6 MAY 2013
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Lida Mantzavinou is an aviation consultant with Frost & Sullivan, the long-established US-based global consultancy with offices in some 40 countries.
Lida is a Cranfield graduate and was previously with Air Transport News. Lida specialises in IT applications in the airport and airline markets, on MRO and aftermarket, having consulted airports, airlines, IT suppliers and MRO providers on business growth strategies and positioning on the market.
Globally, 2012 has been a hard year for airlines. Profits decreased to half in comparison to last year; IATA estimates revenues to close at just US$4.1bn by year-end. High average oil prices at above US$100/barrel and unexpected events – such as Sandy that caused airlines losses of around US$100m – caused profit margins to fall to 1.6% and strongly buffeted the airlines industry.
Struggling with the economic and financial crisis, European carriers are expected to be the worst performers generating total losses of around US$1bn. A number of airlines went bankrupt in 2012, such as Spanair and Malev, while big airline groups implemented major restructuring and cost reduction programmes in the beginning of the year to survive in the long term. IAG, Lufthansa and Air France/KLM are aiming to reduce staff by 13,000 within 2014, generate savings – €450m for IAG and €200m for Lufthansa – and reduce net debt – €4bn for Air France/KLM – by 2015. At the same time, they are leveraging on their low-cost subsidiaries, Iberia Express and potentially Vueling for IAG, Germanwings for Lufthansa and Transavia for Air France/KLM, in order to face strong competition coming from the low-cost carriers.
The current air transport environment in Europe has been benefiting low-cost airlines. A combination of factors – increasingly price sensitive business and leisure passengers, national carriers going bankrupt, legacy carriers significantly cutting down capacity to decrease losses and charter carriers reducing their fleet size – have allowed low-cost carriers to grow and be the only segment able to offset oil prices and generate profits. EasyJet is expecting to generate £255m as profit after tax by year end while Ryanair estimates £394m-£418m. Their success hinges on low-cost operation processes that are in place and allow for the lowest unit cost in the market.
Looking at low-cost carriers piling up cash and bidding for legacy carriers, as in the case of Ryanair and Aer Lingus, it is clear that the rules of the game have changed. However, constraints imposed by regulatory authorities due to competition rules and additional charges imposed by the ETS on the short haul routes versus the postponement of the scheme on the long haul routes, are restraining the fast growth of low-cost carriers. We expect more consolidation to take place in the next years and competition in the short haul market to intensify once airline groups see benefits by 2014 from their restructuring programmes.
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