Jetrader - September/October 2013 - 15

If orders are a measure of optimism in
the market, then there is good news for
the European aviation industry. The 50th
International Paris Air Show ended with
close to 1,100 orders and options, eclipsing the 400 or so orders placed at the
Farnborough International Airshow last year.
Surprisingly, orders from European airlines
dominated the news headlines, a total
of 415 ﬁrm orders and 180 options were
placed by seven customers in Europe, adding memorandums of understanding (MOUs)
will take this ﬁgure to 865 aircraft, which
equates to 60 percent of all the orders at
Paris Air Show.
However, the underlying message was
clear; the orders are not the direct result
of growth in the region. In reality, they are
triggered by the need to replace the aging
ﬂeet and to achieve cost efﬁciencies. In
fact, Europe was the second slowest growing region year to date; the revenue
passenger kilometers (RPKs)
grew only 2.2 percent
year over year. In

Industry charges, fuel fees and taxation
continue to remain the biggest challenges
facing European airlines.
contrast, the growth in Latin America was
5.1 percent, Asia Paciﬁc 5.3 percent, Africa
7.3 percent and Middle East 12.1 percent.
The load factors have increased by less than
1 percent over the year to 77.9 percent,
which is encouraging news mainly due to
efﬁcient capacity management by airlines.
The International Air Transport Association
(IATA) recently carried out a survey of 13
airlines in Europe and estimated that the
operating loss for ﬁrst quarter 2013 is just
over $2 billion, not much different to ﬁrst
quarter 2012.
While jet fuel prices are stable and have
been for the last two years, they are still too
high for airlines operating on low margins.
According to IATA, the average for May was
$115 per barrel, which is signiﬁcantly higher
than the pre-recession price in 2007, which
was around $70 per barrel. As a result, the
cost of fuel for an airline has jumped from
25 percent to 35 percent.
While inﬂation has resulted in a signiﬁcant increase in operational costs, the
competition within the European ticket price
market to keep fees low has resulted in
signiﬁcant losses. The European market also
suffers from overcapacity; however, during
the last year, airlines in Europe revised their
network strategy and reduced capacity to
align with the market demand. Stable fuel
prices have given airlines some breathing
space to rethink their strategies and cut
costs in other areas such as maintenance
and ﬁnd alternative sources of revenue such
as baggage charges. Low cost carriers (LCCs)
have been more successful in implementing
programs to bring in additional ancillary revenue, whereas legacy carriers have struggled
as it does not align with their traditional
legacy airline model. However, some airlines
are breaking away. British Airways recently
introduced a cabin-only baggage fare. This is
exactly what Europe needs: breakaway from
traditional operating models, innovation and
new ways of bringing in revenues.
Europe continues to be the most challenging region for airlines. Despite this, IATA
predicts that European airlines will report
proﬁts of $1.6 billion this year. While this is
a signiﬁcant improvement, the regions’ earnings before interest and taxes (EBIT) margin

is expected to be just 1.3 percent, second
lowest after Africa at 0.9 percent. The threat
of a third dip in the economy has reappeared
after improvements in the Eurozone crisis
have stalled in recent months. Surprisingly,
demand remains strong. Airlines have seen
signiﬁcant growth in passenger numbers
since the recession in 2008-09. For example,
easyJet has added 20 million passengers
since May 2008, reaching a record level of
more than 60 million passengers in one year
(May 2011-May 2012). Ryanair was conﬁrmed
as the world’s top carrier of international
scheduled passengers by IATA, ﬂying almost
80 million passengers in one year to
international destinations, 29 million more
than second place Lufthansa. What is more
interesting is that out of the 10 top-ranked
carriers for international trafﬁc, eight are
from Europe (see Chart 1: Top 10 Airlines).

Chart 1: Top 10 Airlines:
Ranked by International Trafﬁc
(Passengers)
Rank

Airline

US$ millions

Ryanair

$79.649

Lufthansa

$50.877

easyJet

$44.601

Emirates

$37.733

Air France

$33.963

British Airways

$31.273

KLM

$25.775

United Airlines

$24.843

Air Berlin

$23.179

Turkish Airlines

$22.381

There was some good news from the
European Regional Airlines Association
(ERA). ERA’s data watch recorded an increase
in its airlines passenger load factor from
64.2 percent in 2012 to 66.5 percent for
the ﬁrst quarter of 2013. Airline punctuality has also been positive: 85.7 percent of
ﬂights departed on time and 96.7 percent
of ﬂights left within 60 minutes of their
scheduled slot. However, although there is
Jetrader • September/October 2013 15

Jetrader - September/October 2013

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