Industry Monitor

The EUROCONTROL bulletin on air transport trends

Issue N°168. 19/12/2014

 European flights increased by 0.6% in November compared with November 2013 and were on the low-side of the forecast range. EUROCONTROL statistics and forecasts 1 Preliminary data for December show an Other statistics and forecasts 2 increase of 1.5% in flights on December 2013 with the overall flight growth estimated at 1.7% Passenger airlines 2 for 2014 as a whole. Financial results of airlines 8  IATA forecasts European airlines to report net Aircraft manufacturing 8 profit of €2 billion in 2014 and of €3.2 billion in Airports 9 2015, reflecting oil price declines. Oil 9  Top eight European airlines listed in this bulletin posted €4 billion operating profit Regulation 9 during the third quarter, up 3% on the same Economy 10 period last year. Fares 10  Oil prices slipped to a five-year low, €54 per barrel in December, a fall of circa 40% since June this year. EIA forecasts Brent crude oil price to average €55 per barrel in 2015.

EUROCONTROL statistics and forecasts

European flights (ESRA – EUROCONTROL Statistical Reference Area) increased by 0.6% in November this year compared with November 2013 and were on the low-side of the forecast range. Preliminary data for December show an increase of 1.5% in flights on December 2013; based on this, the overall flight growth for 2014 would then be 1.7% compared with last year (Figure 1). The low-cost segment maintained its dominant growth position with an increase of 7.6% compared to November 2013. Apart from the all-cargo segment which showed a small increase of 0.1%, all the other segments declined. The charter segment slumped 15.7%; business aviation and traditional scheduled, the largest segment, were both down by 3% and 1% respectively.

Based on data from airlines for delays from all causes 32% of flights were delayed on departure (>= 5 minutes) in November 2014; 32% of flights were delayed on departure, this was an increase of 2 percentage points when compared to the same month in 2013. The average all-causes delay per movement in November 2014 increased from 6.9 minutes to 7.1 minutes. Further analysis of the delay reasons shows that Reactionary decreased by 0.2 and Airline delay increased by 0.1 minute per flight (Figure 2) (EUROCONTROL, December).

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Figure 1: Monthly European Traffic and Forecast.

Other statistics and forecasts

IATA published its revised profit outlook for airlines in 2014-2015 and still expects European airlines to report profit of €2 billion in 2014, unchanged compared with its June forecast. For 2015, IATA projects that European airlines will make a profit of €3.2 billion, reflecting oil price declines. The association believes that airlines will make a combined profit of €20 billion in 2015, up from €16 billion this year, €9 billion in 2013 and €5billion in 2012 (IATA, 10 December).

IATA reported that European scheduled passenger traffic (RPK) was up 5.6% in October 2014 (vs. October 2013). Capacity rose by 4.5% and the total passenger load factor was 81.2% (IATA, 4 December).

ACI reported that overall passenger counts at European airports were up 5.5% in October 2014 (vs. October 2013) with overall aircraft movements growing by 2.2% (ACI, 1 December).

Passenger airlines

Capacity, costs and jobs airberlin, as part of its restructuring plan to harmonise its fleet (IM166), will replace all E190 aircraft of its subsidiary NIKI by Airbus family aircraft by June 2015. It is reported that airberlin will also add 14 Alitalia A320 aircraft to its fleet; the latter decreasing the number of its short-haul aircraft. airberlin plans to replace all its 45 Boeing aircraft fleet by 2016 and become an Airbus-only operator (airberlin, 2 December).

Monarch Airlines has confirmed an order for 30 B737MAX 8 aircraft, including options for fifteen additional aircraft to move to an all-Boeing single-aisle fleet by 2020. This order marks the evolution of Monarch as European low-cost carrier (IM166) (Monarch, 31 October).

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Breakdown of all-causes delay per flight

Percentage of flights delayed on departure

Figure 2: Delay Statistics (all causes, airline-reported delay, preliminary data for November 2014).

Swiss start-up Eurosky Airlines is reportedly to start charter service from its base at Zurich in June 2015 (CAPA, 12 November).

Malmö Aviation reportedly plans to merge with Braathens Regional and Sverygeflyg to create a domestic Swedish airline based at Stockholm Bromma. All three airlines are part of Braathens Aviation group. The merger should be completed in autumn 2015 (CAPA, 18 November).

TAP Portugal is again opened to privatisation after the Portuguese government said it would sell up to 66% of the airline (61% through direct sales and 5% to the company’s employees). TAP’s privatisation process was first launched in 2012 (CAPA, 13 November).

It is reported that Iberia Express is to open a second base in 2015, either in the Balearic or the Canary Islands with a view to strengthen its presence in the Spanish domestic market but also in France, Germany and Scandinavia. (ch-aviation, 24 November).

