Airline Weekly - June 6, 2005
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Airline Weekly - June 6, 2005

Between Europe & Asia: Airlines Benefit As Demand Booms, Barriers Fall

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Cover Story

Between Europe & Asia: Airlines Benefit As Demand Booms, Barriers Fall

There goes the neighborhood. Or so they might say at a European legacy airline. Markets close to home are now flooded with unruly LCCs making money with lower costs, fewer amenities and new ways of thinking. Shorthaul Europe is not Kansas anymore. But fortunately, there is salvation abroad, namely Asia, where markets are growing, service still matters and Europe’s longhaul airlines can still make a buck...or should we say, a Euro.

In Asia, meanwhile, in the big sweep of territory stretching from Japan and Korea in the northeast to the Indian subcontinent in the southwest, looking to Europe for growth has also become a good way to make a Yen, a Won or a Rupee. Asia is more economically and politically diverse than Europe, with more restrictions on internal flight rights, but the region’s LCCs are also growing fast, as is competition from new and reinvigorated longhaul airlines such as Emirates and China’s Big Three.

As a result, the Europe-Asia market is more important than ever to the airlines that serve it. Only the transatlantic market is larger, as far as intercontinental markets go, and growth in air traffic between the two regions is expected to average about 6% a year for the next two decades, that according to both Boeing and Airbus. And some sub-regions like Europe-China will grow even faster than that. The massive but largely mature transatlantic market, by contrast, will grow less than 5% annually.

Just in the past year, the top 25 airlines flying between Europe and Asia (not including the Middle East) have increased their seat capacity by 7%, according to APGDat. In the last five years, a period which included 9/11 and the SARS epidemic, capacity between the regions is up 37%. During that same time, transatlantic lift (Europe-Asia is about three-fifth the size of Europe-North America) remained basically flat, having just this year surpassed pre-9/11 levels. Looking at... (330 of 1332 words)

Also Inside this Issue:

United’s long and painful journey out of bankruptcy may be nearing completion. The most difficult labor negotiations appear to be over and the company is now billions leaner than it was during the dark days of 2002. More work needs to be done, but it is hard to imagine that management will not be able to secure the exit funding it needs to emerge from the court’s protection.

If the painful restructuring at United symbolizes the tortured woe of legacy carriers, than the piling profits at Ryanair does the same for the good fortunes of the low-cost carrier set. The notoriously stingy carrier turned in another profitable fiscal year with operating margins far above most of its competitors.

Back in the U.S., Hawaiian Airlines emerged from its bankruptcy, while Delta continues to avoid court protection altogether by winning leniency from its financial partners.

Continental, meanwhile, further from doom than most of its legacy peers, posted impressive unit revenue results in May, raising hopes that it may even post a profit this quarter and perhaps even the whole summer. Pricing trends seem to be improving industry wide, meaning more good news could follow.

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