three of the four had been shrinking quarter after quarter.

Portugal is the exception. And it has more or less been the exception throughout the eurozone crisis. Its economy suffered just as much as any other, but its airline sector held up relatively well thanks to sustained growth by Ryanair and easyJet—growth the company that owns the country’s airports attributes, in part, to airport charges it claims are 23% below the average of other comparably sized European facilities. TAP Portugal, too, avoided the fate of some other midsized European legacy carriers by exploiting its strength to Portuguese-speaking Brazil and Africa, enabling it to grow passenger counts another 5% y/y in 2013, a year in which its LCC competitors, by the way, collectively grew 9%. Overall, airport traffic in Portugal kept growing while the other PIGS were shrinking, rising 1% in 2011, 7% in 2012 and 5% in 2013. In the final month of 2013, moreover, traffic jumped 9% y/y, led by Lisbon, whose traffic has increased 8% in the past two years. In the summer of 2012, Emirates made Lisbon part of its giant network. That same summer, easyJet opened a Lisbon base. The year before, Ryanair opened a base in Faro. And the year before that, it opened one in Porto, Portugal’s second busiest airport and one that—no surprise—has grown substantially too.

And 2014 is likely to get even better. In April, Ryanair will make Lisbon a base as well, challenging both TAP and easyJet. TAP itself, never mind the possibility of merging with a South American carrier, plans no fewer than 10 new destinations this year, including four more in Latin America (Bogotá, Panama City and the Brazilian cities Manaus and Belém). Want more? US... (430 of 1,720 words)

Also Inside this Issue:

Why does Air France/KLM always underperform Lufthansa and BA/Iberia? Its joint venture with Delta, after all, is a shining example of success. It seems to be doing well in Latin America. It’s not the only one having problems at the moment in Asia and the Middle East. So what is this airline’s problem?

The answer: mammoth losses at its French shorthaul network, and to a lesser extent heavy red ink from its cargo operations. Fortunately, management recognizes the problem, and efforts to address the issue are already bearing fruit. For the first time since 2010, Air France/KLM eked out a small operating profit in 2013. And that wasn’t only because of more manageable fuel costs. Other major cost items fell too, offsetting revenue weakness from the eastern part of the globe and from a listless French economy.

Air France/KLM is also learning from its thriving Delta JV that partnerships can be powerful. With that in mind, it committed $100m to tying itself closer to Gol in Brazil. It’s also watching the Etihad-Alitalia saga with great interest, considering its ties to both carriers.

If Air France/KLM is a loss-making airline mending itself to health, Malaysia Airlines is a loss-making airline getting sicker by the day. On the one hand, relentless competition is battering its immune system. On the other, its own insistence on hyper-growth evokes thoughts of the old metal band Suicidal Tendencies.

For a more uplifting story, turn to Spirit Airlines, which enjoyed another phenomenal year. Elsewhere, United will fly its first B787-9s to Melbourne. And this week: earnings from BA/Iberia and Qantas, among others.

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