The union of Dutch cabin crew (VNC) reported that it is KLM’s intention to stop hiring new cabin crew as part of a plan to cut costs by €700 million (VNC, 28 November).

AG Air (AGA, Tbilisi) has resumed operations, eight weeks after the Georgian Civil Aviation Agency (GeCAA) revoked its Air Operators Certificate (IM167) (ch-aviation, 1 December).

Austrian Airlines (AUA) and Tyrolean Airways will merge operations in April 2015 resulting in circa 3,200 pilots and flight attendants to be transferred from Tyrolean to Austrian Airlines. AUA transferred its flights operations to its subsidiary Tyrolean in April 2012 (AUA, 5 December).

Lufthansa has signed a Letter of Intent with Sun Express, its joint-venture with Turkish Airlines, under which its long-haul low-fare operations to be launched at the end of 2015, will be operated under the ‘New Eurowings’ brand (IM165). The first destinations will include Florida, Southern Africa and the Indian Ocean with a fleet of three A330-200 aircraft, growing to seven over the next few years (Lufthansa, 3 December).

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Figure 3: Main carriers’ traffic results.

SWISS will cease flight operations at Basel-Mulhouse at the end of May 2015, citing changed market environment since the arrival of low-cost carriers and additional fees at the airport. SWISS stated that the decision was taken independently of whether Basel may be chosen as a future Eurowings base of the Lufthansa Group (SWISS, 8 December).

The Macedonian government reportedly plans to set up a new national carrier in 2015 and has issued a tender for potential consultants to create the new airline. The tender runs until 29 December. MAT Macedonian Airlines, the last flag carrier went bankrupt in September 2009 (Ex-YU Aviation News – December).

Air France confirmed that Transavia France will grow from 16 B737-800 aircraft to 21 in summer 2015 to reach 37 aircraft by 2019. The pilots union, SNPL approved the development agreement which also provides for integrated career management for pilots at Air France and Transavia. To date circa 200 Air France pilots have volunteered to fill the 72 positions available at Transavia France (Air France-KLM, 3 December and SNPL, 10 December).

Belgian regional VLM Airlines will return to scheduled services in January 2015 with the launch of two-daily return flights from Antwerp to Geneva. VLM has just completed its management buyout and ordered 14 Sukhoi SSJ100LR aircraft (IM167) (VLM, 4 December).

Norwegian Air Shuttle has submitted a formal complaint to EC and ESA (EFTA Surveillance Authority) regarding unfair competition in the Scandinavian aviation market. Norwegian stated that SAS Scandinavian Airlines received a differential treatment; these discriminatory conditions prevent Norwegian from obtaining access to traffic rights on the same terms as SAS. Norwegian does not hold an EU AOC and was therefore denied access to operate routes like Helsinki-Dubai, London-Tel Aviv and Barcelona-Tel Aviv routes because Norway is not part of the EU. SAS benefits from a joint Scandinavian AOC giving the airline access to traffic rights both within the EU and EFTA (Norway) (Norwegian, 15 December).

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Figure 4: Main carrier load factors.

Air France-KLM, Lufthansa and European pilot and crew unions have submitted a petition to the European Commission against Norwegian Air International (NAI), Norwegian’s long-haul subsidiary, which wants to start low-cost services from the UK to the US using cheaper Thai staff based in Ireland. They request EC to take a strong stance and prevent NAI from abusing social standards and legislation. US Department of Transportation has temporarily denied NAI’s request for a foreign carrier permit (KLM, 8 December).

Lufthansa pilots went on strike on 1 and 2 December, this was the ninth wave of strike since they started their strike actions in April. The airline reduced its flight timetable by circa 50% for both days (Lufthansa, 1 December).

Ryanair will reportedly lease 7 aircraft to cover its summer 2015 schedule. The low-cost carrier currently operates a fleet of 302 B737-800 aircraft (ch-aviation, 5 December).

Routes, Alliances, Codeshares

Jetairfly will increase to six its new routes from its new base in Antwerp (IM166). Jetairfly will serve Milan Malpensa, Berlin Tegel, Barcelona El Prat, Palma de Mallorca, Malaga and Alicante from Antwerp, starting in May 2015 (Jetairfly, December).

Ryanair announced the opening of two new bases as follows: 1) Bratislava with 2 based aircraft and 16 routes including one new route to Madrid in March 2015; 2) Azores with one based aircraft and three new routes to London Stansted, Lisbon and Porto in April 2015 (Ryanair, 13 November and 5 December).

Vueling opened a new base in Bari with one A320-200 aircraft serving flights to Barcelona El Prat, Paris Orly, Florence and Rome Fiumicino until March 2015. The low- cost carrier will also launch four new routes in Summer 2015; Barcelona-Corfu, Bilbao- Brussels, Menorca-Malaga and Paris-Orly Fuerteventura (Vueling, November).

