Jetrader - September/October 2012 - 37

State of the Regions

Uncertainty
Grips European Airline Market
By Philip Butterworth-Hayes Europe’s airline industry is entering a new era of uncertainty, with conﬂicting views of how the next three to four years will develop. While some forecasters see a likely 2012 fall in European airline passenger numbers over 2011 being followed by a gradual, robust recovery—in line with the more optimistic headline gross domestic product (GDP) forecasts—others suggest the continent is heading for a long period of, at best, slow and uneven growth. Boeing’s July 2012 market outlook for the region remains relatively optimistic. “The European aviation market remained strong in 2011, despite uncertainties from the sovereign debt crisis and the lingering threat of recession. Europe’s GDP increased by 1.8 percent in 2011 compared to 2010. The Association of European Airlines reports that member airlines carried 9.3 percent more passengers in 2011. Members of the European Low Fares Airline Association reported a 6.1 percent increase in passengers. Aviation growth is expected to persist over the next 20 years, with European airlines forecast to acquire 7,760 new airplanes valued at $970 billion.” But not all forecasters are so hopeful. “People tend to assume that the future will be like the past, that we will see the same kind of growth ﬁgures we have seen for the last few decades. But I think it is likely that trafﬁc will grow more slowly in Europe over the next 20 years,” according to Dr. David March, head of forecasting at the Brussels-based air trafﬁc management organization Eurocontrol. Eurocontrol forecasts the number of ﬂights, rather than aircraft in service or passenger demand, but its forecast ﬁgures suggest it will take another two years for European trafﬁc to reach the 10 million ﬂights a year recorded in 2007 (see Chart 1: Forecasts for Air Transport Movements Within Europe).

Mix of Eurozone crisis, taxes and ETS may hamper region’s growth

Factors to Consider
There are several reasons why this may be. The current crisis in the Eurozone has depressed demand in some of the major markets—especially Spain and Italy—while making ﬁnance more difﬁcult to come by. “The recession and changing export credit agency conditions will combine to make it harder for airlines to ﬁnance deliveries but probably not until late 2012 or early 2013,” according to UK aviation consultant Ian Lowden of Lowdexxaviation Ltd. “There have been a number of deferred deliveries this year but these are due to a lack of market rather than ﬁnance and this is likely to get worse next year as rising costs and falling trafﬁc hit airlines even harder.” Deregulation, which was introduced into European states more than 20 years ago, is no longer the catalyst to low-cost competition it once was—as the Boeing ﬁgures indicate, scheduled airline trafﬁc is now growing faster than low-fare carriers. Short-haul

Low-cost carriers have plucked most of the route “low-hanging fruit” in Europe and are now rationalizing their networks to focus on the most profitable parts.
Jetrader 37

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Jetrader - September/October 2012

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