European airlines face overcapacity & resurgent labour. Recent profit warnings make alarm bells ring

A recent bout of profit warnings from a number of European airlines are ringing alarm bells and providing a reminder of the fragility of profitability in the industry. Airlines of different sizes, shapes and geographies have been prompted to announce a lower outlook for 2014 earnings, including Lufthansa, Finnair, Aer Lingus and Icelandair. Notably, these are all legacy carriers.

Although the details differ in each case, two broad themes emerge from these announcements. The first relates to signs of overcapacity in some markets, leading to revenue weakness. This is also linked with the growing competitive threat posed by alternative business models to Europe's legacy carriers, whether by LCCs on short-haul or Gulf carriers on long-haul.

The second theme is the impact that labour has on profitability, whether damaging it through industrial action, or assisting it through cost savings.