Going to GROUND

Despite a relatively healthy outlook for aviation, several airlines have grounded their services – or been bailed out – of late. Gary Noakes finds out why

Hardly a month has passed since last autumn without headlines proclaiming an airline’s collapse or financial peril.

The list is long; budget transatlantic carrier Primera air failed in October, with Norwegian appealing for funds in December; then Flybe’s rescue in January was followed by flybmi’s collapse in February. Shortly afterwards came Wow

Air’s demise in March, while April saw Jet Airways ground its fleet.

it’s not a good picture, yet broadly speaking most other carriers in the UK, europe and US are profitable. So are these examples part of a trend, or do they run against the grain?

In Primera’s case, ambition was thwarted by bad luck. A wildcard attempt by a Latvian/danish charter brand to launch transatlantic flights with long-range singleaisle aircraft ended in defeat after airbus failed to deliver in time, forcing Primera to lease in replacements. Primera said this had meant “additional costs of over €20million”.

Flybe has different issues and its rescue by Connect Airways, the consortium comprising Virgin, Stobart group and Cyrus Capital will see £80million pumped in and a rebrand under the Virgin banner.

Its new owners have already set about removing expensive jets from the fleet, but must cope with other factors dogging Flybe. Its predominantly UK network means Air Passenger Duty is disproportionately levied on it, while revenue its mostly in sterling but expenditure mainly in dollars and euros. Moreover, Ryanair and others are adept at putting larger aircraft than Flybe operates on its more successful routes.

Once Flybe begins acting as a feeder for Virgin and its majority shareholder Delta, its fortunes may revive. if not, Virgin has acquired more Heathrow slots via the £2.8million deal for an absolute song.

Flybmi was another niche UK airline, but those niches, including intra-european routes such as Munich to Saarbrucken, were even smaller than Flybe’s and when Brexit threatened those flying rights, it became unable to expand within the EU, relying on the crowded UK regional market. This meant it faced the same issues as Flybe and coupled with expensive 37-seat and 49-seat jets (average load just 18 passengers), its demise was sealed.

None of these collapses display the classic airline cause of death, wildly optimistic overexpansion... but then came Iceland’s Wow air. it planned to make Reykjavik a budget flight hub between the US, Europe and Asia, but leasing a wide-body fleet and launching routes like Reykjavik-delhi was a step too far and, sensibly, two potential investors pulled out of deals to take it over.

Samuel engel, Head of aviation at global consultancy ICF, is sceptical of what he labels “the long-haul low-cost experiment”.

“There’s a step-change in risk and complexity from short-haul to a wide-body operation,” he says. “Wow was exposed to the North Atlantic market, which is one of the most seasonal in the world. Traffic halves in winter, so to be successful in this market you have to shift capacity, have corporate contracts and offer ‘beyond’ and ‘behind’ connections.

“A long-haul airline with a handful of aircraft and no network connections or corporate travellers is going to struggle. Norwegian could be in a different category, but Wow and Primera were setting themselves up a steep hill,” he says.

Like Lufthansa’s boss Carsten Spohr, engel is unsurprised about the rash of failures in the UK and europe. “if you compare the number of carrier hubs in europe versus the United States, there are probably twice as many in Europe per population, so there is still more consolidation yet to happen.”

However, Engel rejects the idea that Wow and Primera will deter new entrants, with aircraft readily available. “Right now, 6% of the A330 fleet is on the ground (including

Jet Airways). That’s 90 aircraft. There are a couple of factors that make people continue to start airlines: there is unlimited capital to lease aircraft and a massive leasing market. There is also a trend now for lessors to make speculative orders without a home for them, based on the assumption that they will be able to find airlines that will take these planes,” he explains.

So despite the recent collapses, expect some new, perhaps equally short-lived attempts at breaking the big carriers’ grip. engel concedes there is “room to challenge” the price points that airline alliances have established, particularly across the atlantic, and expects Jetblue, with its ready base of corporate traffic in New York and Boston and numerous connections from these airports, to make an impact on the corporate market next year.

Thanks to those willing to risk their shirt, it all means more choice and (hopefully) lower fares for corporates and consumers. As Engel puts it, there is a clear winner: “From a consumer perspective, these are the glory days of aviation.”

A long-haul airline with a handful of aircraft and no network connections or corporate travellers is going to struggle”