Jetrader - September/October 2012 - 38

Chart 1: Forecasts for Air Transport Movements Within Europe
2012 2013 2014 2015 2016 2017 2018

IFR movements (000s)
High Median Low Annual growth High Median Low
Source: Eurocontrol

9759 9658 9565 0.3% 1.3% 2.2%

9999 9803 9626 2.5% 1.5% 0.6%

10414 10078 9778 4.1% 2.8% 1.6%

10805 10372 9968 3.8% 2.9% 1.9%

11229 10686 10182 3.9% 3.0% 2.2%

11693 11002 10365 4.1% 3.0% 1.8%

12057 11305 10560 3.1% 2.8% 1.9%

ﬂight activity, as a percentage of overall ﬂights, is generally decreasing as roads and fast-rail links have been developed throughout the continent, reducing the demand for air services connecting airports of 600 km or less. And new government taxes on air passengers are also having an impact. David Scowsill, president and CEO of the London-based World Travel & Tourism Council (WTTC), said the UK’s Air Passenger Duty will cost some 91,000 jobs and as much as £4.2 billion ($6.5 billion) to the overall economy. “Travel & Tourism grew by 4.1 percent in the UK last year but is forecast to slow to 1.3 percent in 2012. This slowdown is partly due to the impact of Air Passenger Duty, which is dampening demand.” Airline taxes are likely to become even more of a pressure when the European Union’s emissions trading scheme (ETS) comes into full impact. Most commentators suggest this year will be a grim one for European airlines. “Traffic growth for European carriers basically stopped at the end of 2011. Since the beginning of 2012, the growth trend has been basically flat, in line with the economic pessimism throughout the continent,” according to IATA’s Chief Executive Officer Tony Tyler, speaking in June 2012. IATA is predicting the scheduled airlines in Europe could lose $1.1 billion this year. There have already been a number of European airline failures

in 2012—including Spanair (Barcelona, Spain), Malev (Budapest, Hungary), Air Poland (Warsaw, Poland), Cimber Sterling (Sonderborg, Denmark) and Skyways Express (Stockholm, Sweden).

Airlines Adjust for Uncertainty
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. EasyJet has recently announced it will stop basing aircraft and crew at Madrid because of overcapacity in the Spanish market and high airport charges. The next few years will probably see further route rationalization and consolidation by the big players in the market. Most fullservice airlines seem to have weathered the storm with IAG (British Airways and Iberia) and Aer Lingus reporting better than expected results for 2011. The other majors such as Air France and Lufthansa have reported disappointing results but are now quickly matching costs to worse market conditions. However, in the new airline world order there is less sympathy for weaker carriers. In the next few years the successful service airlines will probably be those who can make their long haul proﬁtable and match the emerging market’s thrusting competitors—such as Emirates, Etihad, Qatar and the Chinese new entrants. The charter market had been written off as a victim of low-cost competition

and its 2011 trafﬁc out of the UK was down more than 10 percent this year with a number of charter airlines disappearing. However, there is anecdotal evidence that its slope of descent has ﬂ attened as passengers return to the security of inclusive tour—the volume to Spain was only down by 4 percent in May this year. It is likely that the news of charter’s death was premature and it may stabilize over the next few years albeit with a focus on more premium business. Yet even in such a volatile market there are opportunities for growth, if only for low-cost airlines to enter markets being vacated by full-fare carriers. In January 2012 the low-fare Oslo-based airline Norwegian Air Shuttle ordered 222 aircraft worth $21.5 billion at list prices, of which 100 will be Boeing’s 737MAX types, 100 Airbus A320neos and 22 Boeing 787s. And while there is static or even negative growth in the core trafﬁc areas in the north and west of the continent, there is strong growth underway in the Baltic, Scandinavia, Turkey, the Ukraine and Russia. Even if the Eurozone economies stall, there will still be a need for Europe’s fullfare airlines to replace their aging ﬂeets with more cost-efﬁcient short and longhaul aircraft—if only to meet a growing demand for air travel into the new hub airports of the Gulf states.

38 The ofﬁcial publication of the International Society of Transport Aircraft Trading

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Jetrader - September/October 2012

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