Regional airlines role today and in future
Simon McNamara Director General European Regions Airline Association (ERA)
www.eraa.org twitter.com/eraaorg Contents
• About ERA • What is a regional airline • Regional airlines today • Future challenges for the regional industry • Conclusions
www.eraa.org twitter.com/eraaorg About ERA
Founded in 1980, ERA is a European airline trade association representing intra-European air operators: 50 airline members 19 Airports 98 manufacturers and support industry
The only European airline trade association which
represents and brings together the entirewww.eraa.org aviation community twitter.com/eraaorg Amapola Flyg Atlantic Airways Belavia Avion Express Denim Air ACMI Wideroe DOT Mistral Air HOP! Regional Luxair Eastern Airways Blue 1 Astra Airlines Adria Airways Titan Airways Binter Canarias Aer Arann Sata Air Acores Eurolot CityJet Air Nostrum Sky Work Airlines Blue Islands Braathens Regional PGA Portugalia HOP! Brit Air Trade Air Montenegro Airlines Sky Express Hahn Air Lines Air Urga Air Contractors Ireland VLM Airlines Farnair Switzerland Air Iceland West Atlantic Cargo Airlines Cimber HOP! Airlinair Welcome Air Aurigny Air Services Avanti Air BMI Regional Estonian Air Danish Air Transport KLM Cityhopper Air Alps Aviation Malmo Aviation Etihad Regional BAE Systems www.eraa.orgTyrol Air operated by Darwin Airline Corporate Air Traveltwitter.com/ Ambulanceeraaorg Wideroe
Air Iceland Atlantic Airways
BMI Regional Blue 1 Titan Amapola BAE Systems Braathens Regional Estonian Air Corporate Air Travel West Atlantic Cargo Airlines DAT DOT Eastern Airways Malmo Avion Express Aer Arann Belavia CityJet KLM Cityhopper Air Contractors Denim Air Eurolot Ireland VLM Avanti Air Blue Islands Hahn Air Urga Aurigny Air Services HOP! Luxair Tyrol Air Ambulence HOP! Brit Air Airlinair Sky Work Air Alps Aviation Welcome Air HOP! Regional Farnair Trade Air Etihad Regional Adria Montenegro Sata Air Mistral Air Acores Astra Airlines PGA Air Nostrum www.eraa.org twitter.com/eraaorg Binter Canarias Sky Express What is a regional airline?
www.eraa.org twitter.com/eraaorg Let‟s look at an example
Which airline is this? • 20-22 aircraft fleet • Serving 38 airports • 1.25m passengers per year • 45% of flights connect to another flight • Average flight time 29 minutes • Average sector length 170 km
www.eraa.org twitter.com/eraaorg Let‟s look at an example
Which airline is this? • Operate from short runways – out of 42 airports served, 21 have 800 meter strips • Operations with steep terrain and with contaminated runways • Don‟t really care about competition from Ryanair and Easyjet
www.eraa.org twitter.com/eraaorg Let‟s look at an example
A few other facts: • Norway's oldest airline • Norway's most profitable airline
www.eraa.org twitter.com/eraaorg Wideroe….
www.eraa.org twitter.com/eraaorg Another example
www.eraa.org twitter.com/eraaorg Stobart Air – Aer Lingus Regional
• Serving a recognised brand • Mature distribution network • Synergies in customer service, ground handling, fuel hedging, marketing • Sustainability for investors • Connecting feeder and connecting traffic • Correct capacity on market with right aircraft allows frequency increases
www.eraa.org twitter.com/eraaorg ….and of course Eurolot
www.eraa.org twitter.com/eraaorg Regional Airlines Today
www.eraa.org twitter.com/eraaorg Who flies short haul anyway?
www.eraa.org twitter.com/eraaorg Source: ATR Sector Time & Aircraft Size
71 Minutes 67 Seats Average Sector Time Average Aircraft Size
www.eraa.org twitter.com/eraaorg Source: ERA reporting airlines Passengers & Routes
45 Million 1200 Annual Passengers Routes Carried
www.eraa.org twitter.com/eraaorg Source: ERA reporting airlines A difficult period….
www.eraa.org twitter.com/eraaorg Source: ERA reporting airlines – year to year % change by month Our Fleet
www.eraa.org twitter.com/eraaorg Source: Flightglobal Market Share - flights
www.eraa.org twitter.com/eraaorg Source: Two decades of development …
Regional airline characteristics 1992 2014 Mostly independent Many franchise/partner Mostly entrepreneurial Policies often determined development in new and/or influenced by ‘larger deregulated markets partners’, the market and regulatory constraints Many new route opportunities More limited opportunities in in EU EU but some new opportunities outside EU ‘Full’ service, reasonable yield Reduced service, low yields Relatively simple management A more complex business structure environment Many low volume niche routes High proportion of business and transfer traffic
www.eraa.org twitter.com/eraaorg The arrival of „low fare‟ airlines …
• Regionals no longer the “new guys” • Companies compelled to adjust their business models • Progressive convergence of „low fare‟ and other business models
www.eraa.org twitter.com/eraaorg Characteristics of members
Business Models Wholly Owned subsidiary Franchise Capacity Purchase Agreements/Wet Lease/ACMI Independent
www.eraa.org twitter.com/eraaorg Regional Operator Characteristics
Strengths
Stability of major airline affiliations for some More concentrated in developed countries Strong local or niche franchises Less susceptible to international shocks More resilient performance in industry cycles
Weaknesses
Less well known names for independent carriers Often poorly capitalised operators Many poorly managed & weak small start-ups Several unproven niche business models
www.eraa.org twitter.com/eraaorg Worldwide in service, in production regional, narrow & wide-body Aircraft
8% 15% 6%
5%
TP
JET 61-90
JET 91-120
NB
WB 66%
www.eraa.org twitter.com/eraaorg Source: Ascemd Future challenges for the regional industry
www.eraa.org twitter.com/eraaorg Finding a niche - shorter, thinner routes Regional carriers higher frequency profile differentiates them from competitor models
Regionals capacity share in 2013
Note: Intra-European market operated by European airlines only. Source: Innovata, June 2014 load, surface transportation excluded.
