Malev Hungarian Airlines

Budapest market recovers following loss of Malev

The Hungarian market has recovered incredibly well since the loss of national carrier Malev Hungarian Airlines in Feb-2012. In the days and weeks that followed, up to 80% of the point-to-point traffic lost from Malev’s collapse on 03-Feb-2012 was quickly recovered. By the start of the 2012 summer season nearly all of the point-to-point traffic was already recovered. Wizz Air and Ryanair were first to fill the void, however other carriers from across Europe also increased their presence in the months following.

Low-cost carriers have accounted for most of the capacity added to fill the void left by Malev. Hungary-based LCC Wizz Air now faces a considerable level of competition from Ryanair, which opened a base at the airport in mid Feb-2012. While there has been a lot of activity in the past seven months, more expansion is still yet to come at Budapest Airport.

Ryanair's profits fall as it ponders stakes in Aer Lingus and London Stansted

Dublin-based Ryanair recorded a near 30% fall in earnings for the three months ending 30-Jun-2012 in spite of a 6% rise in passenger numbers and a 4% increase in average fares. Net profit for its fiscal first quarter came in at EUR99 million compared to EUR139 million in the year-ago period as revenues rose 11%. But the airline's total operating expenses grew at a higher rate of 17% primarily due to sharply higher fuel costs.

Ryanair’s decrease in net profit was in line with its own guidance, but below consensus forecasts of EUR114 million. Despite the fall in earnings during its fiscal first quarter the carrier is maintaining its full-year outlook and expects to earn between EUR400 million and EUR440 million for its fiscal year ending 31-Mar-2013 as continuing austerity measures, recession in Europe and lower yields at new bases will restrain fare growth. It anticipates growing passenger numbers by 5% to 79 million. Europe’s largest LCC in terms of passengers posted a net profit of EUR503 million in FY2012 and EUR403 million in FY2011.

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.

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.

Finnair to increase focus on Asia as JV partner takes over short-haul operation

Finnair has entered into discussions with potential partners to form a joint venture which would take over part of its unprofitable short-haul operation. The new JV would be a major component of a restructuring and could allow Finnair to increase its presence in the Nordic region under a lower and more competitive cost base. Finnair is seeking to use the new joint venture to open new bases in the region in line with its Nordic Champion strategy but has embarked on a restructuring of its own mainline operation to become competitive and restore profitability.

By establishing the JV, Finnair hopes to reduce costs on its regional network and free up capital to invest in further expanding its Asian network. The Europe-Asia market has been the major focus for Finnair in recent years with the carrier exploiting its geographic advantage to offer convenient connections to a growing number of Asian cities.

In announcing its 2011 results and revised strategy on 09-Feb-2012, Finnair CEO Mika Vehviläinen explained that "the potential joint venture would expand our home base to cover the entire Nordic region" and would "support our Asian strategy through increased feeder traffic for our Asian destinations and better presence in key cities throughout the Nordic region". Mr Vehviläinen said the arrangement is unlikely to include network carriers and should not require any equity tie-up.

An agreement is aimed to be signed in mid-2012, with the new joint venture operation expected to commence in 1H2013. Finland’s Government, which owns a 55.8% stake in Finnair, has said it may consider selling its stake to enable the company to form a joint venture in Europe.

After Malev's grounding, Hungary could become large LCC market with Wizz Air and Ryanair moving in

Low-cost carriers, in particular Wizz Air and Ryanair, stand to benefit the most from the 03-Feb-2012 suspension of services at Hungarian flag carrier Malev. Budapest-based Wizz Air was already the second largest carrier in the Hungarian market and has now become the country’s largest carrier. Ryanair, which only late last month unveiled plans to resume service to Budapest, will become within a few months the second largest carrier in Hungary in the post-Malev era.

Lufthansa, as the largest remaining legacy carrier in the Hungarian market, is also poised to benefit from Malev’s grounding. Malev had accounted for a 47% share of capacity (seats) in its home market. Most of this share will be absorbed by LCCs although total traffic at Budapest Liszt Ferenc International Airport, which is owned by a private consortium led by Germany’s Hochtief, will likely decrease as its status as a transit hub is lost. Malev had been pushing to raise Budapest’s profile as an international hub, focusing on east-west connections. Malev's collapse saw oneworld overnight drop from the leading alliance in Hungary to the third largest after Star Alliance and SkyTeam.