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Figure 5: Brent and kerosene prices.

Vueling and Qatar Airways have signed an interline agreement which will enable Vueling to strengthen its hub in Barcelona while Qatar Airways will increase the number of passengers to Europe. The agreement came into effect in September (Vueling, 14 November).

It is reported that Adria Airways will operate a base in Lodz in 2015 with a CRJ-700 aircraft and increased frequencies to Munich along with a new route from Lodz to Amsterdam. The airline will also start subsidised flights from Poland’s Bydgoszcz to Germany in Summer 2015 (Balkan News,14 November).

Air France Group plans to recover profitability in the short-haul market by launching early 2015 a new commercial structure, HOP! Air France bringing together both Air France’s point-to-point services and HOP! service (Air France, 20 November ).

Belgian start-up Take Air plans to launch the first all-you-can-fly membership airline in Europe. The concept is based on unlimited flights for a fixed monthly fee. Take Air will start operations in March 2015 with several daily scheduled flights between Antwerp- Zurich and Paris-London (Take Air, 4 December).

Wizz Air will open a new base in Tuzla, Bosnia and Herzegovina with one A320 aircraft and 4 new routes from Tuzla to Munich Memmingen, Oslo Torp, Frankfurt Hahn and Stockholm Skavsta, effective June 2015 (Wizz Air, 6 November).

Maltese Fly Hermes entered the Italian domestic market with flights from Malta to Turin via Comiso and from Turin to Palermo with a B737-400 aircraft (Fly Hermes, December).

Primera Air will launch 10 new destinations from its base in Iceland to Las Palmas, Tenerife, Alicante, Salzburg, Malaga, Mallorca, Barcelona, Bologna, Bodrum and Crete (Primera Air, 20 November).

Flybe signed a white-label agreement with SAS to operate on behalf of the latter, short- haul routes from Stockholm Arlanda with four new ATR72-600 aircraft from Flybe. The first two aircraft will start operations in October 2015 with the next two aircraft in operation by March 2016 (SAS, 26 November).

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Figure 5: Financial results of airlines.

Spanish low-cost Volotea will operate from Athens to Venice, Bari, Palermo and Pisa and will enter the Greek domestic market with flights from Athens to Santorini in spring 2015. Currently the carrier flies from Italy and France to Greek leisure destinations (Volotea, December).

SAS and Etihad Airways signed a codeshare agreement whereby SAS will place its code on Etihad’s flights between Abu Dhabi and Brussels, Düsseldorf, Frankfurt, Rome, Milan, Zurich, Geneva and London Heathrow. Etihad will place its code on SAS flights from these European destinations, except Brussels, to SAS hubs in Copenhagen, Oslo and Stockholm (Etihad, 27 November).

SWISS will launch 9 new destinations from Geneva to Florence, Sarajavo, Valencia, Skopje, Lugano, Palermo, Calvi, Thessaloniki and Zakynthos in summer 2015. These will bring to 39 the number of destinations from SWISS Geneva-based network, compared with 12 destinations in 2013 (SWISS, November).

Aegean expands its Athens hub in summer 2015 with the addition of 16 destinations to Helsinki, Toulouse, Deauville, Metz, Naples, Pisa, Malta, Paphos, Dubrovnik, Amsterdam, Yerevan, Tallinn, Oslo, Teheran, Kuwait and Ryadh. (Aegean, 18 November).

Failures

4YOU Airlines (IM163) went bankrupt in October. The Polish charter carrier launched operations in spring 2014, suspended its service in September and expected to re-start operations as a scheduled carrier in November (4YOU Airlines, October).

Finnish Snowbird Airlines has temporarily suspended operations until it revises its strategy and adapts to a competitive market. Snowbird serves Malaga, Alicante and London Gatwick from Helsinki and 4 other Finnish airports (Snowbird, December).

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Figure 6: Deflated ticket prices in Europe.

Traffic statistics: November update

Figure 3 and Figure 4 compare November 2014 figures with November 2013 figures. In addition to the number of passengers (PAX), passenger capacity is measured in available seat kilometres (ASK) and traffic is measured in revenue passenger kilometres (RPK).

Financial results of airlines

Top eight European airlines listed in this bulletin posted €4 billion operating profits during the third quarter, up 3% on the same period last year Figure 5. European airlines continued to show signs they are returning to financial health: none of the airlines reported in this bulletin have posted losses during Q3. And half of them (Turkish Ailrines, IAG Group, Ryanair and easyJet) improved their profits when compared to the same quarter last year. Air France-KLM results have been affected by the impact of the pilot’s strike in September (updated estimation of the cost of the strike is now around €500 million) (source: company reports).

