LONDON — With the collapse of Monarch and Air Berlin occurring in recent weeks, the question can be asked finally. Is The European Airline Industry in Trouble?
The collapse of the UK’s 5th biggest carrier, as well as one of Germany’s biggest airlines, show that volatility in this particular market has increased, potentially due to the intense competition from low-cost carriers (LCCs) and other airlines within their domestic markets?
We will also look at the collapse of Alitalia, which was seen as a failed investment by Etihad, like with Air Berlin as well.
Brief History of Events
We start with Air Berlin who collapsed following many failed restructuring plans and attempts to bring the carrier back to profit. It could be suggested that Lufthansa is the more powerful carrier due to them swooping on their assets, as reported via Reuters, which is causing a stir in competition law in Germany.
Furthermore, the German national carrier has a 34% market share in the German market, which shows great levels of power and influence on the competitive front. Lufthansa will take 80 of Air Berlin’s 130 aircraft as well as bring over 3,000 of their staff to reduce the level of redundancies in the carrier.
The same story occurred with Alitalia. Countless attempts to restructure after going bankrupt three times has resulted in the airline also going under. This could be due to the success of competitor Meridiana, which has had significant investment from Etihad’s middle-eastern rival Qatar Airways.
Meridiana has experienced more success on their long-haul and short-haul routes across the board, which arguably could be down to Qatar Airways’ CEO Akbar Al-Baker’s success in his investment portfolio and knowing which carriers to invest in due to their potential.
In the case of Monarch, the story could be perceived as very different concerning the reasoning for their bankruptcy. The UK market itself has a lot of competition, especially in the Holiday Package market with the likes of Thomas Cook, Thomson and Jet2 etc.
The likes of easyJet and Ryanair are also big hitters within the UK market offering cheap point-to-point flights with the natural ability to book hotels much more cheaply via Airbnb etc.
Carriers such as Jet2, Thomson and Thomas Cook have enjoyed colossal profitability due to keeping their costs down and can, therefore, bear the changes in fuel and exchange rates.
The View of the Public
I put a poll up on aviation groups across social media to gain the input from fellow aviation enthusiasts who have also been watching these events happen over the past month or so. Out of a survey of 57 people, 84% of them thought that the European industry is not in danger.
Some also commented on this issue, with some being mixed on the issue.
Connor Sadler, a Planespotter, thinks that the industry is not in trouble. “I don’t think that the industry is in jeopardy as now there is less competition so airlines will be able to make a more sustainable profit to run,” he said.
“I believe that one of the most major pointers towards the collapse of these carriers was poor management. Obviously, Monarch had a very similar issue last year in which Boeing bailed them out of. I believe that the future could have become a bit brighter for the rest of the European carriers,” he explained.
Marc Griffiths, another Planespotter, thought that the bankruptcy of Monarch was down to poor management. “Fuel costs and exchange rates affect every airline. The continued profitability of airlines like Jet2 in these circumstances proves that Monarch was badly run. It’s a terrible shame, but their strategy has been all over the place over the last decade,” he noted.
Finally, Matty Bell thought that it is down to saturation in the European market. “The market can only sustain so much competition, and unfortunately it got to the point that the collapse of at least one major airline in the sector was inevitable, it is likely that another may well go soon,” he said.
Too Much Middle-Eastern Involvement?
Could it be argued that too much involvement from the likes of Qatar Airways and Etihad Airways have contributed to the loss of carriers such as Air Berlin and Alitalia?
As mentioned above, Qatar Airways’ increased investment into Italian carrier Meridiana had put pressure on Alitalia to perform at lower costs due to significant route competitions out of Milan and American destinations such as New York.
Qatar Airways set out a plan to turn Meridiana into Italy’s “real national carrier” after buying 49% of a stake in the carrier. This would implement severe intimidation onto Alitalia at the time before they went bankrupt.
Al Baker plans on growing Meridiana to the size of Alitalia with the potential to serve more long-term and short-term destinations down the road.
On the Etihad front, it could be perceived that they have an “Abu-Dhabi curse” where anything they seemed to have invested in has resulted in at least two carriers going under. This is seen in the case of Alitalia and Air Berlin.
The over-investment of the two carriers has resulted in heavy losses as they have not been able to create a return sufficient enough to turn into a profit. For Alitalia, the Italian taxpayer has had to spend at least €7 billion. The carrier was suffering losses between €600 and €800 million, with Air Berlin experiencing the same amount in losses.
The European Airline industry is not in trouble at all. Although such carriers like Air Berlin, Monarch and Alitalia are going under, the consensus is that it is sheerly just the nature of the industry taking its effect, by knocking out the uncompetitive carriers into bankruptcy.
If a carrier is not keeping costs down and is not hitting profitability, then, of course, they will be knocked out of their sphere as consumers are currently looking for the most affordable flight fares.
All that we have to look at now going into the future is which carrier or carriers are going to be the last ones standing before a set of new airlines come into the scene. And this is what makes the airline industry so exciting.