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A gloomy picture

Old 22nd Nov 2011, 12:56
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A gloomy picture

Rather than fretting about why one airline thread is allowed to blossom on R&N while another keeps bouncing into here, we need to look at the big picture. I fear this will not be the last of these events.

Winter is a notorious time in the UK for the finances of those airlines/operators who are in the charter market. It is (amazingly) just over 19 years that the 'guaranteed' bank loan for DanAir's winter 1992/3 was whipped from under them by . .. and over 20 since Air Europe went.

I sadly think we need to be braced for a major cold blast for the whole travel trade this winter. Of course, any 'demise' offers comfort for the survivors, but they themselves are dependent on banks' willingness to extend credit.
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Old 22nd Nov 2011, 13:20
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I think what we are seeing right now is a major recalibration of the market space. Those that have piles of cash (Ryanair, easyJet, IAG, Lufty and KLMAF) will be able to pick off the weakest and consolidate their businesses.

Some people derided Douglas Fraser (the BBC Scotland business corespondent) when he said that we are heading for a 5 airline world in Europe, but I can see this becoming a reality. There will always be small regional and niche operators, but if those companies grow to a threshold size, they will be bought or merged with one of the "big five". It seems to be happening now, right in front of our eyes.

I suppose it is a Darwinian process....
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Old 22nd Nov 2011, 14:01
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some truth in that but bmi one company maybe come 3 or 2 or none!

The problem is the entry costs into the market are now so high due to the very necessary regulations and oversight that its difficult to even start small any more.

But does it matter to the end user who has grown up with same high street shops in every town over 50k pop Specsavers, Boots, WH Smith, Costa coffee,Johnsons,Gregg's says it all really, lets face it if you can't fly to where you want to go from a choice of FR, Easyjet, Jet2,bmibaby,Flybe BA, Monarch,Tui, TCX or Emirates its probably not worth going? where's left Teesside & Carlisle & Oban? i rest my case........
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Old 22nd Nov 2011, 14:40
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some truth in that but bmi one company maybe come 3 or 2 or none!
bmi is a good example, they failed to keep up with the changing market and never grew big enough to stay with the pack.
Mainline will go to IAG, Regional will become a niche player which if it grows to the right size will be bought or become part of the "big five" grouping. And there is baby....

EasyJet started with 2 ACMI 737s and Ryanair was a basket case who were on the verge of bankruptcy when MOL took over. So it is possible to start up and become a Big Player, but it needs inspired leadership and a shed load of cash added to an insane amount of good luck and timing.

Whilst it may seem bleak and miserable at the moment, now is the time for a cheeky wee start up to become an easyJet or Ryanair competitor in 5-7 years time.
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Old 22nd Nov 2011, 15:10
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I have to agree with the majority of what’s posted above with the exception of their being any new UK start-up. I’ve been around Aviation all of my working career and am now in the position of not knowing what to do next. I think maybe it’s time to move away from the airline side of this business in the UK as I can’t see any new UK AOC ever being granted.

My personal opinion is that the lo-co’s have totally ruined what was the charter airlines business and we will never see a recovery from this. It’s all now down to a matter of the amount of ‘cash in the bank’ to ensure you can ride out the winter. Don’t get me wrong, this has been the case for the last 15 years within the charter airlines and they know it, but what isn’t helping is the lack of confidence in the European market and quite simply over capacity which has destroyed yields.

My take on the current position in the UK market (sad as it may seem) is as follows:

Astraeus – Sad demise yesterday. I understood a large Airline from the sandpit was keen to make offers for the AOC but sadly the management refused to talk to them.

Ryanair – massive over capacity this winter (slightly less last year), will be interesting to see how much cash goes down the drain over the next 6 months propping up the ‘stored’ aircraft. Yields will be well down next year when full fleet up and flying again. Will still be supported by the ‘first time’ travellers.

