Flybe

Changes in Northern Europe: Finnair outsources European routes to Flybe; Skyways & City Airline fold

The North European market underwent another shock wave this week with the grounding of Skyways Express and its subsidiary City Airline and the announcement that Finnair is moving ahead with its plans to outsource its short-haul operations to a much lower-cost airline through forging an agreement with Flybe Nordic that covers one third of its European network and 12 Embraer aircraft. The two events are unrelated though are indicative of a market undergoing a fundamental structural change spelling the evaporation of small, independent regional airlines and the disbanding of the traditional operating model of the legacy carriers in Europe, although Finnair still has to demonstrate how its JV with Flybe will bring its short-haul operation back to profitability.

Stockholm-Arlanda Airport, Sweden-based Skyways Express and Gothenburg, Sweden-based City Airline have cancelled all flights and stopped all payments with immediate effect (22-May-2012) after the owners of the company decided not to provide any further funds.

UK carriers rush to snap up bmibaby’s planned route closures

British Airways (BA) is preparing to disband bmibaby, the low-cost unit it unwelcomely acquired from bmi after previous owner Lufthansa failed to find a buyer. But as the saying goes: one man’s meat in another man’s poison and the news of bmibaby’s grounding was welcomed by multiple airlines including Monarch, Flybe and Jet2.com, all of which are swiftly stepping in to backfill capacity.

Anemic-turns-dynamic is not exclusive to bmibaby’s network but a development seen following the recent demise of other small- and medium-sized airlines in Europe such as Spanair, Malev and Cimber Sterling. In those cases, competitors have reacted swiftly and within a couple of days to fill the void.

bmibaby’s closure is indicative of a recent development in Europe: the lavish injection of capital in loss-making carriers is coming to a standstill with public and private shareholders alike halting the operations of these entities, mostly small- and medium sized airlines, a trend long overdue and induced by low or no economic growth in most EU countries implementing stark austerity measures, and high fuel prices.

Finnair to increase focus on Asia as JV partner takes over short-haul operation

Finnair has entered into discussions with potential partners to form a joint venture which would take over part of its unprofitable short-haul operation. The new JV would be a major component of a restructuring and could allow Finnair to increase its presence in the Nordic region under a lower and more competitive cost base. Finnair is seeking to use the new joint venture to open new bases in the region in line with its Nordic Champion strategy but has embarked on a restructuring of its own mainline operation to become competitive and restore profitability.

By establishing the JV, Finnair hopes to reduce costs on its regional network and free up capital to invest in further expanding its Asian network. The Europe-Asia market has been the major focus for Finnair in recent years with the carrier exploiting its geographic advantage to offer convenient connections to a growing number of Asian cities.

In announcing its 2011 results and revised strategy on 09-Feb-2012, Finnair CEO Mika Vehviläinen explained that "the potential joint venture would expand our home base to cover the entire Nordic region" and would "support our Asian strategy through increased feeder traffic for our Asian destinations and better presence in key cities throughout the Nordic region". Mr Vehviläinen said the arrangement is unlikely to include network carriers and should not require any equity tie-up.

An agreement is aimed to be signed in mid-2012, with the new joint venture operation expected to commence in 1H2013. Finland’s Government, which owns a 55.8% stake in Finnair, has said it may consider selling its stake to enable the company to form a joint venture in Europe.

With revenue and passenger traffic up, Flybe sets sights on European expansion

Flybe, Europe’s largest regional airline, announced that it recorded strong gains in revenue and passenger numbers in its fiscal first quarter (Apr-2011 to Jun-2011) and expects to post an annual profit compared to last year's loss. The regional LCC also stated it has made “excellent” progress on its strategic growth plans, with the acquisition of Finncomm Airlines in the quarter. But investors are not fully comfortable with the carrier's plans, selling the stock down since its listing at the end of last year.