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Size matters

Iata is not the first to point out Europe’s predicament. Lufthansa Group chief executive Carsten Spohr believes this year will be the start of a shrinking process in Europe, particularly in short-haul.


There have already been some casualties: Air Berlin, Primera Air, Wow Air and flybmi are recent failures, while Flybe was rescued by Virgin-led consortium Connect Airways. Among those remaining, it’s a mixed bag, as recent financial results have shown.


Hungary’s Wizz Air is in a strong position. A record £259 million net profit and an impressive net profit margin of 12.5%, plus 93% load factors and €1.15 billion in cash in the bank, means Wizz has plenty of funds to grow.


Wizz estimates 2019/20 profits in the region of £284 to £310 million and, while Ryanair is more profitable, its current focus is now less on expansion. Ryanair saw its latest full-year profits drop 29% to £905 million due to a 6% fall in average fares, and rising fuel and passenger compensation costs.


IAG’s first-quarter figures revealed operating profits down 60% to £117 million. Chief executive Willie Walsh blamed “fuel and foreign exchange headwinds” plus “market capacity”, and said profits this year would be in line with last.


Virgin Atlantic voiced similar sentiments when it posted a loss of £26.1 million for 2018.


It warned it would remain in the red until 2021.

Bright side

Nick Wyatt, head of travel and tourism research and analysis at GlobalData, believes there will be some jostling among carriers.


He said: “The US has seen great consolidation in the past 10 years and that has fed into improved profitability. In Europe, there’s huge competition. There’s still some scope for consolidation.”


There will be winners and losers and probably fewer airlines in 2020 than this year. But if that seems pessimistic, Iata’s report at least offers some reassurance, ruling out wholesale failures.


The good news is airlines have broken the boom-and-bust cycle – “a downturn in the trading environment no longer plunges the industry into a deep crisis”, said De Juniac.


Further reassurance comes from Wyatt, who agrees with Iata’s viewpoint. “I don’t think it’s pessimistic, it’s cautious. There’s no need to panic.”

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