Marseille Airport

European woes force changes for the better at Indian Ocean carriers, with Air Austral the latest

Hardest hit from the European economic situation, aside from the carriers that have collapsed, are far away from continental Europe in the Indian Ocean, which contains the self-proclaimed Vanilla Islands grouping of countries: La Reunion, Madagascar, Mauritius and Seychelles. These nations' carriers are largely dependent on European leisure traffic, which has evaporated in the dual threat of weakening economies and high fuel prices that provide no stimulation to whatever demand is left.

The starkness of the situation has been demonstrated most recently by Air Austral, which over the northern winter will reduce its long-haul network to a single destination and will postpone – or possibly cancel – its order for two Airbus A380s, following it being unable to pay for a new Boeing 777 awaiting delivery. Air Austral is also looking to partner with Air Mauritius to maintain a connection to Australia, a further sign that the situation in Europe is forcing the Vanilla Island carriers to make medium/long-term strategy changes that will finally strengthen them. Etihad Airways earlier this year acquired a stake in Air Seychelles and is now lending management oversight to the Seychelles flag carrier while the region's other carriers have conducted overdue network reviews.

Spiralling fuel costs trigger higher 1Q2012 loss at Air France-KLM

Incessantly high fuel costs and an unwelcome increase in employee expenditure, highlighting the urging need to restructure workforce productivity and pay, pushed Air France-KLM Group into a deeper loss for 1Q2012 despite a surprising rise in passenger unit revenue and buoyant passenger traffic. Operating loss for the first three months widened almost 50% from EUR403 million to EUR597 million in the year-ago period. Air France-KLM’s net loss remained flat at EUR368 million but benefitted from a one-off gain of EUR98 million relating to the sale of a stake in Amadeus.

Air France-KLM is not Europe’s only airline group to report worsening 1Q2012 results. Lufthansa Group, Europe’s largest airline group, has posted a EUR381 million operating loss for the first three months of 2012, compared to a EUR169 million operating loss posted in 1Q2011 and announced it will cut 3500 full-time jobs in administrative departments worldwide over the coming years as part of its SCORE programme. SAS Group also has reported a 1Q2012 net loss of SEK729 million (EUR82 million), doubling its 1Q2011 net deficit of SEK373 million (EUR42 million).

EU steps up investigation into state aid to airports

The European Union plans to launch “in-depth investigations” into state aid granted to German and French airports and used to subsidise services from low-cost carriers. State aid is generally forbidden under EU law, but it is permitted for smaller airports, handling up to five million passengers p/a, in order to boost the economy of less developed regions. The European Commission has said it has "doubts whether the subsidies are necessary" and "whether the aid was proportionate".

Air France looks to regional points to counter LCC, TGV threat

Air France has announced plans to move away from its Paris-centric strategy and moved into regional French market in a bid to counter the growing threat of low-cost carriers in its home market, which remains one of Europe’s few remaining spaces for growth in the sector.

Air Malta troubles worsen as unions flex muscle and LCCs grow

Air Malta’s troubles have become more acute as the struggling carrier’s unions increase their opposition to large-scale redundancies. Prime Minister Lawrence Gonzi has stated the present situation is increasingly worrying, particularly in light of the EUR77 million the government has poured into the airline since Jun-2011.

Ryanair in the dock

Ryanair may have to repay millions of euros as Germany’s highest court ruled fees it has received to operate from airports may amount to subsidies in breach of EU competition rules. Lufthansa and airberlin have been awarded the right to pursue legal action accordingly. Together with the other difficulties the Irish airline faces in Germany could this be the beginning of the end for its operations there? Or might there be even more significant outcomes?