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Industry Monitor

The EUROCONTROL bulletin on air transport trends

Issue N°167. 31/10/2014

European flights were up 1% in September and EUROCONTROL statistics and forecasts 1 were close to the baseline forecast. Preliminary Other statistics and forecasts 2 data for October show an increase of 1.4% in flights on October last year. Passenger airlines 3 Environment 7 Updated seven-year forecast revised upwards to a flight growth of 1.8% in 2014 and Airports 8 downwards to a flight growth of 2.4% in 2015 in Oil 8 Europe. Traffic will reach 11.2 million flights in Regulation 9 2020, 19% more than in 2013. Fares 9 Sharp decline in oil prices down to €70 per

barrel in October, the lowest for four years.

EUROCONTROL statistics and forecasts

European flights (ESRA – EUROCONTROL Statistical Reference Area) were up 1% in September 2014 compared with September 2013 and were close to the baseline forecast (Figure 1) but below the 2011 traffic levels for the first time since May 2014, although there are wide variations between the regions due to the continuing events affecting the traffic patterns over Europe and more specifically the overflight flows in Eastern Europe. This slower trend was also due to industrial action in France and in Germany resulting in the cancellation of approximately 8,900 flights for both countries. Preliminary data for October show an increase of 1.3% in flights compared with October 2013.

The charter segment continued its downward trend and decreased by 4.5% compared to September 2013; it was followed by traditional scheduled which suffered from Air France and Lufthansa’s strikes and was down 1.2%. On the positive side, the low-cost segment maintained its growth rate at 6.2% and was followed by all-cargo which was up 3.1% in September from 1.4% in July and August. The business aviation segment switched to the positive for the first time in nine months and was up 1% compared to September 2013. (EUROCONTROL, October).

Based on data from airlines for delays from all causes 42% of flights were delayed on departure (>= 5 minutes) in September 2014; this was an increase of 6 percentage points compared with September 2013. The average all-causes delay per movement in September 2014 increased from 8.7 minutes to 10.5 minutes. Further analysis of the delay reasons shows that both Reactionary and Airline delay increased by 0.6 minute per flight. (Figure 2) (EUROCONTROL, October).

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Figure 1: Monthly European Traffic and Forecast.

Over the summer months, the growing number of passengers at airports finally spilled over into increasing number of flights in the busiest States and notably in Southern Europe. In parallel, recent events in Eastern Europe (airspace unavailability over Eastern Ukraine) have significantly changed the routing patterns in that region. The update of the seven-year forecast of flight movements (2014 – 2020)1 is for a 1.8% flight growth in Europe in 2014. This is an upwards revision (+0.6 percentage points) on the February release of the forecast. The flight forecasts for 2014 of the busiest European States (Spain, Italy, Germany, France and UK) have been revised upwards compared to the February publication reflecting the recent sustained growth rates over the Summer but also reflecting expectations of weaker Winter 14/15 growth (compared to last Winter). The 2015 flight forecast growth rates in these States will level off between 2% and 3% on average. In Eastern and Southern Europe, local events (airspace/route unavailability over Eastern Ukraine, Libya and Near-East) have significantly changed the forecasts for many States: Ukraine, Bulgaria, Romania, Hungary, Malta to quote a few. The growth in 2015 is revised downwards, now 2.4% from 2.7% in February. Traffic in 2020 is forecasted to reach 11.2 million flights, 19% more than in 2013 and remains unchanged compared with the figure published in the February forecast (EUROCONTROL, October).

Other statistics and forecasts

IATA reported that European scheduled passenger traffic (RPK) was up 6.9% in August 2014 (vs. August 2013). Capacity rose by 5.8% and the total passenger load factor was 86.5% (IATA, 2 October).

ACI reported that overall passenger counts at European airports increased by 7% in August 2014 (vs. August 2013) whereas overall aircraft movements were up 3.4% (ACI, 6 October).

1 EUROCONTROL Seven-Year Forecast (Flight Movements and Service Units) 2014 – 2020 (September 2014) Industry Monitor. Issue 167. 31/10/2014 Page 2 © EUROCONTROL 2014

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 September 2014).

