Airline Weekly - June 16, 2014
Short URL:
Bookmark and Share
Recently Viewed
(none yet)

Airline Weekly - June 16, 2014

Flight of the Living Dead: Zombie airlines are haunting Europe’s excessively fragmented airline sector

$50.00 - 12 pages
The document is delivered immediately, online, DRM-free, personalized, PDF format

Cover Story

Flight of the Living Dead: Zombie airlines are haunting Europe’s excessively fragmented airline sector

Forget the strike-prone labor unions, the government austerity, the economic doldrums, the high taxation, the overregulation, the expensive airports, the opposition to airport expansion, the wasteful Eurocontrol regime, the heavy seasonal swings, the night curfews, the capacity growth and the Gulf carrier incursions. Yes, all of these hurt. But ask European airline executives what they find most frustrating, and they’re likely to utter the “F” word: fragmentation.

To be sure, not all of Europe’s airlines are struggling. Ryanair and easyJet are doing fine. Aegean had a surprisingly strong 2013. But these are the exceptions. Even the giant IAG—trending up thanks to strong London demand at British Airways, massive cost cutting at Iberia and growth-fueled profits at Vueling—is earning profit margins half those of its U.S. partner American. Its margins, in fact, are more or less in line with those at Lufthansa, which, in an investor update last week, documented a litany of woes. Air France/KLM is in even worse shape. And on the endless list of independent mini-airlines flying throughout the continent, most are living hand to mouth.

The situation stands in stark contrast to what’s happening in the U.S., where rising fortunes stem, more than anything else, from consolidation. With fewer airlines, other profit-boosting developments, including capacity restraint and aggressive ancillary charging, can more easily take root. Importantly, it’s not on longhaul international routes where U.S. airlines are outperforming their European peers. It’s on shorthaul routes, contested by 11 major carriers in the U.S. but by more than 50 in Europe.

Things, of course, weren’t always this way. Frustration among U.S. carriers ran deep during the mid-2000s, when many European airlines were thriving thanks partly to greater exposure to fast-growth emerging markets, including ones within narrowbody range like Egypt, whose economy, fueled by countless tourists flying in on European airlines, grew 7% annually in the mid-2000s. Currency and hedge protection against the fuel spike helped too. U.S. carriers knew the answer: fewer airlines. But the requisite mergers and liquidations weren’t happening. Instead, zombie airlines stayed alive thanks to lenient bankruptcy laws, federal loan programs, exuberant private equity investors and status quo enablers like General Electric and American Express, who were unwilling to see their big airline partners disappear. Even the first big merger of the era—America West’s 2005 purchase of US Airways—hardly... (401 of 1,604 words)

Also Inside this Issue:

Uh oh. After a long period of calm, oil prices are jumping again and sending airline share prices in the opposite direction. Never mind that U.S. oil production is up a stunning 60% since 2008. Or that the growth of China’s oil-thirsty economy is slowing. Prices are at their highest levels in almost a year because of a budding civil war in Iraq, an important oil exporter.

If that weren’t bad enough, Lufthansa spooked markets with bearish investor guidance, giving the clearest signs yet that trouble is brewing in the transatlantic market, at least for some carriers. Nor can Lufthansa be thrilled about the near completion of Etihad’s rescue of Alitalia.

Even Emirates had bearish news. The voracious plane buyer is reversing course and canceling orders, saying “no, thanks” to the 70 A350s it bought almost seven years ago. Is it a sign of reduced optimism about future demand?

Unhappily for all but the highest spending passengers, United matched Delta in linking its frequent flier plan accruals to how much you spend, not how much you fly.

Countering the bearish news from Germany, Dubai and oil markets, China Eastern placed a massive B737 order, although then again, that might be bad for industry yields. And Turkish Airlines, showing no signs of re-thinking its bullishness, bought some additional planes too.

The bulls are still running in America, where airlines again reported strong unit revenues, offsetting the bad news about oil prices. In England too, Flybe brought some cheer to investors, although probably not enough to offset its home nation’s early World Cup grief.

About Airline Weekly

Airline Weekly is a subscriber-supported publication, paid for by readers who want a more interesting, more valuable read about the airline business. Each Monday, Airline Weekly reports who's flying where, new marketing approaches, fleet, finance and key airline and airport data. And, most importantly, Airline Weekly readers enjoy a critical context, insightful analysis and new ideas found nowhere else.

Sample Issue

Here's a sample issue of Airline Weekly.


If not completely satisfied, let us know and we will refund the purchase price.


airline weekly   europe