Easyjet – Stelios has been shouting for a good few months now that need to trim down which they seem to have managed partly and I think they have now completed all planned deliveries. Yields will be down next year, but will have a better quality of passenger when people trade up from Ryanair. Will continue to slowly attract a core base of more frequent travellers that dont like using the other lo-co's.

Monarch – clutching at straws, missed the lo-co boat about 10 years ago but still drastically trying to prove themselves as a player to paper over the massive downturn in IT charter flying. B787’s ditched as no longer any Long Haul requirements from the UK. May last another couple of years before the owners get fed up with cash injections.

TUI – large capacity reductions in fleet moving back towards the B738 away from B757’s. B787 will be a disaster as Long Haul is on its knees due to the massive APD taxes and the historic winter cruise operators have already relocated ships back to Europe because of this. Further capacity reduction over the next few years.

TCX – as seen by today’s share slump, they seem to have eaten through £100m in the last 3 weeks. Fleet being reduced (sensibly it seems as they have spotted the end of Long Haul charter) but carrying £902m debt, albeit do have some cash in the bank. Will they be allowed to fail? Unlikely as banks will have to step in (I am sure Airtours were around £945m in debt when they were merged into TCX). Further capacity reduction or failure over the next couple of years.

Jet 2 – difficult to call. Seem to have made some big moves and established a good foot hold in the lo-co market. Will all depend on if they can get their fleet renewed and on-time performance sorted and get Jet 2 Holidays up to strength before pax start voting with their feet.

BMi Regional – headed for a sale, will merge with Loganair over the next couple of years.

Loganair – will disappear and be merged into BMi regional.

BMi Baby – will be sold and be re-branded. Will grow slightly over the next couple of years and then be absorbed by one of the lo-co’s.

BMI Mainline – airline will disappear when swallowed up by IAG.

So, what does that leave us...? Gatwick without a based Airline and a diminishing choice of carriers which will inevitably lead to an increase in fares and monopoly on some routes which will remain operated by one of the inferior lo-co operators.

The saying was ‘the futures bright, the futures orange’; sadly I’m not so sure about the ‘bright’ part of that these days.
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Old 22nd Nov 2011, 16:43
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You forgot that fairly sizeable Exeter-based airline! (the one that seems to have some trouble taking delivery of it's new regional jets).
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Old 22nd Nov 2011, 17:14
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LGW may not have a based airline there but it has EZY with over 40 craft based there. It's planes that make money not office blocks hosting airline HQs. FR are predicting yields increasing too but it will be interesting to see what happens.

I see more peripheries of Spain, Greece maybe Italy who are reliant on tourism do deals with FR subsiding services there as the regions seek inward investment.

I do think the LCCs are to blame for the demise of the charters but fail to divest, evolve or die. Look at Polaroid, Nokia and Hoover. If you get complacent, arrogant or fail to adapt with the Market in a timely fashion then you are pretty muh screwed.

There is now less of a need for in-house airlines as tour operators can simply buy a few seats on a plane that someone else is paying for the mortgage, crew, fuel, insurance, navigation, depreciation etc etc.

These are bad times. And although MOL alwas warns of a bloodbath coming "this winter" every year, this year looks to be a particularly tough one. I also think it's time we stopped having to pay APD and the government stops subsidising trains and let's our airlines trade on an equal level.
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Old 22nd Nov 2011, 17:16
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Mr Sandwich, I agree with elements of your vision but Europe’s demise is no different to the worldwide issues with the aviation business today. Until Governments stop interfering with simple economic s of this business, the delicate equilibrium between supply and demand will never be allowed to materialise. Where else does a dynamic sector with huge appetite for demand fail to make significant returns? Geopolitical events or spikes in the price of crude just further unsettle the equilibrium. Over capacity is endemic and until there is a market free from archaic protectionism, we continue down a perilous path…
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Old 22nd Nov 2011, 17:35
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APD will have a negative impact on tax revenues as it turns once well paid airline employees into recipients of unemployement benefits.
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Old 22nd Nov 2011, 18:04
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One wonders if the Govt (both this administration & the previous one) have an agenda to run down civil aviation in the UK. From the odious APD to a refusal to let LHR expand, it seems so. It seems also to be working...
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Old 22nd Nov 2011, 18:11
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sanook:
Until Governments stop interfering with simple economic s of this business, the delicate equilibrium between supply and demand will never be allowed to materialise
Get real pal. Aviation was subsidised for decades, especially after WW2, both in terms of airlines and airports. The current situation is the inevitable result of the withdrawal of subsidy - airports closing, airlines closing, standards of service in inexorable decline. Because that's the only way you can expand the market, and if you can't expand your market as a private company you're f****d. Hence MOL's recent confirmations that Ryanair expansion is dependent on further cost reductions. Same as the wider economy. Growth is 100% dependent on further driving down the cost of labour, whether through huge increases in (especially youth) unemployment, or by requiring the remaining lucky lucky people to do the jobs of their sacked colleagues as well as their own job.

