Airline Weekly - March 19, 2012
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Airline Weekly - March 19, 2012

Not as Bad as it Looks: Europe’s airlines, despite endless hardship, survived last year in surprisingly decent shape

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Not as Bad as it Looks: Europe’s airlines, despite endless hardship, survived last year in surprisingly decent shape

Europe’s economic woes are troubling enough for the continent’s hard-pressed airlines. And government policies—crippling aviation taxes, an emissions trading scheme, expensive passenger rights laws, opposition to airport expansion, airport curfews, subsidies for rail travel, overzealous antitrust enforcement and support for striking unions—are making matters worse.

On top of this, Europe’s airlines faced an array of political unrest in neighboring North Africa and the Middle East, both important markets, and Japan, a market particularly important to Finnair and the so-called Big Three: Lufthansa, Air France/KLM and BA/Iberia. Within Europe, general strikes and protests in southern countries, most notably Greece, also disrupted air travel. Structurally, Europe’s airline industry—even after multiple mergers and bankruptcies—remains highly fragmented, much more so than North America’s now-consolidated airline industry, for example. Greece, after all, still has two international airlines.

Unlike the U.S. market, moreover, where the five largest airlines are either shrinking or barely growing, Europe’s Big Three grew ASK capacity 6% y/y in the fourth quarter. Finnair and Norwegian each increased Q4 ASKs by 21% (though Finnair’s figure was inflated by strikes in the year prior period). Only one airline that reported actually shrank last quarter, and that was Air Berlin whose ASKs fell just 2% despite heavy losses. Such growth is perhaps more troubling in the context of a continental population that grew a mere 0.3% last year, and less than 4% in the past ten years. The U.S. population, by contrast, has grown more than twice as fast in the past decade. In the meantime, neighboring regions where populations and economies are growing fast—Turkey and the Arabian Gulf most importantly—have airlines that are sending scores of planes into Europe.

A gloomy picture, no? Well, guess what: For all its travails, Europe’s airline industry coped fairly well in 2011, and the same was true for the fourth quarter alone. During the full year, the 12 largest European airlines that have reported so far (see the list on page nine) earned a net profit ex special items of roughly $500m, along with a 2% operating margin—nothing to get excited about but hardly... (368 of 1,474 words)

Also Inside this Issue:

It was a less than triumphant year for Lufthansa and Cathay Pacific, two giants of their respective regions. Both made money in 2011, but the trend from 2010 was negative. During the final quarter of the year, moreover, troubles intensified.

But their troubles paled in comparison to those endured by Air Berlin, hit with a biblical array of plagues: debilitating taxes, political unrest in critical leisure markets and perhaps a bit of self-inflicted overcapacity. It’s now trying to transform itself into a top-tier global airline with the help of Etihad and oneworld.

Across the Atlantic, Washington’s airline market was buzzing, both at Dulles and Reagan airports. Emirates will fly to Dulles this fall, and a host of U.S. carriers applied for newly available slots at Reagan. In other route news, Virgin America will head to Portland and Gol wants to fly to Miami via Caracas.

Most U.S. airlines discussed current business trends at a conference in New York City. They sounded rather bullish on revenue, although some reported signs of booking weakness late last month. Delta, for one, said it will make money this quarter. But Southwest will lose money.

The most entertaining piece of news last week came courtesy of US Airways, which registered internet website addresses like American-USAirways.com. While not hiding its intentions, it did say that if it does go after American, it won’t take the kind of hostile approach it took when it tried to acquire Delta in 2006.

As the first quarter nears its end, the U.S. economy is picking up steam, but high oil prices could again spoil the party.

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