EUROCONTROL Industry Monitor Issue

Industry Monitor Issue 113. 30/11/09 The EUROCONTROL newsletter on air transport trends and their causes.

• European flights decreased by 5.6% in October. EUROCONTROL Statistics and Forecasts 1 • IATA reports a very fragile increase by 0.3% in Other Statistics and Forecasts 1 passenger demand in September. Passenger Airlines 2 • While some other European carriers cut staff, Air Airports 4 Berlin is recruiting 800 staff. Aircraft manufacturing 5 • Air France A380 landed in New York for the first Cargo 5 time on 21 November, replacing 2 flights with 1. Regulation 6 • British Airways reports 2009 revenues likely to Environment 6 be €1.1 billion lower than last year. Financial results of airlines 6 • Oil prices still volatile around $80 per barrel. Fares 6 Economy 6 Oil 7

EUROCONTROL Statistics and Forecasts European flights decreased by 5.6% in October compared to the same month of 2008 (see Figure 1). With the start of the winter timetable (28 October), low-cost segment went back to growth and others segments (business aviation and traditional) are on the track of 2008 levels (Eurocontrol November preliminary figures). During October, the average delay per delayed flight (for departures) decreased by 5% to approximately 25 min. compared to the same period last year. The contribution from ATFCM to the delay from all causes was 28% in October compared to 27% in October 08 (see charts in Figure 2). October ATFCM delays , at 1.5 min/flight, are down 15% on 2008. This is the lowest level for October since records began in 1996.

Other Statistics and Forecasts IATA reports that travel demand increased in September for the first time of the year (RPK, still fragile, increased by 0.3% compared to September 08). Freight volumes have also improved, at a faster pace, but have not recovered yet to 2008 levels as the decline was deeper (IATA, 2 November).

Figure 1

According to IATA , premium travel numbers declined by 14% in September (vs the same month in 2008) despite an overall rise in passenger numbers. Premium numbers further deteriorated compared to August (-12%) while they had begun to improve in June. The most affected markets are within-Europe and North-Atlantic (IATA, 20 November). According to the American Express Travel Barometer 2009 , and based on a sample of around 350 European companies, two thirds of companies have cut their travel budget, which corresponds on average to an 18% drop in budgets for business travel expenditure (routesonline, 18 November).

Passenger Airlines Despite a lot of cost-cutting measures, major passenger airlines are still reporting falling revenues and have to cope with increased fuel prices. In response to losses in premium traffic, some airlines are rethinking their offer: • Air France targeted the medium-haul market for which 2 classes-Voyageur and Premium- only will remain from April 2010, • Iberia will reconfigure long-haul business class to provide more comfortable seats and additional services, • Lufthansa will reportedly reorganise its short-haul service in replacing smaller aircraft with larger units (Air France, 12 November, Iberia, 2 November and Aviation week, 23 November).

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Figure 2

Discussions on future financing for Malév continue. Meanwhile the airline will re-launch service to the Serbian capital Belgrade after 17 years’ absence (Hungary’s Ministry of Finance, 29 October, Malév website). Slovakian airline Seagle Air has suspended all flights from 23 rd October. The charter airline is the second Slovakian operator, after SkyEurope, to file for bankruptcy in 3 months (Seagle Air, 23 October). Air France received its first A380 and started its commercial service between Paris and New York JFK on 20 November replacing 2 flights with 1 A380 (Airbus, 30 October). In October, major European carriers from AEA all display improvements in load factors (except for Turkish Airlines, see Figure 4). For several occasions, 2009 load factors have reached the 2007 levels (AEA, November).

Capacity, costs and jobs BA will reduce its winter 09/10 capacity by 6% compared to last winter (British Airways, 6 November). Finnair failed to find an agreement with its catering subsidiary leading to around 10% job cuts and a forthcoming reorganisation of operations. The Finnish carrier will look for additional cost savings in its ground handling company Northport and in its Cargo terminal operations (Finnair, 12 November). After 2 days’ strike, Finnair pilots and the Finnish national carrier agreed on a settlement proposal, revising the level of cost savings. Amongst other things, the airlines’ employees will benefit from a year-long redundancy protection provision (Finnair, 17 November). Unlike other carriers, Air Berlin is seeking for 820 staff including flight attendants and co-pilots (Air Berlin, 23 November). Lufthansa’s UK carrier bmi announced plans to restructure its mainline and regional businesses. The carrier is to reduce the number of aircraft deployed in its mainline fleet (removal of 9 aircraft out of 39) from early 2010. The carrier will axe loss-making routes amongst which London Heathrow-Brussels. It may also looks for cutting 600 full-time equivalent jobs as part of the strengthening of organisational productivity and efficiency (bmi, 25 November).

Takeover/Shares/Merge British Airways and Iberia have finally agreed a 55%/45% merger to create a new European airline group serving 205 destinations. The merge, expected to be signed in the first quarter of 2010, is still subject to regulatory approval (British Airways, 12 November)

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Figure 3 Routes Ryanair expands its network and will: • open 4 new routes to/from Bordeaux (Bologna, Charleroi, Edinburgh and Porto) from mid- december, • re-inforce its Bristol (1 a/c) and Liverpool (2 a/c) stations and open 10 new routes from Bristol, Edinburgh, Prestwick and Liverpool airports, from February, • open a 37 th base at Oslo in March 2010 with 16 new routes to be launched. (Ryanair, 29 October, 19 and 24 November). Air Berlin will open a two-weekly service to San Francisco from Düsseldorf in summer 2010. The German carrier will also renew its long-haul services to New York, Los Angeles, Miami, Fort Myers and Vancouver (Air Berlin, 30 October). Armed with 6 new A319, easyjet will add 10 routes to its network during first half of 2010, amongst which service to 3 Morrocan cities, to Sardinia and Sicily and Malta (easyjet, 24 November). Ryanair withdraws its 6 connections from Bâle-Mulhouse airport from 2 nd December. Subsequently, easyjet has announced the stationing of a fifth aircraft at the airport (EuroAirport, 10 and 11 November).

