Jetairfly

Europe's non-scheduled airlines in long-term structural decline, but Thomas Cook, TUI evolving

The market for non-scheduled (charter) passengers in the UK and across Europe is in structural decline and this appears to be confirmed by recent data from the UK Civil Aviation Authority. The main beneficiaries have been the low-cost carriers as holiday-makers have developed the habit of assembling their own self-made package of flights, hotels, car hire and other services. Nevertheless, there is still a role for integrated tour operators, particularly for specialist, long-haul and other niche holidays. This is illustrated by TUI Travel’s recently reported expectation of a 10% increase in profit for FY2013.

However, neither TUI Travel nor Europe’s other major listed tour operator, Thomas Cook, has any plans to expand its fleet and Thomas Cook has even indicated that it is considering an asset light model, making more use of third party capacity. The Thomas Cook group continues to focus on its restructuring, an important element of which is its recent decision to integrate its four airlines into one. This could also be a precursor to selling its airline eventually as the travel companies focus on their distribution and destination management skills.

Ryanair opens two new bases in Morocco, 6 months after charges dispute; and RAM looks for a partner

Europe’s largest low-cost carrier Ryanair will establish two bases in North African tourism hotspot Morocco in Apr-2013, just six months after the Irish-based carrier’s decision to cut 34 frequencies, including several routes entirely, in protest at rising costs at the country’s airports.

But in a major turnaround Ryanair will base two aircraft at Marrakech and another at Fes while also adding two new Moroccan airports at Essaouira and Rabat as it looks to grows its Morocco operations to 60 routes and eight airports, delivering up to 2.5 million passengers a year to the country.

The decision is in stark contrast to situation in Jun-2012 when Ryanair announced it would cancel 34 weekly flights, about 14% of its capacity, to and from Morocco, claiming ONDA, the state owned airports authority had “reneged  on its agreement with the airline by imposing a new monopoly handling company on Ryanair which would have resulted in a massive increase in charges for the airline”.

The decision by Ryanair first to reduce capacity and now reinstate it offers a significant boost for Morocco’s struggling economy, heavily reliant on European tourism. But it will also put further pressure on state-owned Royal Air Maroc (RAM).

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.

Europe’s LCCs are making a first entry in Algeria

It is rare but it still exists: a market with virtually no LLC presence. Low-cost carriers have an approximate 0.8% share of scheduled seats flown to/from Algeria. Liberalisation of air transport is in its infancy across northern Africa, yet the absence of LCC services to Algeria falls short of the overall penetration of low-cost carriers in the region. LCCs have an approximate 18% capacity share (in terms of seats) on routes to/from north Africa, according to OAG data for the first nine months of 2012.

Algeria’s situation contrasts sharply with the situation at its western neighbour Morocco where the no-frills segment conquered an approximate 35% capacity share in terms of seats deployed on international routes. Morocco has an Open Skies agreement with the European Union, and this explains the high market penetration of LCC on international routes, but Algeria’s eastern neighbour Tunisia has no such ASA in place and LCCs still produce just 8% of seats flown to/from the country. Western Europe is the main market for these three north African countries.

Tunisair’s sluggish attitude towards change makes it ill-prepared for Open Skies

As a majority state-owned airline in North Africa, Tunisair has retained most of the flag carrier privileges that are cemented in the 1944 Chicago Convention, but those protectionist practices run counter to the present realities of passengers wanting choice and low fares. It is only natural that Tunisair defends its flag carrier status and historic market share, yet its lax attitude to take out legacy waste makes it ill-prepared for an Open Skies with the European Union or other Maghreb countries.

Tunisair deploys about 70% of its weekly seat capacity on routes to Western Europe and it has a 55% to 68% share of all one-way seats flown between Tunisia and Western Europe depending the high or low season. This is likely to decrease under an Open Skies with the EU and this in turn could lead to a further erosion of Tunisair’s financial results.

Ryanair’s latest fight over airport charges could lead to drop in traffic in Morocco

Europe’s largest no-frills carrier has unveiled plans to cut 34 weekly flights from its schedule to and from Morocco in a row over airport charges. The cut represents about 14% of its current capacity to/from Morocco and will result in Ryanair's capacity share in the Western Europe-Morocco market dropping 1 percentage point to about 16%. The new cut follows cuts implemented over the last nine months which have already reduced Ryanair’s share of capacity in the Western Europe-Morocco market by 4ppt from about 21% to 17%.

While relatively small in the broader Moroccan market, the new cuts are significant because Ryanair is the largest low-cost carrier in the country and is the second largest carrier in the key Morocco-Europe market. The dispute with Morocco’s state owned airports authority ONDA (Office National Des Aéroports) could potentially lead to further capacity cuts by Ryanair, leading to a potential drop in traffic at ONDA airports and impacting Morocco’s important tourism industry.