IATA published its first 20-year passenger growth forecast, which predicts that passenger numbers will reach 7.3 billion by 2034 at an average annual growth rate of 4.1% which is more than doubling the number of passengers expected to travel in 2014. China will overtake the United States as the world’s largest air passenger market by 2030. Europe will have the slowest growth rate at 2.7% per year to total 1.4 billion passengers by 2034 (IATA, 16 October).

Passenger airlines

Capacity, costs and jobs

Swiss has revealed its new strategy called “Next-Generation Airline of Switzerland” for the coming years including: - 22 new destinations from Zurich in the summer 2015 schedule; - Seat capacity increased by 12 on its A320 aircraft and by 19 on its A321 aircraft family; - Fleet renewal: On the short- and medium-haul front, 30 new Bombardier CS100 aircraft will be delivered from 2015 onwards to replace its AvroRJ100 fleet. One A320neo aircraft to be delivered in 2016, 10 A320neo aircraft and five A321neo aircraft to be delivered between 2019 and 2022 to replace 10 of its older A320s and five A321s. On the long-haul front, six B777-300ER aircraft will be added to the fleet from 2016 onwards (Swiss, 6 October).

Low-cost Blue Air opened its first Italian base in Turin using one B737 aircraft with a first destination to Catania. Blue Air serves 19 destinations in Europe from its hubs in Bucharest and Bacau (Blue Air, 10 October).

Thomson Airways has unveiled its ‘five year vision to change the face of holiday flying’ consisting in upgrading its fleet with the addition of two B787 aircraft and 47 B737MAX aircraft by 2020 which will enable the airline to increase its long-haul capacity and fly to new destinations (Thomson Airways, 9 October).

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Figure 3: Main carriers’ traffic results.

Further to Air France 14-day pilots’ strike last month, a provisional agreement was reached with the pilot unions whereby the development of Transavia France from 14 B737 aircraft to a fleet of 40 aircraft will be effective as from Summer 2015. In addition, Transavia France pilots will continue to work with Transavia France contracts. Air France pilots flying for Transavia France will operate under two contracts, one with Air France and one with Transavia. Air France-KLM Group reported that operating profit had dropped 60% during the third quarter compared with the same period in 2013. In order to limit the financial consequences of the strike, the Group will adapt its investment plan and accelerate unit cost reduction measures in 2015. (Air France, 16 October and Air France-KLM, 29 October).

Still engaged in negotiations over early retirement benefits, Lufthansa pilots conducted strike waves on 8-9 October and 20-21 October resulting in an estimate of 1,500 flight cancellations (Lufthansa, 7, 19, 20 October).

One of Alitalia’s trade unions, FILT-CGIL reported that the airline has entered into a second phase of job cuts to lay off 994 staff (879 ground staff, 61 pilots and 54 cabin crew) by 31 October. Alitalia made already 700 redundancies on a voluntary basis (FILT-CGIL, 25 October). airberlin is reportedly to cut another 200 jobs (administration and ground crew) in 2015. The airline has already laid off 900 staff as part of its “Turbine” programme to return to profit (Reuters, 27 October).

As part of its restructuring plan, Czech Airlines (CSA) will reportedly adopt a new wage structure for pilots and cabin crew in 2015 whereby salaries will be decreased by up to 30%. The struggling airline announced circa 315 redundancies last month. CSA is in negotiations for financial aid from Korean Air, which holds a 44% stake in the airline (Prague Post, 23 October).

Belgian VLM Airlines will become the first EU operator of the Sukhoi Superjet 100 since it signed an agreement with Ilyushin Finance to lease two SSJ100LR aircraft with options for two further ones. VLM will launch regional scheduled services in 2015 from its base in Antwerp. The airline currently operates charter and wet-lease services with a fleet of 12 Fokker 50 aircraft and is about to complete a management buyout from Germany’s Intro Aviation GmbH (VLM Airlines, 29 October).

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Figure 4: Main carrier load factors.

Ryanair has applied for a Cypriot Aircraft Operators Certificate (AOC) from Cyprus’ Department of Civil Aviation. If granted, this AOC would allow Ryanair to benefit from Cyprus’ bilateral agreements with third non EU countries and thereby to operate to Russia and the Middle East (Ryanair, 3 October).