Race to the bottom!

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Old 22nd Nov 2011, 18:13
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Although the previous lot introduced APD, they did at least have a plan for aiurport growth with LHR's 3rd runway, a second runway at STN and permission granted for the runway extension at SEN. The current lot do seem to have an anti- aviation bias, probably to fuel their HS2 rail folly. At least Phillip Hammond has moved away from transport - he was blatantly anti civil aviation.
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Old 22nd Nov 2011, 18:45
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And replaced by a women who prides herself on being against the 3rd runway at Heathrow, no real change in my eyes!
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Old 22nd Nov 2011, 19:08
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I see big potential and room for UK Start-ups - but they will be in the regions - the slimmer airports/routes. No major start-up's, other than potentially FastJet.

There's big room for growth out of the regions still at the moment where a 737 or an A319 just isn't fillable.
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Old 22nd Nov 2011, 20:52
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The future of the English airline industry does indeed look bleak, yes I did say English as the Scottish Government have already made it very clear that their intention is to ditch APD as their recognise what we all know its destroying not only the aviation sector but the economy as a whole. In Northern Ireland concessions have already been made to the tax to stop Continental pulling out and I suspect further concessions will have to be made to other airlines.

Imagine the demise in Northern airports, NCL, LBA and indeed MAN if APD is no longer applicable from flights out of airports in Scotland.

Since the recession we have had support for the car industry, this week help for the house building sector and further cash injections (subsidy) needed to prop up failing rail franchises. The CONDEMs however appear to be happy to watch the aviation sector go down the toilet.

After 27 years in the aviation industry its no time for a possible career change
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Old 22nd Nov 2011, 21:41
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Condems fault? What exactly has labour done for aviation? Wait, didn't they introduce APD? And wasn't it the current government who froze APD?
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Old 22nd Nov 2011, 21:48
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fa2fi - yes whilst Labour introduced APD and were wrong for doing so. The CONDEM government are the only ones that can correct the situation and give the airline industry the support it needs. They are the ones in power and have been now for almost two years, this is the critical period when the state of the UK airline industry has slumped at an alarming rate.

To simply freeze APD is not good enough it needs to go otherwise its 'simply fiddling while Rome burns'. Radical action is needed now before its too late. The only ones that can do this are the current lot in charge.
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Old 22nd Nov 2011, 22:05
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I think if you check it was the Conservatives who introduced APD in the mid 1990's.
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Old 22nd Nov 2011, 22:16
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You're right, and I stand corrected. The Tories introduced APD in 1994. Perhaps they could now do the decent thing and do away with it. Oh, but there's no Plan B is there George....?
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Old 22nd Nov 2011, 22:31
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If APD is abolished it will leave a massive hole in someone's accounts, a deficit which will have to be filled from another source and will simply transfer the problem from aviation to another sector.

As a non-smoker, I'd say tax the hell out of smokers, but that's unfair. If I were a cyclist who didn't own a car, I'd say tax the hell out of motorists, sorry, I forget, that's already happening and it is unfair.

I don't envy Mr. Osborne!
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