In January and February much of Europe was caught in the icy grip of a Siberian chill. For its airlines, the winter has proved no easier to weather.
Four carriers have had to pull the plug on flights since the turn of the year. Another, Austrian regional Air Alps, was forced to suspend flights for two weeks before resuming in February
That European airlines would struggle this winter is little surprise. In the face of the eurozone crisis, rising fuel costs and an increased tax burden, IATA forecast Europe's airlines would lose $600 million this year, at best. And the post-New Year months, with demand at its weakest and cash flow most strained, are usually the hardest for airlines.
However, the collapse of long-established Malev and Spanair within a week of each other sent shudders through the sector and raised questions over who might be next.
While neither carrier was the picture of health, the loss of two alliance members and familiar brands at this point is significant. After all, the two had racked up about 90 years flying between them and, despite losses, continued to defy the odds - until now.
Spanair halting flights and filing for bankruptcy protection in late January was precipitated by Catalonia's regional government making it clear that no further loans would be forthcoming following the end of talks with Qatar Airways over a potential rescue deal. The Catalonian government was the largest shareholder in Spanair.
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Hungarian carrier Malev, meanwhile, was forced to ground its fleet in early February in the face of accelerating financial problems. It had earlier admitted the financing of its activities had become "unviable" since the European Commission in January ordered it to repay nearly $400 million of illegal state aid.
European carriers are facing a dangerous mix of a weak revenue picture combined with rising costs, historic debts and the closing down of avenues of support. There are few suitors with the appetite or reason to ride to the rescue, partly because Europe's white knight airlines face their own battles, while the Commission as state aid enforcer has turned off the tap of government support, which was already running dry amid the debt crisis.
"I suspect the European Union will have no tolerance to these situations and will only allow help in very extreme situations," says Alex Cruz, chief executive of Barcelona-based Vueling. "The EU will be very stringent. We're coming towards the end of seeing state aid taking place in the EU."
Those that turned to the state before, now find their hands tied by the Commission's one-time/last-time rules, limiting restructuring aid to once in every 10 years.
Malev was far from alone in facing scrutiny from Europe's regulators. In January, the Commission launched an investigation into whether the Maltese government's planned €130 million ($172 million) restructuring aid for ailing Air Malta complies with state aid rules. The Commission already has an ongoing probe into restructuring aid for another European carrier, Czech Airlines.
Another struggling carrier using state funds as a life support machine is Slovenia's Adria Airways. Last year, the Slovenian government injected €49.5 million into the airline. The investment was granted on the condition that Adria provides quarterly updates on the implementation of restructuring measures.
Peter Morris, chief economist at Flightglobal's Ascend data and consultancy business, warns against a simplistic approach that declares national subsidies are all bad and free market enterprise is all good. He points out that "in most cases" the use of state subsidies by airlines is "done within the interpretation of EU law, but there are elements of grey".
ECONOMIC DECISION
However, Morris believes airlines wholly-dependent on state funding face being "wiped out when that white-heated competition comes along". "It's not so much a case of is it morally right or morally wrong," he adds, "from an economic point of view this dependency culture is counterproductive."
European airline challenges stem from the 2008 banking crash developing into a political crisis, with concerns over the euro, debt-burdened economies, a bleak growth outlook for much of Europe, and rising energy costs.
"All these factors make it a very volatile economic environment," says Association of European Airlines secretary general, Ulrich Schulte-Strathaus. He also points to the build-up of financial pressure. With little respite for European airlines in the last up cycle, some have already sold a lot of their assets in battling through. "It means there is not a lot they can do now," he says.
This combines with a different climate to a decade ago when the likes of Swissair and Sabena collapsed. Then there was an appetite or political will to invest in the slimmed-down successors. Now Governments and strategic airline investors alike face their own challenges, while the jury is out on the extent of Gulf carrier interest in airlines they can only control minority stakes in.
"Cash-strapped airlines might need investment, but it is not easy to find investors," observes Schulte-Strathaus.
However, market consolidation continues. As soon as Malev and Spanair stopped flights, rivals moved in. By mid-February Ryanair had set up shop at Malev's Budapest base; Wizz Air added two more aircraft; and others added flights. Moves were less evident at Barcelona, which had Ryanair and Vueling bases alongside Spanair. But Vueling is among those carrier to have already added new services.
Source: Airline Business
