Route Development

Poland’s LOT and Turkish Airlines highlight Eastern European flag carriers investor/seller shortfall

Several Eastern European flag carriers are clearly struggling as competition in their markets, particularly from low-cost carriers, continues to increase, threatening their survival as independent entities. Many of these carriers are reliant on regular capital injections from their respective governments simply to maintain operations. In an effort to ensure their long-term survival and a more sustainable future, several are seeking to secure strategic partners in 2012.

Being acquired by, or partnering with, larger airlines from Turkey and the Middle East is proving to be the most likely of scenarios for these Eastern European operators as Western European airline groups are attempting to reduce expenditure significantly in 2012. While Turkish Airlines and the three major Gulf carriers have the cash and interest to pursue investments in Eastern European carriers in 2012, such investments do not appear to be on the radar at all for Western airlines.

Forced out of Iran and Iraq, Gulf Air looks to Saudi market

Bahrain’s national carrier Gulf Air has extended its suspension of flights to Iran and Iraq, citing the “ongoing security situation” as prompting the decision. Gulf Air was forced to terminate services to Iran, Iraq and Lebanon in mid Mar-2011, due to security and political considerations relating to the Arab Spring uprising, which spread across much of North Africa and the Middle East over late 2010 and the first half of 2011.

The suspension for destinations in Iraq will continue to 31-Jan-2012 inclusive, while the suspension of services to Iran will stretch until and including 31-Mar-2012. At the time of the suspensions, Iran and Iraq were two of Gulf Air’s largest markets. The carrier operated four routes to Iran – Tehran, Mashad, Esfahan and Shiraz – and four to Iraq – Baghdad, Najaf, Erbil and Basra.

Vueling grows its low cost Barcelona hub role as Iberia Express focusses on Madrid premium traffic

Vueling's growth this year, the largest since its merger with rival Clickair in 2009, underscores the airline's role as a cost-effective hub carrier with connecting flights at Barcelona's El Prat Airport, a status Iberia concluded it could not achieve in Barcelona, largely pulling out of the market in favour of specially-formed LCC Clickair. After the Clickair-Vueling merger, Iberia retained part ownership (46%, now controlled by Iberia parent International Consolidated Airline Group) while the merged carrier continued its focus on Barcelona. The partnership appears to be working well for both Iberia and Vueling.

That focus has been re-affirmed by the airline's intention to grow summer destinations served from El Prat by a further 10, bringing the total to 70, 23 more than served last year, and representing a 17% seat increase at El Prat. The growth is supported by the addition of four A320s and a single A319.

Lack of liberalisation in the Caribbean poses major roadblock to REDjet expansion

REDjet, the first and only Caribbean low-cost carrier, is aiming to pursue dramatic expansion in 2012 with up to eight new destinations. The ambitious and pioneering carrier, which launched services in May-2011, plans to add three destinations by early April, giving it a total of nine. The carrier aims to end the year with a network of up to 14 destinations throughout the Caribbean, northern South America and potentially Central America.

New Surinam Airways flight to Miami boosts Guyana market

The Guyana market will see a major capacity boost in April when the small South American country receives only its fourth international carrier, Surinam Airways. The flag carrier of neighbouring Suriname will link Guyana's Georgetown with Suriname's Paramaribo and, more importantly, Miami. The Miami-Georgetown service, which will begin on 02-Apr-2012, will be the first service connecting the two cities non-stop in over a decade.

Surinam Airways’ new Miami-Georgetown flights will operate twice weekly on Tuesdays and Saturdays with Boeing 737-300s. Flights will then continue onto the carrier’s main base, Paramaribo’s Johan Adolf Pengel International Airport.

After launching Sydney, AirAsia X focuses on higher frequencies and more intra-Asia services

It took low-cost long-haul carrier AirAsia X four years to secure the right to serve Sydney, and the carrier is now putting the matter behind it following its confirmation it will serve the Australian city from Kuala Lumpur with a daily service from 01-Apr-2012, with the likelihood of a double daily to follow. Another Australian city will later be added, to reach its goal of serving five Australian cities by the end of 2013. Also on the carrier's expansion list is increased services to its existing Asian destinations, many of which are not served daily.

While the Sydney route progressed in likelihood following restrictions being lifted in Jun-2011, the route became a certainty after start-up competitor Scoot said it would make Sydney its first destination from the middle of this year. The possibility of Malaysia letting a competitor based in Singapore, its fierce rival, serve Sydney before a Malaysian low-cost carrier was simply unacceptable.

Changes - and perhaps conflict - ahead for Austrian Airlines as it seeks a return to profitability

Austrian Airlines is facing a testing period after posting operating losses of well over EUR100 million (USD129 million) over the past two years. The carrier, under the leadership of new CEO Jaan Albrecht, is aiming to return to profitability in 2012 but significant changes will have to occur for this to become a reality. Austrian has stated that it suffers from multiple historical structural disadvantages, forcing it to implement a restructuring programme to stabilise the carrier and ensure its future “once and for all”. But rumblings from staff suggest this might not be plain sailing.

