The Business Travel Magazine June/July 2019

Consolidation / Air travel
Hardly a month has passed since
last autumn without headlines
proclaiming an airline’s collapse
or financial peril.
The list is long; budget transatlantic
carrier Primera Air failed in October,
with Norwegian appealing for funds in
December; then Flybe’s rescue in January
was followed by flybmi’s collapse in
February. Shortly afterwards came Wow
Air’s demise in March, while April saw Jet
Airways ground its fleet.
It’s not a good picture, yet broadly
speaking most other carriers in the UK,
Europe and US are profitable. So are these
examples part of a trend, or do they run
against the grain?
In Primera’s case, ambition was thwarted
by bad luck. A wildcard attempt by a
Latvian/Danish charter brand to launch
transatlantic flights with long-range singleaisle
aircraft ended in defeat after Airbus
failed to deliver in time, forcing Primera to
lease in replacements. Primera said this had
meant “additional costs of over €20million”.
Flybe has different issues and its rescue
by Connect Airways, the consortium
comprising Virgin, Stobart Group and Cyrus
Capital will see £80million pumped in and a
rebrand under the Virgin banner.
Its new owners have already set about
removing expensive jets from the fleet, but
must cope with other factors dogging Flybe.
Its predominantly UK network means Air
Passenger Duty is disproportionately levied
on it, while revenue its mostly in sterling but
expenditure mainly in dollars and euros.
Moreover, Ryanair and others are adept at
putting larger aircraft than Flybe operates
on its more successful routes.
Once Flybe begins acting as a feeder for
Virgin and its majority shareholder Delta,
its fortunes may revive. If not, Virgin has
acquired more Heathrow slots via the
£2.8million deal for an absolute song.
Flybmi was another niche UK airline, but
those niches, including intra-European
routes such as Munich to Saarbrucken, were
even smaller than Flybe’s and when Brexit
threatened those flying rights, it became
unable to expand within the EU, relying on
the crowded UK regional market. This
meant it faced the same issues as Flybe and
coupled with expensive 37-seat and 49-seat
jets (average load just 18 passengers), its
demise was sealed.
None of these collapses display the classic
airline cause of death, wildly optimistic overexpansion...
but then came Iceland’s Wow
Air. It planned to make Reykjavik a budget
flight hub between the US, Europe and Asia,
but leasing a wide-body fleet and launching
routes like Reykjavik-Delhi was a step too
far and, sensibly, two potential investors
pulled out of deals to take it over.
Samuel Engel, Head of Aviation at global
consultancy ICF, is sceptical of what he
labels “the long-haul low-cost experiment”.
“There’s a step-change in risk and
complexity from short-haul to a wide-body
operation,” he says. “Wow was exposed to
the North Atlantic market, which is one of
the most seasonal in the world. Traffic
halves in winter, so to be successful in this
market you have to shift capacity, have
corporate contracts and offer ‘beyond’ and
‘behind’ connections.
“A long-haul airline with a handful of
aircraft and no network connections or
corporate travellers is going to struggle.
Norwegian could be in a different category,
but Wow and Primera were setting
themselves up a steep hill,” he says.
Like Lufthansa’s boss Carsten Spohr,
Engel is unsurprised about the rash of
failures in the UK and Europe. “If you
compare the number of carrier hubs in
Europe versus the United States, there are
probably twice as many in Europe per
population, so there is still more
consolidation yet to happen.”
However, Engel rejects the idea that Wow
and Primera will deter new entrants, with
aircraft readily available. “Right now, 6% of
the A330 fleet is on the ground (including
Jet Airways). That’s 90 aircraft. There are a
couple of factors that make people continue
to start airlines: there is unlimited capital to
lease aircraft and a massive leasing market.
There is also a trend now for lessors to
make speculative orders without a home for
them, based on the assumption that they
A long-haul airline
with a handful of
aircraft and no network
connections or corporate
travellers is going to struggle”
will be able to find airlines that will take
these planes,” he explains.
So despite the recent collapses, expect
some new, perhaps equally short-lived
attempts at breaking the big carriers’ grip.
Engel concedes there is “room to challenge”
the price points that airline alliances have
established, particularly across the Atlantic,
and expects JetBlue, with its ready base of
corporate traffic in New York and Boston
and numerous connections from these
airports, to make an impact on the
corporate market next year.
Thanks to those willing to risk their shirt,
it all means more choice and (hopefully)
lower fares for corporates and consumers.
As Engel puts it, there is a clear winner:
“From a consumer perspective, these are
the glory days of aviation.”
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