Airline Weekly - June 20, 2011

Cover Story

Kick in the SAS: The news isn’t all bad in Europe. Look at the Nordic boom lifting Scandinavia’s airlines.

Beset by heavy losses at its Blue1 unit in Finland, SAS announced last week it would retire regional jets, lay off workers and shutter a number of European routes. Alas, just another day of airline gloom in Europe?

Well, no. For all of Europe’s airline headaches—massive shorthaul losses this winter and suffocating taxes and regulations, for example—developments are far from one sided. In fact Scandinavia, Blue1’s troubles notwithstanding, is anything but a depressed airline market. On the contrary, economies are booming, traffic is growing and strategic developments with important regional and even global implications are rapidly unfolding.

As IATA and others like to say about the world in general, Europe is itself experiencing a “two-speed recovery” from the universally horrible days of early 2009. Markets like Spain, Greece, Portugal and Ireland are deeply troubled, yes, all the more so for airlines because of excess seat capacity brought on by aircraft redeployments from crisis-hit North Africa. But Germany, by contrast, the largest European economy, is performing well. And so is Scandinavia.

Sweden, the most populous Scandinavian country with about 9m residents, had the fastest Q1 job growth of any European Union nation outside of the small—and perhaps not coincidentally nearby—Baltic region. GDP grew almost 7% y/y in the first quarter, while airline traffic at the country’s airports jumped 10%, according to the airport operator Swedavia. German airports, by contrast, battered by a new aviation tax, grew just 4% y/y in the first quarter (according to Der Flughafenverband). Sweden’s busiest airport, Stockholm Arlanda, saw passenger counts up 11% while its second busiest airport Gothenburg was up an even more bullish 16%. Figures for April and May look even better but are influenced by easy comparisons because of last year’s ash cloud cancellations.

In Norway, Finland and Denmark, each with about 5m people, Q1 airport traffic grew about 8%, 7% and 4% y/y, respectively. Even tiny Iceland and its fewer than 1m people, which suffered a particularly painful downturn, saw Q1 traffic spike 13% at its main airport serving Reykjavik. Of all western European airports with at least 3m passengers last quarter, only Barcelona, Munich and Berlin Tegel grew faster than Stockholm, Oslo and Helsinki.

The economic boom in Sweden, most importantly, is providing a welcome boost to the... (390 of 1,559 words)

Also Inside this Issue:

Volcanic ash clouds strike again, this time grounding planes in Australia, New Zealand and the Horn of Africa. An eruption in Eritrea even forced Hilary Clinton, the U.S. secretary of state, to cut short a visit to Ethiopia.

For Qantas, worries go beyond volcanic ash. The carrier sees domestic demand clearly slowing and responded by canceling and deferring narrowbody aircraft orders. The question now is what it has planned for its longhaul business.

Air Canada’s longhaul plans may be up in smoke, with unions objecting to the creation of a new low-cost international unit. Pensions are another hot issue, and the disputes led to a brief reservations and airport worker strike last week. A tentative settlement was reached after government threats to force employees back to work with or without a deal, but a key pension question was left to an arbitrator. Now Air Canada must make peace with pilots, flight attendants and mechanics.

Virgin Atlantic has union problems too, with pilots threatening to strike during the peak make-or-break summer season. And if only that were all. Virgin also faces heavy strategic uncertainties, alone in the world without alliance partners and up against the combined might of British Airways and American in the all-important U.S. market. Its response for now, aside from continuing its search for partners, seems to be growing its longhaul leisure business.

Finally, the much anticipated Paris Airshow is ready to begin, promising lots of new aircraft orders. Boeing might even give some hints about its long-term narrowbody strategy. Will it build an all-new plane after all? Airlines are itching to know.

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