Analysis for Europe

Air Moldova embarking on summer expansion while continuing with Chisinau hub strategy

Air Moldova is embarking on a summer expansion programme in Jun-2012, building upon capacity increases already seen in winter 2011/12. From Jun-2012 the airline will expand across Italy, Ireland and Russia, adding new destinations as well as increasing frequencies to existing destinations as it seeks to build connecting traffic through its hub at Chisinau International Airport.

Air Moldova is the flag carrier of the Republic of Moldova and operates to Eastern and Western Europe but most of the upcoming expansion is focussed on western markets. Since 2011 the airline has begun to focus on establishing Chisinau International Airport as an east-west transit hub and has increased year-round capacity on key routes including Bucharest.

Greek carriers fight an ominous jumble of recession, euro-woes and market fragmentation

Greece’s airlines are operating in an unsympathetic environment shaped by four consecutive years of economic recession and austerity measures, worries about a possible exit from the eurozone and a fragmented market with the largest carrier holding a mere 33% capacity share. The situation is untenable and revives the discussion if the European Commission (EC) in Jan-2011 took the right decision in blocking the proposed merger between Aegean Airlines and Olympic Air.

Both of Greece’s major carriers are loss making and Olympic, which had high hopes to become Greece’s new national carrier after it bought some of the assets of the state-owned and de facto-bankrupt flag carrier Olympic Airlines, was forced to refocus its strategy towards regional operations to survive. Olympic’s passenger numbers fell 23% in 2011 to 3.4 million from 4.4 million in 2010.

US carriers remain bullish on demand as capacity discipline ensues

Current robust demand trends are creating a sustained confidence among US carriers that the airline business now has a strong foundation to withstand fuel price fluctuations and begin delivering consistent positive results. Although the business overall is still not delivering adequate returns, management teams at US carriers are encouraged the building blocks are in place to manage the industry’s cyclicality. The transformation occurring through capacity discipline and shrewd revenue management is beginning to catch the attention of investors that historically avoided the troubled airline industry.

Recently US Airways president Scott Kirby told a group of investors that during the last three years US airline industry revenues have grown in the double-digit range, which he concluded was a remarkable result in the particularly cyclical airline business. The performance appears to be drawing attention from investors that have eschewed the industry based on past performance, as Mr Kirby remarked during the last few months he has encountered and met with potential investors never drawn to the airline business. He believes their interest is an endorsement in the rationalisation ushered in by consolidation and improved capacity management.

British and Irish airport investments continue busy merger and acquisition activity

If there was any doubt that the UK & Ireland remains one of the most dynamic air transport markets in the world that suspicion was dispelled by the level of recent and potential activity in airport M&A.

With Edinburgh Airport about to change hands, Glasgow Prestwick and Manston (Kent) airports may follow this year, as will London Stansted, later. Cardiff Airport’s CEO resigned after a politician complained about lack of investment by the operator and there are plans to re-open Plymouth Airport under new ownership.

Meanwhile, in Ireland, the case has been made for a change of ownership at Shannon Airport - but not an outright privatisation – signaling the potential break-up of the Dublin Airport Authority.

bmi’s exit from Star Alliance has a minor effect but potential departure by TAP will be more felt

Bmi’s exit from Star Alliance has only a minor effect on the group’s global footprint, but a potential departure from TAP Portugal would leave a much larger mark on Star’s connectivity especially in the Iberian peninsula, where it already lost Spanair in Jan-2012. TAP, which has an extensive network in South America and Africa that would appeal to any global alliance, is slated to be sold off by the Portuguese government later this year. If TAP were to be sold to a non-Star affiliate, such as International Airlines Group (IAG), it stands to lose three European members in 2012.

Bmi formally exited the Star Alliance network on 20-Apr-2012 following the conclusion of the sale of the UK-based carrier to IAG. Star carriers are in the process of ending their codeshare agreements with bmi as principally Star Alliance does not allow a member airline to codeshare with a member of another alliance although some exceptions are permitted with Star Alliance authorisation.

Milan Malpensa is trying to gel low-cost and full service to rebuild its lost glory

Milan Malpensa Airport is betting on low-cost carriers as well as full service carriers to restore its lost glory but it will not be able to rebuild a hub owing to its lack of a local network carrier. LCCs now represent about 50% of total seat capacity at the airport while Alitalia accounts for only 4% of capacity as it has shrunk its Milan network to only seven routes, according to data from Innovata. Including its LCC subsidiary Air One Smart Carrier, Alitalia offers less than 13% of Malpensa’s total seat capacity, which is not sufficient to fulfil a possible hub operator role. Most noteworthy is the decline of Malpensa as a transatlantic gateway.

Malpensa used to be a thriving Alitalia hub with the airline serving over 80 routes from the North Italian airport, including 10 transatlantic routes. But the Italian flag carrier’s bankruptcy at the end 2008 and its restructuring under new private ownership from 2009 changed its fortunes. Alitalia now only operates two transatlantic routes from Malpensa while US carriers have also dropped several routes to Milan in recent years.

Postponed opening of Berlin Brandenburg causing the summer blues for Lufthansa and Air Berlin

Berlin Brandenburg Airport’s announcement that it will not open its EUR2.5 billion new premises as scheduled on 03-Jun-2012 is leading to major operational challenges for all involved, but in particular Lufthansa and Air Berlin which would be the largest operators at the new airport and had planned significant network expansions and new procedures. The delay, which is expected to be several months long, is above all bad news for Air Berlin which had aimed to cement its new strategic positioning as full service network carrier and oneworld member with the opening of the German capital’s new airport.

Low-cost carriers will be the least affected as their drive for low airport costs exceeds the need for enlarged and architectural attractive airport capacity. LCCs also remain outside the public relations contest to participate in the opening of Germany’s prestigious capital airport.