Europe’s airports in consolidation conundrum

Global carriers to rake in record profits in 2018 on robust travel demand: IATA

Awave of consolidation among European airlines is putting pressure on the region’s airports as it is giving carriers more negotiating power over their hubs, said the head of airports association ACI Europe.

European airlines have had a turbulent year. Monarch, Air Berlin and Alitalia have entered administration after struggling to compete as airfares fell.

Meanwhile, Lufthansa and easyJet are scooping up Air Berlin’s assets and have also both made bids for some Alitalia operations. Also, British Airways has acquired collapsed Monarch’s valuable Gatwick slots.

“Consolidation means less airlines in the market to chase, to serve your airport and open destinations. It also gives airlines more purchasing power, more power to dictate the conditions under which they serve an airport,” ACI Europe head Olivier Jankovec said.

While budget airlines such as Ryanair were already more flexible in shifting business to and from airports, the creation of big airline groups with multi-hub operations – IAG, Air France-KLM and Lufthansa Group – means traditional airlines can now also go elsewhere, he said.

For example, Lufthansa this year upped pressure on Fraport, the operator of its main base in Frankfurt, by moving some of its A380 superjumbos to Munich.

The airline’s CEO, Carsten Spohr, said at third-quarter results that he expects Lufthansa’s negotiating position to improve at Dusseldorf, Stuttgart and Berlin airports, as a result of its planned takeover of parts of Air Berlin.

“An airport cannot move, [but] an airline can move to another location. With those three groups emerging in Europe, they all have multi-hub operations, so they can play that game,” Jankovec said.

Airlines association A4E said in response that reallocation of flights occurs as a response to passenger demand.

“Airlines serve passenger demands. Switching airport hubs is expensive and should not be confused with a partial reallocation of capacity,” said Thomas Reynaert, managing director of A4E. Recovery?

The collapse of Air Berlin has left Berlin’s Tegel airport lacking in more lucrative long-haul flights. Jankovec also predicted that Rome Fiumicino could suffer if Alitalia ceased operations or was bought by a rival.

It took Brussels airport traffic 14 years to recover after the collapse of national airline Sabena, he said, while Budapest lost its status as a hub.

Airports can try to woo airlines, however, by making their operations more efficient so that planes spend less time on the ground, thus earning the airlines more money, he said.

Aviation analyst John Strickland said airports had to be looking ahead all the time.

“It’s about airports being dynamic in what they do, not overspending on capital programs or coming up with ambitious plans to win architectural awards, but looking at operational efficiency, with which they can be flexible given the shifting sands of the industry,” he said.

Jankovec said the airport sector remained attractive for investors overall, thanks to expected growing passenger numbers.

Shares in European airport operators Fraport, Flughafen Zurich, Vienna Airport, Aena and Groupe ADP have risen between 19 and 60 percent this year.

In November, Credit rating agency Moody’s gave a positive outlook for European airports in 2018 thanks to strong passenger growth, though it highlighted airline consolidation as a risk in the medium term as surviving carriers could cut capacity and raise ticket prices.

Fare rise forecast

Improving economies and robust travel demand will return global airlines to record profit in 2018, with fares also set to rise, the International Air Transport Association (IATA) said.

Overall profits are expected to rise 11 percent to $38.4 billion in 2018, and the outlook is encouraging, IATA said on Tuesday as it raised its 2017 forecast to $34.5 billion, up from an earlier $31.4 billion estimate, but still lower than 2016’s figure.

Of the $38.4 billion, $27.9 billion will come from North American and European airlines.

“We are eight years into this air travel cycle, but we see no reason at present to expect that cyclical pattern to repeat itself,” IATA Chief Economist Brian Pearce said, with reference to a trend that would usually indicate a major downturn was due.

Rising ticket revenues have helped major European airlines report betterthan-expected profits this year. IATA also said it was upgrading its net profit forecast for Europe to $9.8 billion this year from a previous estimate of $8.6 billion, with profits expecting to rise further to $11.5 billion next year.