Air Malta cut its losses by half during the financial year ending March 2014 and plans to maintain its position during the financial year ending March 2015 despite the closure of the Libyan routes and increased competition in the peak summer months. Although the airline missed the target to return to profit in 2014, it said it is moving in the right direction according to its restructuring plan. EU approved Air Malta’s restructuring plan covering a period of five years until November 2015 (Air Malta, 29 October).

Aeroflot announced that its new low-cost subsidiary Pobeda (Victory) will launch operations on 17 November with new B737-800 aircraft and domestic flights from Moscow Vnukovo to seven cities. Pobeda plans to expand its fleet to up to 40 aircraft and 45 routes by 2018. Aeroflot former low-cost subsidiary, Dobrolet was grounded on 4 August following economic sanctions by EU in relation with the Ukraine crisis (Aeroflot, 29 October).

Routes, Alliances, Codeshares

Cityjet has discontinued operations from Cambridge based on shifting customer demand and scheduling changes for the 2014-15 winter season. Cityjet started operations from Cambridge in May 2014 with flights to Dublin and Amsterdam (Cityjet, 26 October).

TUIfly Germany will open a base at Karlsruhe/Baden-Baden in May next year with a B737- 800 aircraft and will serve destinations to Antalya, Fuerteventura, Heraklion, Las Palmas, Palma de Mallorca, Rhodes and Teneriffe Sur. On the other hand, the carrier will close its base at Zweibrücken in November and relocate at Saarbrücken (ch-aviation, 6 October). airberlin and Alitalia have signed a codeshare agreement which will cover 412 flights between Germany, Austria, Switzerland and Italy. The deal will also see airberlin switching its Milan routes from Malpensa to Linate airport (airberlin, 14 October).

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Figure 5: Brent and kerosene prices.

Iceland’s low-cost airline WOW Air will start transatlantic flights from London Gatwick to Boston on 27 March 2015 and to Washington DC on 4 June 2015. Both services will include a connection in Reykjavik (WOW Air, October). easyJet will open a new base in Amsterdam in Spring 2015 with three A320 aircraft and six new destinations including Dubrovnik, Nice, Olbia, Toulouse, Venice and Hamburg (easyJet, 14 October).

Jetairfly announced three new routes from Antwerp to Barcelona, Berlin Schönefeld and Milan Malpensa bringing to six the number of routes served from the carrier’s new base in April 2015 (IM166) (Jetairfly, October).

TAP Cabin Crew union (SNPVAC) has warned of a two-day strike on 30 October and 1 November in a dispute regarding working conditions agreements (TAP, 29 October).

Ryanair opened three new bases as follows: 1) Cologne/Bonn, 1 based aircraft, 8 routes in Winter 2014-15 to 11 in Summer 2015; 2) Glasgow, 1 based aircraft, 7 routes in Winter 2014-15 to 9 in Summer 2015; 3) Copenhagen, 4 based aircraft, 3 routes with an additional 10 to be announced end 2014 (Ryanair, 28 & 29 October).

Failures

Little Red, Virgin Atlantic’s UK domestic airline is to cease operations by September 2015. The airline was meant to act as a feeder for Virgin Atlantic’s long-haul network, but in reality the demand has been point-to-point passengers rather than connecting traffic. Little Red operates from London Heathrow to Aberdeen, Edinburgh and Manchester and was launched in March 2013 (IM150) (Virgin Atlantic, October).

Cimber will reportedly cease operations in April 2015 following SAS decision to end its partnership with the airline. Cimber operated four CRJ-200 and two ATR-72 aircraft on fixed contract flights for SAS. The airline was established on 15 May 2012 following Cimber Sterling’s bankruptcy on 3 May of the same year (IM140) (ATW, 1 October).

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Figure 6: Deflated ticket prices in Europe.

It is reported that Spanish regional airline Helitt filed for bankruptcy. The airline based in Malaga started operations in November 2011 with scheduled service to Malaga, Barcelona, Madrid, Melilla and San Sebastian. In August 2013 it moved from scheduled service to charter flights with three ATR-72 aircraft in dry or wet lease (El Mundo, 29 September).

Italian charter Livingston Air suspended operations on 6 October due to the difficult situation in the tourism industry, especially regarding the turmoil in the Mediterranean region and Egypt and the reduction in demand for flights to Russia due to the continuing political crisis. (Livingston, 6 October).

