Brussels Airlines

Austrian Airlines: a perennial loss-maker undergoing radical restructuring

Austrian Airlines has not made an operating profit since 2007 and has been consistently the weakest Lufthansa Group carrier in terms of margins and passenger growth. It is more exposed than its sister companies to short/medium-haul markets, where price-based competition is fierce, and its long-haul network is relatively light.

However, it has strong market positions on its long-haul routes and is looking to grow this area of its business with an additional Boeing 777, approved by the parent company. Moreover, its recently completed rationalisation of its narrowbody fleet from 11 Boeing 737s to seven Airbus A320 family aircraft will both reduce its exposure to short/medium-haul markets and allow it to serve them more efficiently.

Meanwhile, the centre-piece of its radical restructuring programme, the transfer of flight operations into its regional subsidiary Tyrolean Airways (effective from Jul-2012), and the concentration of administrative operations at Vienna should lead to further cost savings if legal challenges can be repelled.

SWISS: is the star in the Lufthansa Group starting to fade?

Since its takeover by Lufthansa in 2007, SWISS has outpaced its parent’s passenger growth and has been the most profitable carrier in the Group. SWISS’ long-haul network, significant for a carrier of its size, reflects the combination of a small domestic market with an affluent population. Moreover, its long-haul market position is strong.

Playing to its strengths, ASK growth of 2.7% in 2013 will focus on long-haul, specifically driven by SWISS’ new Singapore route and additional capacity on New York and Beijing, while short/medium-haul capacity is reduced.

On the other hand, operating profit has been on a declining trend since 2007. For some years, unit costs have been falling, but unit revenues have been falling faster. Moreover, analysis of its unit costs reveals its CASK to be among the highest in Europe. While the Lufthansa Group expects to beat 2012’s operating result this year, SWISS is only targeting a similar result to last year, suggesting that its period of over-achievement may be ending.

Airlines in Transition part 3: How full service airlines are reshaping models to be more competitive

Over the past three decades, airline industry profits followed a fairly consistent cyclical pattern until the turn of the twenty-first century, which has so far seen seven loss-making years. If 2013 reports a profit, as forecast by IATA, the industry will have had four years of positive results (2010 to 2013). Nevertheless, profits are insufficient to cover the cost of capital and full service carriers still face critical challenges.

The global economy is still weak, fuel prices remain high, LCCs are undermining the legacy carriers’ short-haul markets and the rapid expansion of Gulf carriers is having an impact on their long-haul markets. In our third report on CAPA’s Airlines in Transition conference, we look at how FSCs are responding to these challenges.

African airline start-ups hold the key to unlocking the continent’s riches

Africa’s potentially rich aviation pickings are attracting a new breed of start-ups. Some, like Starbow and FastJet, have ambitions to develop pan-African networks through franchise models. Others, including Africa World Airlines and Korongo Airlines, are focused on their domestic markets and regional services to neighbouring states. Yet a third grouping, led by ECAir, have established inter-continental operations.

While several of the start-ups are backed by their respective governments, it is notable that the strongest contenders are either largely or wholly privately owned and funded.

This new generation of carrier could provide the answer to Africa’s lack of domestic and intra-continental air services by increasing route options, lowering fares and making air travel affordable to the growing middle class.

Aviation enjoys a natural advantage as a means of connecting cities, where most of Africa suffers from poor or non-existent ground transport infrastructure.

Belgium’s Jetairfly targets further growth with new E-Jets and a Boeing 787

In a recent results presentation, TUI Travel Plc described Jetairfly as its “lowest cost” airline, but complimentary words often come with strings attached and the Brussels-based airline was awarded with the challenging task to turn the group’s loss making Moroccan low-cost subsidiary, Jet4You, around and to consolidate the struggling airline into its profitable Belgian business.

Jetairfly launched operations in Mar-2004 and has reported continuously positive financial results despite its robust growth rate, intense competition with Ryanair and the difficult operating environment of Belgium, characterised by high social security contributions and taxes on employment.

Ryanair has a large base at Brussels South Charleroi Airport and the LCC is the country’s second largest operator, accounting for about 23% of system seat capacity. Jetairfly’s full service rival, Brussels Airlines, has been notoriously vocal in criticising Ryanair’s alleged subsidised operations in Belgium and its practice of putting Belgian-based flight and aircrew on Irish payroll to lower labour costs.

British Airways' new route to Monrovia will strengthen oneworld’s position in western Africa

British Airways (BA) is stepping up its presence in western Africa with a new service to Monrovia Roberts International Airport commencing 05-Nov-2012. Currently only two European airlines operate to Liberia’s capital, Brussels Airlines and Air France, and BA’s new service will indubitably challenge the leading position of Brussels Airlines in the small but high yielding Europe to Liberia market. 

Transfer traffic from the US contributes notably to the load and profitability of European services to Liberia, and British Airways with its extensive trans-Atlantic network is well placed to capture a sizeable part of this market. BA's new flight to Monrovia will tag-on to the existing flight from London Heathrow to Freetown in Sierra Leone, which is a former bmi route and is presently operated twice a week with A330 that BA inherited from its acquisition of bmi. BA will operate the new London Heathrow-Freetown-Monrovia route with a smaller capacity Boeing 767-300ER in a three class configuration with 189 seats.