Sun, Aug 26, 2012 - Page 14 News List

Airline industry woes chip away passenger choices

By Rhys Jones and Maria Sheahan  /  Reuters, LONDON and FRANKFURT

Ryanair CEO Michael O’Leary leans on a model airplane on Thursday during a press conference in Madrid.

Photo: AFP

Air passengers face higher fares, fewer flight choices and crowded aircraft as European carriers trim seating capacity growth or cut routes altogether, as they battle to salvage profits and fend off the impact of rising fuel prices.

With jet fuel prices near record highs at the same time as taxes and airport charges rise, airlines are curbing the growth of capacity — the number of seats they make available — and the frequency of some flights to lower costs and not drive away customers already spooked by rising fares.

According to the Association of European Airlines, capacity among its member airlines eased by 4.6 percent in the first half of this year compared with the year-earlier period. However, that decline comes after an increase of almost 23 percent between 2004 and last year, driven by new aircraft ordered by airlines when demand was much stronger than it is now.

“We have 10 to 20 percent overcapacity in Europe, based on the number of seats offered,” said Philipp Goedeking, managing director and airlines expert at consultancy AlixPartners.

Deutsche Lufthansa, for instance, added more than 50 percent capacity between 2007, the airline industry’s last peak, and last year, according to Reuters data, boosted by the acquisition of carriers — including Brussels Airlines and Austrian Airlines.

The low-cost segment has been growing even faster, with Irish low-cost carrier Ryanair adding 72 percent more seats and British peer easyJet growing 59 percent.

Expansion has slowed dramatically this year, with Lufthansa adding only 2.3 percent capacity in the first half and British Airways (BA) owner IAG 2.6 percent. Easyjet added 5.9 percent more seats in the first nine months of its fiscal year.

SHRINKING FLEET

Some airlines are now retiring older aircraft sooner than planned, delaying delivery of new planes or selling some smaller aircraft to shrink their fleet, but none want to be caught out with too little capacity when demand picks up again.

Australia’s struggling flagship carrier Qantas Airways this week canceled orders for 35 Boeing Dreamliner jets as part of a plan to cut costs at its loss-making international business.

Most airlines saw profitability — in terms of revenue per seat offered — drop during the global financial crisis as demand for air travel fell faster than they could cut capacity. Since then, they have regained ground, but there is concern a further deterioration of European economies will lead to a repeat.

Spanish carrier Iberia’s unit revenue, for instance, dropped to 0.05 euro in 2009 from 0.06 euro in 2007. IAG, the group created by the merger of Iberia and BA, had unit revenue of 0.0672 euro in the first half of this year.

Lufthansa still plans to grow this year, but has cut its capacity expansion plans to 0.5 percent from 12 percent. Air France-KLM has also scaled down capacity growth, having already shrunk 20 percent before the crisis.

Many airlines are focusing on axing their less-profitable routes, especially short-haul services to secondary cities in Europe, hitting travelers who rely on regional airports — such as Britons with second homes on the continent.

Nicholas Blair, from Leicester in central England, bought a holiday home in the Loire region of western France five years ago, partly because Ryanair had regular flights to nearby Nantes from his local airport. However, the Irish carrier stopped services to Nantes late last year.

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