Air Armenia has reportedly suspended operations following a statement from the Russian Federal Air Navigation Service to prevent the airline from operating flights to Russia. This statement resulted in reducing ticket sales by 80% and caused financial losses. Air Armenia plans financial restructuring focussing on most profitable routes with a view to resuming operations after 20 December (Arminfo, 29 October).

It is reported that AG Air, Georgia has suspended operations for the time being after the Georgian Civil Aviation Agency revoked its Air Operators Certificate on September 14 (ch- aviation, 14 October).

Traffic statistics: September update

Figure 3 and Figure 4 compare September 2014 figures with September 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).

Environment

Air France begins biofuel-powered flights on its Toulouse-Orly route, once a week until September 2015. These flights are part of the airline’s “Lab’line for the Future” programme to demonstrate innovations serving sustainable development (Air France, 21 October).

Airports

Blackpool airport in Lancashire ceased commercial operations on 15 October as it was not able to find a buyer. Blackpool served mainly the Isle of Man, Dublin, Alicante, Palma de Mallorca and Faro (Blackpool International Airport, 15 October).

Following the airport operator’s bankruptcy, Rimini will close on 1 November for an indefinite period. The airport is a charter destination mainly for Russian operators, but also airberlin, Thomas Cook Belgium and Luxair (ansa, 23 October).

Heathrow Airport Holdings will sell Aberdeen, Glasgow and Southampton airports to a consortium formed by Spanish Ferrovial and Australian Macquarie. The sale is subject to EU merger regulation clearance and should be completed in January 2015 (Heathrow Airport Holdings Limited, 16 October).

Turkish transport minister declared that Turkey needs further airport expansion and plans to set up a feasibility study for any Turkish citizen to have an airport within 100km.Turkey doubled the number of its airports to 52 in the last ten years. Istanbul’s new third airport due to open in October 2017 is projected to handle 150 million passengers when fully operational in 2018 (Association of European Airlines (AEA) Aviation Leadership Summit, 16-17 October).

Oil

Oil prices dropped significantly from €77 per barrel in September to €70 per barrel in October, the lowest for four years. Brent crude oil prices have fallen by more than 20% since June this year; this slump is explained by a strong US dollar, abundant supply and slowing demand growth. The euro fell to its lowest level against the dollar since May 2013 therefore making it more expensive for Europe to purchase oil which is priced in dollars. Converted indices for Kerosene and Brent are shown in Figure 5.

Regulation

EC has recently adopted decisions concerning state aid granted to secondary airports and airlines. The airport of Zweibrücken (Germany) needs to recover marketing and airport services deals from Germanwings, Ryanair and Tuifly. The airport which is in insolvency proceedings will also have to repay investment and operating aid to the German authorities. Alghero airport (Sardinia) will need to recover state aid given to Germanwings and to Meridiana. Charleroi airport will have to pay back state subsidies (Europa, 1 October).

EC has opened an in-depth investigation regarding Belgium state aid granted to Brussels Zaventem airport over a period of three years (2013-2015). The subsidy would go mainly to Brussels Airlines, but also to Jetairfly and Thomas Cook to a lesser extent. EC will examine whether this aid is compatible with the internal market (Europa, 1 October).

Skyteam alliance members, Air France-KLM, Alitalia and Delta Airlines have committed to give up slots at Amsterdam, Rome and New York airports with a view to settle an EU antitrust investigation on the airlines’ transatlantic New York operations. They also agreed to enable competitors to offer tickets on their flights, facilitate access to connecting traffic and provide access to their frequent flyer programmes on Paris-New York, Amsterdam-New York and Rome-New York routes (Europa, 21 October).

Fares

Deflated ticket prices in Europe decreased by 1% in September year-on-year, based on preliminary values. This is below the trend (12-month trailing average) shown in Figure 6 (Eurostat, 16 October).

This document is published by EUROCONTROL for information purposes. It may be copied in whole or in part, provided that EUROCONTROL is mentioned as the source and it is not used for commercial purposes (i.e. for financial gain). The information in this document may not be modified without prior written permission from EUROCONTROL.

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