Trading Places: In one of 10 key trends, European airlines are—like a 1980s film plot—swapping roles

European airlinesIn the late 1980s, a succession of terrible films with names like “Vice Versa,” “18 Again!” and “Like Father, Like Son”—collectively known as the “body swap genre”—all depicted someone acting like someone else. Kirk Cameron was old. George Burns was young. The explanation was always something ridiculous, like someone drinking a magic potion.

Fast forward to 2015, and European airlines seem to be drinking those same body swap potions. And that’s just the first of—in no particular order—10 key trends currently shaping the European airline industry:

  1. Legacy airlines and low-cost carriers (LCCs) are “Trading Places:” In this more distinguished 1983 film, a down-and-out Eddie Murphy swaps places with a wealthy commodities broker. Likewise, Europe’s airlines are increasingly trading places, with LCCs stepping out of character to prioritize corporate business and legacy airlines suddenly fond of tourist traffic. Ryanair, once intolerant of any unnecessary cost or complexity, is going all in on corporate travel. easyJet has been doing exactly that for several years now. But Air France/KLM and Lufthansa? They’ve redoubled their focus on leisure, in Lufthansa’s case even on longhaul routes using lower-paid Eurowings crews. The legacy airlines are also looking more like LCCs by scheduling their airlines much more dynamically than in the past—by season and by day of week—not afraid to operate routes a Ryanair-like less-than-daily schedule if that’s what market demand dictates. Lufthansa’s Swiss unit, for example, now offers numerous summer-only, less-than-daily shorthaul routes from Geneva. Most major legacy airlines, meanwhile, now offer LCC-like shorthaul fares that don’t include perks like checked bags.
  2. Europe has exactly four large, successful LCCs: What’s new here is that such a statement can be made so definitively. Three independent LCCs—Ryanair, easyJet and Wizz Air—plus Vueling, now a part of IAG (the parent of British Airways and Iberia) but operating mostly as it did before being acquired, are among the most profitable airlines in the world. All other LCCs are either unprofitable (Norwegian) or much smaller (Jet2). On Europe’s periphery, Turkey’s Pegasus is large and successful; thankfully for European LCCs, it is far less of a menace for them than Turkish Airlines is for European legacy airlines. Speaking of which…
  3. Intercontinental markets are no longer a safe haven for European legacy airlines: The major exception here is North America, where the economy is strong and where European airlines have worked with their U.S. partners to constrain capacity and thus keep fares reasonably high. But nearly all other intercontinental markets—i.e., not just longhaul but…

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Also Inside this Issue:

The peak summer travel season is underway in the U.S., and airlines expect it to be busier than ever. The economy is relatively heathy, energy prices are down and Americans are on the go.

So why did U.S. airline stocks tumble off a cliff last week? Because of worries about a slide toward overcapacity, aggravated by Southwest’s latest expansion plans. Pessimists point to seat miles that are now growing considerably faster than the economy, while more relaxed observers distinguish between the reckless growth of old (splurging on lots of new planes and fighting market share battles) and the smarter growth of today (upgauging, densification and can’t-miss opportunities like using newly available gates at Dallas Love Field).

“Smart growth” might not be the best way to describe Alitalia’s double-digit expansion of scheduled ASKs in the upcoming fourth quarter—it seeks salvation in the far abroad, where yields are currently imploding. Still, it’s a considerably smaller airline than it was at the start of this decade, even accounting for its since-shuttered Air One subsidiary. Its next major move: a break with Air France/KLM, at least with respect to cooperation within Europe.

Cooperation seems absent between management and certain labor unions at SAS and Cathay Pacific. Delta and Azul are doing the opposite of cooperating in the U.S.-Brazilian market, engaged instead in a tit-for-tat route scuffle. Same for JetBlue and Southwest, which are competing for northeast-to-Florida dominance.

Last week marked a lull in the Q1 earnings parade, but fret not: This week brings results from the mighty Ryanair, among others.

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