A European Wild West as Airlines Eye Opportunities
How Will Europe’s Airline Market Reshape Itself Out of This Crisis?
Stronger, leaner and poised to capture new opportunities — that’s the name of the game among Europe carriers. After posting staggering losses similar to their U.S. brethren, nearly every airline is singing something of a more optimistic tune now with a way out of the coronavirus pandemic coming into sight.
“We will re-dimension our fleet and our workforce and transform our business to adjust to a smaller and structurally changing markets,” was how Lufthansa Group CEO Carsten Spohr put it to describe the group’s restructuring. In 2020, the conglomerate opted to remove 115 jets — including all of its Airbus A380s — and slimmed its workforce by as much as a fifth at its Brussels Airlines subsidiary. Even Lufthansa’s seemingly sacrosanct Frankfurt and Munich hubs were (finally) opened to other group carriers.
But Spohr’s colorful corporate speak was just another way to put the same story. Air France-KLM is on track to cut full-time equivalent (FTE) employees by 14,500 by the end of 2022, and IAG slashed some 10,500 staff from its Aer Lingus and British Airways subsidiaries. On top of that, more planes were parked, fleets streamlined and even some operating subsidiaries — like Level France — closed. The view that significant long-term savings were achieved was nearly palpable.
And what did these cuts achieve? Net losses of €7.08 billion ($8.4 billion) at Air France-KLM, $8.4 billion at IAG and €6.7 billion at Lufthansa in 2020. Each carrier expects improvements this year but few — none? — think the European carriers will turn a profit.
“The problem, at least in the near-term, is that most European governments are currently extending (or even tightening) restrictions to prevent the spread of new COVID-19 variants,” wrote J.P. Morgan European airlines analyst David Perry in an outlook in February.
These restrictions are weighing on every carrier’s short-term outlook. Both mainline and low-cost carriers have slashed capacity in response to the latest round of European travel restrictions. EasyJet plans to fly just 11 percent of 2020 capacity in the first quarter, Norwegian Air six percent, Ryanair 13 percent and Wizz Air 47 percent, according to Cirium schedules.
But restrictions are not keeping airlines from looking ahead. Many are downright bullish on their growth prospects coming out of the Covid-19 crisis, with EasyJet and British Airways both reporting dramatic week-over-week booking increases following the unveiling of the UK’s reopening plan. Budget carriers, in particular, are betting their low costs and holiday-travel tilt will be strategic strengths for them in the leisure-first recovery.
“We will emerge out of this with a much lower cost base… And we should use that to lower prices to take as much market share as we can cope with,” Ryanair CEO Michael O’Leary said in February. Never shy to name names, he cited cuts by Alitalia, EasyJet, Germanwings, Lufthansa, Norwegian and TAP Air Portugal as opportunities for the Irish discounter.
Ryanair plans to take delivery of 100 new Boeing 737 Max 200 jets over the next two years, and another 100 by 2025. While some of these jets will replace older models in its fleet, many can be put to work fueling the growth envisioned by O’Leary.
Ryanair is not alone seeing opportunity across the continent. Eurowings, Finnair, Icelandair and Vueling, to name a few, are also taking advantage of others troubles to grow. Eurowings will open a Berlin base aimed at capturing some of the holiday traffic that now flies on EasyJet or Ryanair. Finnair hopes to pick up some of the market ceded by Norwegian in its reorganization. And Vueling also has its eye on some of Norwegian’s former market with plans for eight new routes between sun-soaked Mediterranean destinations and Scandinavia.
But with air travel not forecast to return to pre-crisis levels until at least 2024, not every European airline can grow out of the crisis. Ryanair has the most ambitious plans — also one of the more outspoken airline chiefs on the continent — while others appear more muted and strategically focused in areas of strength. For example, it’s not difficult to see Finnair as a larger Scandinavian franchise while Eurowings plans to connect the UK and the Mediterranean this summer may raise some eyebrows.
Even before the crisis, industry leaders repeatedly said the European aviation market was too fragmented and ripe for consolidation. And while Covid-19 has prompted some airlines to close their doors and others into high-profile reorganizations, those forecast combinations have yet to materialize.
Europe, like the domestic U.S. market, looks to be set up for something of a Wild West of share grabs over the next years. Airlines will try routes, maybe open bases, and some will work but others will not. Giddy up and hold on to your hats.