Airports A better connectivity between Cork and the ATM system used at Irish control centres in Cork, Shannon and Dublin will be ensured thanks to the opening of a new control tower at Cork airport, fully funded by the Irish Aviation Authority (IAA, 27 October). Brussels Airport will be directly connected to Chicago from April 2010, a second North-American destination to be available in addition to Washington. The Belgian airport will have 13 daily direct flights to North-Atlantic cities from next (Brussels Airport, 6 November).

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Figure 4

BAA reported in its nine month results that the sale of London Gatwick to Global Infrastructure Partners had been revised €247million less than the book value of initial €1.65 billion. The UK airport operator reported a drop of 1.4% in passengers in October (vs October 2008), the best performance since June 2008. Heathrow, Gatwick and Edinburgh are showing improvements whereas Stansted recorded 10% fewer in passengers due to airline cuts (BAA, 28 October and 9 November). The European Commision gave its approval to the financing of the runway extension of the Groningen airport (€18.6 million from Dutch government). The regulatory authority also gave its green light to public funding for both air traffic control services and new passenger terminal (Europa, 19 November).

Aircraft manufacturing Boeing still schedules first test flights of 787-8 and 747-8F to occur respectively by late december and in early next year, with both aircraft first deliveries planned in Q410 (Boeing, 11 November) . Brazilian manufacturer Embraer recorded a 19% fall in net revenues for Q309 ($1.25 billion) compared to the same quarter in 2008. In the third quarter, the company recorded a 14% drop in its firm order backlog compared to Q308 and consequently revised downwards its delivery forecast for 2009 from 242 (April 09) to around 232 (Embraer, 29 October).

Cargo First Airbus A330-200F achieved its maiden flight. First delivery is expected by summer 2010 (Airbus, 5 November). Turkish Airlines will extend its existing all Airbus cargo fleet with the order of 2 A330-200F from Q310 (Airbus, 24 November).

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Regulation European Court of Justice set a precedent on the possibility for passengers delayed more than 3 hours compared to schedule time, to have similar rights to passengers whose flight is cancelled. Currently, in case of flight cancellation, the rule plans that passengers have the right to claim for a fixed indemnity of between €250 and €600 (European Court of Justice, 19 November). European Commission has warned 4 EU member States (Luxembourg, Greece, the Czech Republic and Finland) as they failed or postponed the transposition of the European directive on common EU air traffic controller licensing laws into national law (Europa, 20 November) . European Commission regulators have approved the sale of London Gatwick to GIP (Europa, 27 November). The European Commission updated the list of airlines banned from European Airspace, extending the ban to all carriers certified in Djibouti, Republic of Congo and Sao Tome and Principe. In the meantime, the ban imposed upon 2 airlines from Ukraine has been removed from the list, and a carrier from Angola is authorised to resume operations under conditions given satisfactory improvements in safety (Europa, 27 November).

Environment KLM , involved in biokerosene research since 2007 through SkyEnergy consortium, has completed its first biofuel flight. The Boeing 747, powered by a 50/50 blend of camelina and conventional jet fuel, carried for a 1-hour demonstration around 40 passengers (KLM, 23 November).

Financial results of airlines British Airways announced its 2009 income is likely to be around €1.1 billion lower than in 2008. The British carrier is to cut 3000 jobs by March 2010 (British Airways, 6 November). Despite current market conditions, Vueling is expecting to improve revenues in 2010 thanks to completion of the merger with Clickair . For Q309, progressive merging enabled Vueling to post a 175% increase in profit compared to Q308 to €68 million (Vueling, 27 October). easyjet profit before tax halved in 2009 to €60 million, compared to 2008. The budget airline nevertheless generated positive total revenue of €2.9 billion in 2009, a 13% increase compared to last year (easyjet, 16 November). Lufthansa ’s profit figure for Q309 includes for the first time the results of Austrian Airlines and bmi , who contributed to a total of €28 million as shown on Figure 5 (Lufthansa, 29 October).

Fares Deflated ticket prices in Europe decreased 4.7% in October (preliminary data) compared to the same month last year (Eurostat, November).

Economy The Air Transport Association updated its quarterly U.S. Passenger Airlines cost index. The latter, which measures U.S airlines expenses before tax, shows a 29% decrease for Q209 (compared to Q208) partly due to lower fuel costs (ATA, 2 November).

Operating Profit of Airlines in 3nd quarter of 2009 (ending 30 Sept 09) 500 400 Q308 300 Q309 200 100

Million Euros 0 -100 -200

Air Berlin Air Austrian British Iberia Lufthansa SAS Ryanair* Turkish (EBIT) France- (EBIT) Airways* Group Group (Adjusted Airlines KLM Profit after * Estimated from published reports Tax)

Figure 5

Oil Oil prices remain relatively high at around $78 per barrel (27 November). Converted price indices in Euro up to October are shown in Figure 6. The International Energy Agency expects in its reference scenario the average crude oil import price to reach $115 per bbl in 2030 (in year-2008 dollars), corresponding in 2030 to almost $190 per bbl in nominal terms (IEA, 10 November).

Figure 6

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