A bumpy ride ahead for airlines

October 5, 2019

 

September has not been a good month for airlines. Following confirmation on 23 September that Thomas Cook would close, France has also lost two; XL Airways, a France-based low-cost carrier, went into administration on 12 September due to its own financial difficulties.

 

 

Above - Maxime (Wikimedia Commons)

 

XL carried some 730,000 passengers to several U.S. cities as well as to the Caribbean and Reunion, an overseas region of France in the Indian Ocean, and to China. Indicating that the carrier needed about €35 million to continue operating, over the last year, the airline’s management unsuccessfully negotiated with potential buyers, including Air France, which rebuffed overtures for XL to become its long-haul, low-cost arm.

  Following this, Aigle Azur, France’s second-largest airline behind flag carrier Air France, has become the latest casualty of rising fuel prices and cut-throat competition, entering liquidation on 27 September after unsuccessful bids for the carrier. Based at Paris Charles de Gaulle and Orly airports, the airline filed for bankruptcy and was placed in receivership on 2 September, with all flights suspended four days later. The airline carried about 1.9 million passengers in 2018, operating scheduled services with an all-leased fleet of aircraft as well as charter and air cargo services. Initially, expressions of interest in acquiring Aigle Azur were lodged by fourteen entities, but the bankruptcy court eventually ruled that “no durable solution has been proposed by the bidders.”

 

Left - Ken Fielding (Wikimedia Commons)

 

France’s minister of economy and finance Bruno Le Maire is holding Norwegian Air Shuttle partly responsible for XL Airways' bankruptcy, claiming the low-cost carrier received illegal state aid from the Norwegian government. “Norwegian Air is undercutting prices while in debt and receiving public funding from Norway,” Le Maire said during a television debate. “That’s something I cannot accept because competition rules should be the same for everyone. We cannot accept it in Europe; we cannot accept it either from Norway,” he said. He vowed he would write to the European Commission “to tell them to put it right.”

  Norwegian responded by stating it has never received any form of government aid. “Our routes between France and the U.S have been embraced by French and American travelers alike, thanks to our new planes, low fares, and award-winning service,” it said.

Only a small part of its French route network—mainly its routes to the U.S.—overlaps with that of  XL Airways.

  It remains unclear whether or not France intends to file a complaint using the EU’ s new Regulation 2019/712 on safeguarding European airlines from unfair competition by third-country airlines. While Norway is not part of the EU, the country is part of the European Economic Area and the European Common Aviation Area, the European single aviation market, and therefore governed by EU aviation rules and regulations, including on competition and state aid.

  On top of this, Slovenia’s national airline, Adria Airways, has also filed for bankruptcy after it abruptly cancelled most of its flying last week. The airline has been struggling financially for some time and only the flight between Ljubljana and Frankfurt continued to operate after the initial grounding, as it is understood partner airline Lufthansa was funding the route. This also has now ceased.

  Of the three airlines, Adria has been around for many years and those with long memories will remember seeing the carrier’s Douglas DC-9-30s across European airports. But with four air transport companies closing in one month, the question arises as to which airline will be next and how stable is the industry?

 

Left - Transport Pixels (Wikimedia Commons)

 

As to the next airline failure, there are numerous potential candidates and the major concern is the possibility of a ‘domino effect’ as investors lose confidence. The air transport industry has always had periods of volatility but it is also currently under attack from the green lobby, with (certainly in the UK) consistent calls for passenger taxes to be increased. The UK’s Air Passenger Duty, or APD, is already the highest in Europe and if this continues, further closures are a possibility. Added to this, and with particular reference to the airlines that closed this September, is that the primary holiday market is now coming to its annual end. In the past, airlines from the Northern Hemisphere leased aircraft to those in the south, for their holiday period. This however, is no longer the case as many airlines in the south are strong enough to have their own aircraft or can acquire them on more favourable short-term leases elsewhere – and there is a glut of stored aircraft, some of which are quite new, just waiting for those leases.

  Whether or not Brexit has had any effect is debatable. In the case of Thomas Cook, the company had been in dire financial straits for some considerable time so it is unlikely that the uncertainty has been a direct cause. The same however, can’t be said if the two French carriers or Adria Airways.

  Whatever the cause of these latest failures, one thing is clear; only the strongest will survive the current turbulence buffeting the airline world.

 

© Kevan James 2019.

 

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