Flybe

EasyJet works the Gatwick slot machine as Flybe cashes out

On 23-May-2013, Flybe announced it had conditionally agreed to transfer all of its 25 daily slot pairs at London Gatwick (6% of the total at the airport) to the airport’s leading carrier easyJet for GBP20 million. The deal is subject to approval by Flybe shareholders at an EGM (expected in Jul-2013). Flybe intends to continue to use the slots to operate its existing routes from Gatwick until Mar-2014.

Flybe may have been pondering the decision to end its 22 year association with Gatwick for some time. Its slot share at the airport has declined in recent years, while airport charge increases have disproportionately hit operators of regional aircraft.

Why did Flybe make the decision; what does the deal say about the value of Gatwick slots versus those at Heathrow; and how might easyJet use the slots?

European airline consolidation to enhance financials? Few deals to be done, at least locally

European airline margins have underperformed other regions for years. There are many reasons for this, but our analysis suggests that Europe’s relative lack of consolidation may be a significant one, since margins appear to be correlated with market concentration. Even after a number of significant deals over the past decade, the European market is less concentrated than North America, where consolidation has gone further, to the benefit of margins. Europe is also less concentrated than Asia-Pacific (analysed as its sub-regions), whose margins have consistently been the highest.

If consolidation brings structural benefits, are there still European deals that can make a difference? Europe has a long tail of small carriers, which are unlikely to have a significant impact, but comparison with North America points to the potential for further combinations among the top five. Nevertheless, there are hurdles to such deals, not least of which are the ongoing restructuring programmes at Europe’s Big Three and the incompatibility of LCC/FSC mergers, but some second tier groups could be targets.

European airline labour productivity: CAPA rankings

This analysis updates CAPA's previous study of European airlines’ labour productivity ("European airlines’ labour productivity. Oxymoron for some, Vueling and Ryanair excel on costs") to reflect the most recent financial results and adds four carriers not included in the original article (Wizz Air, Aegean Airlines and the two IAG subsidiaries British Airways and Iberia).

The contrasting performance of LCCs and legacy carriers is clear, although there are some notable exceptions to the pattern. BA and Iberia’s different labour cost productivity is significant, while Air France-KLM and SAS are weak performers.

We introduce an overall CAPA European airline labour productivity ranking, revealing the carrier with Europe’s most productive workforce, based on six measures.

Finnair: what a new CEO should know before joining. Cost reductions "absolutely necessary"

Finnair’s CEO Mika Vehviläinen stepped down on 28-Feb-2013 to take the helm at cargo handler Cargotec. During his three year tenure, Finnair (which celebrates its 90th anniversary in 2013) came back from heavy losses into the black and added an order for five A321s to its order for 11 A350s. A successor is yet to be appointed, but the group has ambitious targets for its long-haul network and its financial performance. Maintaining profitability to fund aircraft deliveries will be one of a number of challenges for the next CEO.

Mr Vehviläinen set a target of doubling Finnair’s revenue from Asian traffic by 2020. Its unit costs are competitive against other European legacy carriers, but less so compared with carriers based in lower wage Asian economies and European LCCs. Both the short/medium and long-haul parts of Finnair’s network will need to be highly cost efficient.

The strategy will require growing European feeder traffic and Finnair will need to develop appropriate platforms to deliver this, either organically or by building partnerships such as its joint venture with Flybe.

European airlines' labour productivity. Oxymoron for some, Vueling and Ryanair excel on costs

Historically, labour was the biggest operating cost for airlines, before the oil price hikes of the early 2000s pushed up fuel costs. Even now, labour remains the biggest cost for many carriers and is probably the most important ‘controllable’ cost for all. At the same time, labour is the main agent for service delivery in any service industry and airlines must balance labour cost reduction with maximising the output of labour.

This tension remains a key dynamic for European airlines, whether they are legacy carriers looking to restructure in the face of unions' foot dragging, or low-cost carriers looking to maintain their advantage based on greater labour mobility and flexibility across the continent.

CAPA's analysis of the labour productivity of 14 European airlines reveals a wide range of levels of performance, pointing to what could be an irreconcilable gap between those that will succeed and those that may disappear. It again highlights the success of the low-cost model, particularly Ryanair and easyJet, and the significant challenge faced by legacy flag carriers, who, in some cases, still need dramatic – not just incremental – improvements in productivity.