ERA Monthly Market Analysis, June 2014 www.eraa.org twitter.com/eraaorg 27 Finding growth Between 2013 and 2022, the European economy is forecasted to grow at 2% Compounded Annual Growth Rate (CAGR); the fastest growth is expected in Eastern Europe
GDP CAGR (2013 – 2022)
Note: Belarus GDP CAGR has been calculated based on 2013 - 2015 and Luxembourg and Iceland CAGR based on 2013 – 2018 available data. Source: EIU - Real GDP (US$ at 2005 prices) forecast of 2013 - 2022.
ERA Monthly Market Analysis, June 2014 www.eraa.org twitter.com/eraaorg 28 Finding a niche or competing?
www.eraa.org twitter.com/eraaorg Spreading the risk
Business Models Wholly Owned subsidiary Franchise Capacity Purchase Agreements/Wet Lease/ACMI Independent
www.eraa.org twitter.com/eraaorg Fighting compexity
Europe now develops a wide range of technical and non technical regulation Much of it is beneficial to the industry, but much of it adds complexity and cost and limits the flexibility of operators to be entrepreneurial Over the last 20 years in Europe we have seen a gradual “re-regulation” of the industry on non- technical issues
www.eraa.org twitter.com/eraaorg The process of regulation…
An initiative started today may not actually impact an airline‟s business for as much as 3-4 years The process of consultation, debate and decision making is slow and involves different stakeholders with diverse interests
www.eraa.org twitter.com/eraaorg The process of regulation…
Compromise is inevitable owing to the diverse interests of the stakeholders ERA‟s role as a trade body is to protect the interests of our members and requires proactive and informed actions at every step of the process But we are just one part of
the debate www.eraa.org twitter.com/eraaorg Major Stakeholders
Ground handlers European Civil Aviation Conference (ECAC)
European Parliament Non-EU states and regulators
European Council National Safety Authorities
European Commission National Regulatory Authorities Airports
European Aviation Safety Agency (EASA) Manufacturers
Air Navigation Service Providers ICAO
Unions Airlines Member States
Flight Crew The “green” lobbyists www.eraa.org
Passenger groups twitter.com/eraaorg
Europe – the reality
The pace of Air Transport Infrastructure & Technical regulation Policy Environment Services Number of policy European Commission 13 52 200 papers requiring ERA’s review, European Parliament 8 8 0 assessment and EU Council of Ministers 7 6 0 response Eurocontrol 0 71 100 EASA 0 1 126 710 ECAC 12 1 60 Industry 2 23 0 Social dialogue 36 2 0 All external sources 78 164 486 www.eraa.org twitter.com/eraaorg Policy issues being monitored
Technical issues • Contingency planning • Security developments including LAGs • Eurocontrol activities • SESAR developments • Flight Time Limitations, Flight Crew Licencing and Fatigue Risk Management • EASA Advisory Board developments • EASA Flight Standards • European Aviation Crisis Coordination Cell • Winter operations developments External relations • DG COMP (Competition Directorate) relationship building • DG MOVE (Transport Directorate) relationship building • European Economic and Social Committee & Committee of the Regions relationship building • Pro-active lobbying of the EU Parliament and Member States www.eraa.org twitter.com/eraaorg Policy issues being monitored
Industry Affairs issues • Passenger rights including bankruptcy protection • Revision of the EU Ground handling Directive • Slot allocation • Carriage of Persons with Reduce Mobility (PRMs) • Delivery of new Airport capacity in the EU • EU and national Taxes & Charges • State aid/illegal subsides at European airports • Review of the “EU Third Package” legislation Infrastructure issues • Single European Sky • EU Airport Observatory activities Environmental issues • EU Emissions Trading Scheme developments (EU ETS) • Revision of the EU Noise Directive • ECAC Abatement of Nuisances Caused by Air Transport (ANCAT) group • EASA related issues on the environment www.eraa.org twitter.com/eraaorg Conclusions
www.eraa.org twitter.com/eraaorg The future of the industry
• Continued strong competition in the sector • Yield will remain low • Pressure on costs will continue to be strong • Price will remain a strong driver for competition • The airline sector will remain the weakest financial link in the value chain
www.eraa.org twitter.com/eraaorg
The future of the industry
• Regulatory burdens will continue to complicate the business • Consolidation in airline business models will continue • The “low fare” market will continue to mature and will consolidate • Politicians will continue to perceive the industry as a “negative” force
www.eraa.org twitter.com/eraaorg
The future of the industry
A major regional airline CEO‟s outlook on the future of the industry:
“The air traffic market in Europe is moving to a situation dominated by a mix of 3-4 legacy carriers, 3-4 low cost carriers and a variety of regional airlines exploiting specific niche markets” www.eraa.org twitter.com/eraaorg
Conclusion
• Regionals have had to adapt and change to survive • There remains a long term market that needs to be filled by flexible, niche operators that are neither pure low cost operators or network carriers • The market in Europe is around 15% of flights • “Regions” fill that marketplace…… • …..and have a bright future….
www.eraa.org twitter.com/eraaorg www.eraa.org twitter.com/eraaorg