WHETHER IT concerns routes, fleets, codeshares or the number of miniature horses cleared to fly as emotional support animals, the word ‘growth’ seems inescapable in the aviation industry, for the time being at least.
However, while order books are swelling and passenger numbers are at an all-time high, also recording unprecedented growth this year is the number of airline failures.
This has never been more evident than in September, with the collapse of four European airlines – including the largest in UK history – in as many weeks. The first to fall was France’s second-largest carrier, Aigle Azur, which confirmed it had filed for bankruptcy on September 3 and began suspending routes two days later.
The airline was liquidated on September 28, despite receiving 14 expressions of interest, many of which concerned isolated assets – including from Air France-KLM and easyJet, both keen to acquire the defunct carrier’s Paris/Orly operations.
Five days earlier, Thomas Cook Group confirmed it had entered administration – ceasing operations with immediate effect – while similar fates were befalling XL Airways in France and Adria Airways in Slovenia.
Thomas Cook’s collapse was not limited to the UK, where it brought into effect the country’s largest peacetime repatriation, eclipsing that which had followed Monarch’s demise two years earlier. Its Scandinavian airline suspended services for 24 hours, before resuming flying as normal, while German arm, Condor, has been able to continue operating, having secured a €380m (£336m) bridging loan from the German government.
XL Airways, the French low-cost, longhaul carrier announced on September 19 that it was to stop selling tickets “effective today”, advising that some of its flights “may have to be cancelled.”
It initially stopped flying between September 30 and October 3 as a temporary measure, later extending this period to October 7. However, this became a permanent move, with all flights cancelled and confirmation that the company would also be liquidated, on October 4.
Adria, Slovenia’s largest airline, cancelled “the majority of its flight operations” on September 23, sparing only its Frankfurt/Main rotation. Further cuts were made to its route network in the days leading up to a hard stop on October 1, with bankruptcy proceedings initiated the following day.
For decades, Europe has switched between a booming summer schedule and a much quieter winter, causing massive variation in an airline’s seasonal income and its fleet requirements. Each year during the month of October, the number of people flying to, from and within the European Union plummets by almost a quarter – recording a drop of 23.5% for the month in 2017 and 23.2% in 2018.
Unsurprisingly, this sudden fall has a knock-on effect and has led to a higher proportion of airlines succumbing to financial difficulties during September and October – in the past 11 years, more than a dozen airlines have collapsed during these two months.
These include Cobalt Air, Primera Air, Monarch Airlines, XL Airways UK and Slovakian low-cost carrier SkyEurope.
The issue has been compounded by the Boeing 737 MAX grounding, with airlines incurring additional costs scrambling to shore up capacity through short-term leases. Speaking to CNBC, Phil Seymour, president and CEO of consultancy firm IBA Aero, described used 737-800s as “like gold dust at the moment”, with wet lease costs having been driven up by as much as 40% due to demand.
While none of the four airlines to cease trading had been 737 MAX customers, other European carriers and travel groups are exposed to the ongoing issue, including Norwegian Air Shuttle, TUI and Smartwings.
Just five weeks prior to the MAX grounding, TUI issued a statement advising that its bookings were “broadly in line with the prior year – however, margins are not.” It added that this was due to “negative impact from the extraordinary hot weather in 2018… a shift in demand from the Western to Eastern Mediterranean… and continued weakness of sterling, making it difficult to improve margins on holidays sold to UK customers.”
The German holiday giant’s CEO, Fritz Joussen, has stated the grounding has cost TUI €144m (£124m) in the quarter to June and a further €300m (£258m) to the end of September.
Boeing is, for the time at least, continuing to produce its narrowbody airliner at a rate of 42 per month and, currently, stored units number more than 300 examples. Unsurprisingly, there are fears that carriers will face a worsening of the current supply and demand imbalance as the manufacturer tries to clear its delivery backlog. With the manufacturer still hopeful of a return to service in early 2020, overcapacity could be worsened further, and it is likely Boeing could be flooded with requests from airlines wanting to reschedule the acceptance of new aircraft.
While passenger numbers suggest airlines have never had it so good, they are set against a background of fierce competition.
Calls for consolidation within the industry, most recently from the heads of Ryanair and TUI, have gone unheard. Europe currently boasts almost three times as many scheduled airlines as the US and, as such, it is inevitable that overcapacity and everincreasing competition will mean that yet more carriers will collapse.
Rather than an anomaly, this September’s casualties may be an indication of what lies in store. Winter is coming.