Cost reductions reaching EUR200 million (USD255 million) in 2012 are going to be key factors in the airline’s mission to return to the black. This year will also see continued uncertainty in the airline’s focus markets, with the crisis in the Eurozone and increased expenses resulting from the European Union’s Emissions Trading Scheme likely to affect plans at the carrier.

Rebuilding Libya's aviation industry crucial to economic recovery

Even before the NATO air strikes, the United Nations sanctions and the European Union ban, Libya’s aviation industry had little hope. The country, ruled by Muammar Gaddafi under an iron fist for the last 40 years, placed little focus on its airlines and airports, while countries in the nearby Middle East flourished and started to develop some of the largest hubs in the world. The Middle East/North African region has become increasingly important but it seems Libya was left behind, and when major unrest broke out in Feb-2011, the industry’s problems widened significantly. Now Libya has been “liberalised” and Gaddafi killed, it must begin the slow process of rebuilding an industry whose foundations were not strong to begin with. International airlines have resumed services, investment firms are showing interest in relaunching airport renovation projects, the country’s two national carriers have relaunched operations and are set to resume talks on their merger, and tourism operators are becoming optimistic about future bookings.

Inspired by the Tunisian and Egyptian revolutions, the unrest in Libya is part of the greater Arab Spring, which has seen the leaders of Egypt, Tunisia and now Libya overthrown. Aviation in these countries during the unrest was unstable, however, Tunisair and EgyptAir have successfully restored operations to full capacity. In Feb-2011, Cairo International Airport recorded 530,000 passengers – a 54% drop from Feb-2010. The airport is now operating at near-2010 capacity, and in Jul-2011 and Sep-2011, passenger traffic surpassed 2009 levels. Libya’s Monastir Habib Bourguiba International Airport and Enfidha Zine El Abidine Ben Ali Airport, both operated by TAV Holdings, have been recording consistent traffic decreases of between 30% and 50% each month.

Non-stop US-India market continues to shrink with American Airlines ending Chicago-Delhi service

The number of carriers operating direct service between the US and India will decline to two – Air India and United – from 01-Mar-2012 when American Airlines ends its sole service to India, a daily service between Chicago O'Hare-New Delhi. The cancellation of the unprofitable routes comes as American rationalises its network as part of its bankruptcy filing. The carrier stated that the service is being cancelled due to the “historical financial performance of the route and its future outlook given the global economic climate and high oil prices.” The poor financial performance on the route, American's longest at 7484 miles, relates to the impact on yields of competitive pricing as American was able to consistently report high load factors on the route over the past 12 months. 

Blue1 to become feeder for SAS' Copenhagen and Stockholm hubs in move against Finnair and Norwegian

SAS subsidiary Blue1 will undergo network changes that will see it drop its non-Scandianvan European routes in order to bolster services from secondary Finnish cities.

This will allow the SAS group to build greater feed into its Copenhagen Kastrup and Stockholm Arlanda hubs, a competitive move against Finnair and its Helsinki hub, as well as LCC Norwegian Air Shuttle and its Scandinavian hubs.

This development is only the first in what will be a number of changes across the group’s carriers up to 2015 under the new strategy as SAS seeks to become a more formidable force. Meanwhile low-cost carrier Norwegian Air Services continues to grow and threaten SAS’ dominance in the Nordic market.

2012 marks beginning of next chapter in US airline industry

While downturn is rife in the airline industry, the US industry will do relatively well, with IATA expecting the US industry to post USD2 billion in earnings in 2011 and USD2.9 billion in 2012 as US carriers limit capacity growth, keeping load factors high.

Within the US there was a higher than expected consumer retailing at the end of the year, and while unemployment is still high it has shown a steady decrease since the last half of 2011.

Air China expanding European network with services to Copenhagen, London Gatwick and Paris CDG

Air China has announced three new European routes in the first two weeks of Dec-2011, with plans to expand its European network to 14 destinations and the number of weekly services between mainland China and Europe to 178. Air China currently has a 25% capacity share on services between China and Europe with over 46,000 weekly seats, significantly ahead of Lufthansa (17,119 weekly seats) and China Southern Airlines (15,140), according to Innovata. The latest route announcements will entrench its market leading position.

Air China plans to launch services to Copenhagen, London Gatwick and Paris Charles De Gaulle (Paris CDG) in the first six months of 2012, supplementing the carrier's existing European network which comprises service to Athens, Düsseldorf, Frankfurt, London Heathrow, Madrid Barajas, Moscow Sheremetyevo, Munich, Rome Fiumicino, Chita (Russia) and Stockholm Arlanda. Dedicated freighter services also operate to Copenhagen Kastrup, Milan Malpensa, Novosibirsk Tolmachevo, Paris CDG and Vienna.