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Based in Lisbon, TAP Portugal (TAP) is the national airline of Portugal. The carrier operates a domestic and regional network of services within Portugal and Europe as well as international services to North America, South America and Africa. In addition, TAP operates cargo services on five all-cargo routes as well as on all other TAP Portugal flights. TAP has been a member of the Star Alliance since 2005.
Location of TAP Portugal main hub (Lisbon Portela Airport)
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31 total articles
TAP Portugal’s 2012 annual report, published at the end of Jul-2013, gives food for thought to anyone interested in bidding for Portugal’s national airline.
The bad news is that the group made another net loss, its balance sheet was woefully under-capitalised, with high debt levels and negative equity, and labour productivity was mediocre versus European peers. The Portuguese Government has reiterated its intention to re-launch the privatisation process in 2013.
So how should the Government tell the story to prospective buyers? The good news is that losses narrowed, cash flow improved and net debt fell. Moreover, RASK increased, ex fuel CASK remained under control and labour productivity improved.
Further gains could be made, for example through higher load factors and more headcount reductions and, perhaps, by focusing the long-haul network even more sharply on its Latin American niche. In addition, heavily loss-making non-core businesses should be sold or closed. More time may be necessary to demonstrate progress is being made.
SATA, the ambitious and successful airline based in the Azores chain of islands west of Portugal in the Atlantic Ocean, is seeking a role amongst Europe’s establishment of smaller, niche carriers. Driving this, the airline’s entry into IATA’s billing settlement plan is a further step towards an expanded presence. SATA has built up a number of interlines and is looking to expand those and increase two-way codeshares.
Its focus is bringing tourists to the Azores and is therefore a niche long-haul operator but it still faces competition from European LCCs. It is hoping that a product unbundling will help it compete more effectively in short-haul markets while codeshares will increase long-haul traffic, which it may grow with additional widebodies or next-generation narrowbodies that can cross the Atlantic. It has favourable geography for connecting traffic in some markets and would like to increase this incremental revenue.
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.
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.
TAM will soon defect from Star to join its sister carrier LAN in oneworld. TAP Portugal’s future alliance membership is surrounded by uncertainty until its likely renewed privatisation process is complete. These developments throw the spotlight on the strategic importance of routes from Europe to Latin America to European carriers, who dominate this market, in particular the Big Three, but TAP Portugal, Alitalia and Air Europa also have noticeable positions. The South Atlantic market is only around one fifth of the size of the North Atlantic market by RPKs. So why should Latin America matter to European airlines?
In addition to forecast passenger traffic growth rates that, while not spectacular, are still very respectable and superior to those in Europe and on the North Atlantic, Latin America is a fascinating strategic battleground for Europe’s carriers, both directly and through alliances.
It is a territory of changing alliances and emerging players and, for those that are successful, market share gains can provide significantly higher growth then the underlying market.
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.
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