Aircraft manufacturing

Airbus plans to produce five new Beluga transport aircraft based on the A330 aircraft to replace its 20-year old fleet of five aircraft between mid-2019 when the first new Beluga will enter in service and 2025. The manufacturer said that the decision was made to support its A350 programme and other aircraft production rate increases (Airbus, 17 November).

Delta Airlines has ordered 50 new widebody Airbus aircraft (25 A350-900 and 25 A330- 900neo aircraft) to replace its old B747 and B767 aircraft starting in 2017 and 2019 respectively. Delta has an order backlog of 55 Airbus aircraft, bringing its total to 105 Airbus aircraft with the European manufacturer (Delta Airlines, 20 November).

It is reported that Airbus CEO confirmed plans for an A380neo aircraft with more fuel- efficient engines. The manufacturer could also take the option to stop the A380 programme by 2020 due to a lack of orders. Airbus has 318 firm orders for the A380 aircraft with 147 having been delivered (aviation week, 15 December). Industry Monitor. Issue 168. 19/12/2014 Page 8 © EUROCONTROL 2014

Airports

New Region de Murcia International Airport is set to open to scheduled commercial traffic in April 2015. The airport will be able to handle 3 million passengers and 23,000 aircraft movements per year. Murcia San Javier, a military airport currently serves five destinations in Europe and four airlines (Ryanair, EasyJet, Jetair Fly and Air Nostrum) operate at the airport. In 2013 Murcia San Javier handled 1.2 million passengers and 10,000 movements and should return to a military airport when Region de Murcia airport opens (Aeropuerto Internacional Region de Murcia & AENA, December).

UK government Davies Airports Commission has published for consultation its assessment of proposals for additional runway capacity at Heathrow and Gatwick airports. The consultation covers the shortlist of three proposals published by the commission in its interim report in December 2013 (IM158). The commission’s analysis of all three proposals includes detailed consideration of cost, noise pollution implications, property loss and construction, and the economic benefits and environmental impacts. The consultation will close on 3 February 2015 and the final report will be released in summer 2015 (UK Government, 11 November).

Fraport and its Greek partner have won a tender to run 14 Greek regional airports until 2055. The mainland airports include Akto, Kavala and Thessaloniki. The remaining airports are located on the Greek islands of Corfu, Crete, Kefalonia, Kos, Mitilini, Mykonos, Rhodes, Samos, Santorini, Skiathos and Zakynthos. All 14 airports together handled 19 million passengers in 2013 (Fraport, 25 November).

Brandenburg will not be opened until the second half of 2017, six years behind schedule. As a consequence, Berlin’s Tegel airport will be modernized in 2015 and 2016 to handle rising traffic volumes. Tegel should have closed in 2012 and since then passenger traffic at the airport has been growing by 10% with aircraft movements up 4% (Flughafen Berlin Brandenburg, 12 December).

Oil

Oil prices slipped to a five-year low, €54 per barrel in December. This is a fall of circa 40% since June this year. Converted indices for Kerosene and Brent are shown in Figure 6.

In its short-term energy outlook, EIA forecasts Brent crude oil price to average €55 per barrel in 2015, this is a downwards revision compared with the outlook published in November when the forecast for 2015 was for €66 per barrel (US Energy Information Administration EIA, 9 December).

Regulation

EC has approved the joint venture between Etihad and Alitalia on the condition that Alitalia releases slots on the Rome Fiumicino – Belgrade route following concerns raised about a possible monopoly. Currently Alitalia and Air Serbia (Etihad’s subsidiary) are the only carriers operating the Rome – Belgrade route (EUROPA, 14 November).

UK Government has announced that children under the age of 12 flying in economy will be exempt from paying the Air Passenger Duty (APD) from 1 May 2015; this measure being extended to children under 16 as from 2016 (UK Government, 10 December).

The European Court of Auditors (ECA) issued a report stating that EU-funded investments in regional airports have produced poor value for money due to a lack of adequate planning and forecasting. ECA conducted audits at 20 airports in Estonia, Greece, Italy, Poland and Spain. Only half of the airports audited increased passenger numbers whereas air traffic forecasts were over-estimated (European Court of Auditors, 16 December).

Economy

In its autumn forecasts, the European Commission gave an update of EU28 and euro area economy indicators as follows (EUROPA, 4 November):

2014 2015 GDP growth EU28 1.3% 1.5% GDP growth euro area 0.8% 1.1%

Unemployment EU28 10.3% 10% Unemployment euro area 11.6% 11.3%

Annual inflation EU28 0.6% 1.0% Annual inflation euro area 0.5% 0.8%

Fares

Deflated ticket prices in Europe decreased by 7.7% in November year-on-year, based on preliminary values. This is below the trend (12-month trailing average) shown in Figure 6 (Eurostat, 14 December).

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STATFOR, the EUROCONTROL Statistics and Forecast Service [email protected] www.eurocontrol.int/statfor