LOT - Polish Airlines

Europe's airlines in China: Lufthansa and AF-KLM largest as British Airways/oneworld play catch up

China is the world’s most populous nation and its second largest passenger aviation market with enormous growth potential in spite of some regulatory brakes. So why is it that some European countries are under-served to China by their home carriers, in particular Spain, but also Italy and the UK? It is not an easy market to serve and yields remain low, but it is a must-do market.

Air China and Lufthansa are the biggest players on Europe-China and this is reflected in the Star Alliance controlling almost half of the seats on these routes and SkyTeam’s Air France and KLM both have strong positions in Amsterdam and Paris respectively. By contrast, British Airways finds itself in the most competitive Europe-China market, the UK and without a Chinese partner.

While BA is starting a Chengdu service and increasing its Shanghai frequency from six times weekly to daily, Iberia is absent entirely from China and IAG looks very under-represented in this large and fast-growing market. In spite of Finnair carving out a successful niche, oneworld is an also-ran on Europe-China, with only a 10% share.

OLT Express collapse leaves limited gap in the Polish market

The collapse of Polish hybrid carrier OLT Express has had a negligible impact on the Polish market as only a few of the carrier’s approximately 20 routes have been picked up by others. While LOT Polish Airlines regional subsidiary Eurolot has filled the void left by OLT Express in three domestic markets and is considering taking over a few more, more than half of OLT Express’ former routes have been left completely un-served. Interest in most of the axed routes is limited as the new carrier was ultimately unsuccessful in its attempt to stimulate demand on previously un-served point-to-point domestic routes which bypassed the main Polish hub of Warsaw.

OLT Express re-launched operations in Apr-2012, rebranding from Jet Air after being purchased by the Amber Gold Group. The Group also included OLT Express Poland, a separate carrier than OLT Express that caters to the charter market, and OLT Express Germany.

Romania's TAROM remains confident of reversing its fortunes despite facing huge competitive hurdles

Management of Romania's TAROM believes it will not slip into a scenario like Hungary’s national carrier Malev, which ceased operations in Feb-2012, arguing that it has the “capability to adapt quickly”. But TAROM executives will find a hard time proving their case as the Romanian carrier has recorded losses for four consecutive years and is expected to remain in the red in 2012.

TAROM faces significant pressure from LCCs, namely from Wizz Air, which is absorbing an increasingly larger part of its market. In addition, the airline’s efforts to restructure and find a new business model are hindered by repeated delays of plans to sell 20% of the company. Eventually the Romanian carrier’s full ownership should end up in private hands.

But it is unlikely that a private investor will step forward to purchase a minority stake in state-owned TAROM in the current European financial environment. Europe’s economies are overall in bad shape, and there is an oversupply of small and medium airlines for sale whilst potential buyers are scarce.

Air India, China Southern, Ethiopian, LAN, Qatar and United all near 787 deliveries

United Airlines has affirmed it is on track to receive its first Boeing 787 in Sep-2012 and five in total by the end of the calendar year. Their deployment in a business, economy plus and economy configuration will initially be on domestic routes for familiarisation purposes and later expand to regular international routes, especially long and thin ones like United's recently announced Tokyo Narita-Denver service, as well as service to long-haul destinations in the off season, allowing United to retain service but without large capacity deployment.

But before United takes delivery of its aircraft, Air India, China Southern Airlines, Ethiopian Airlines and Qatar Airways are all due to receive their first aircraft. Air India's delivery has been protracted but is understood to occur later this month provided the government approves a compensation package. China Southern is due to receive its first aircraft in Aug-2012 and is expected to initially use it on domestic services. Ethiopian and Qatar are also slated to receive their first 787s in Aug-2012 while Latin American launch operator LAN plans to take its first 787 two months after United, in Oct-2012. Following All Nippon Airways's early lead, United and China Southern also plan to feature special liveries on their aircraft.

IAG faces more Spanish worries as its largest shareholder Bankia needs massive bailout

International Airlines Group (IAG), formed by the merger of British Airways (BA) and Iberia in Jan-2011, is facing increased Spanish headwinds as its largest single shareholder is in need of a massive bailout from the Spanish Government. Bankia’s parent company Banco Financiero y de Ahorros (BFA) holds 12.09% of the share capital of IAG and has asked the Spanish Government for a EUR23.5 billion rescue to cover exposures to real estate, deteriorating loans and accounting discrepancies. The embattled banking conglomerate has already announced it will divest several assets and its IAG shareholding is one of the assets being considered for sale.

At the closing the London Stock Exchange on 30-May-2012 IAG’s market capitalisation was GBP2.6 billion (EUR3.2 billion), valuing the BFA-Bankia stake in the airline group at GBP312 million (EUR390 million).

With its eyes set on LOT and TAP, Turkish Airlines aims to become Europe’s most European airline

Turkish Airlines has steadily expanded its network in Europe over the past decade but now it intends to take its expansionistic conduct a step further with acquisitions in some of the continent’s medium-sized airlines. It is in negotiations with LOT Polish Airlines to purchase a shareholding and it has shown preliminary interest to participate in the planned privatisation of TAP Portugal. Turkish has already one of largest networks in Europe and its new strategy to complement its strong organic expansion with mergers and acquisitions spells more bad news for Europe’s legacy airlines that have not been able to match Turkish Airlines’ high growth in recent years. Turkish Airlines has openly stated it aims to be the world's largest carrier.

The Istanbul Ataturk-based airline has consistently outpaced the traffic growth of its European full service counterparts since 2003 and has posted growth rates well above the average of the Association of European Airlines (AEA) members.