EU economic news is playing out with devastating effect among the region’s airlines. Five EU airlines have collapse in the last few months. Air Alps, Czech Connect, Cirrus, Spanair and Malév.
More are at risk – Aer Lingus, TAP and LOT. State airline support within the EU is waning. Many of these airlines are old names in the business – Malév was in business for 66 years. Malév said that as its suppliers lost confidence they demanded to be paid in cash. The nature of the airline business is that they run like supermarkets. They charge for supplies but can never pay cash. Once suppliers demand cash, no airline can survive for long.
The collapse of these EU airlines offers an opportunity for the arriviste of the industry. Specifically this would be cash-rich airlines in the Gulf clamoring for more EU slot access. If they were to own an EU airline the slot problem would diminish considerably. Hence the clever move by Etihad buying into airBerlin. Airlines in China might also consider this, but aviation relations between the EU and China are frosty at this writing.
State owned airlines are an anachronism. Airlines are too risky and no longer offer “jobs for pals” within the EU; and this is the case in most countries these days. Airlines cannot survive if they have too many employees. To qualify this, take the example of a successful airline – in 2010 Southwest handled 2,513 passengers per employee. By comparison Delta handled 1,369 and American 1,315. The following chart provides another measure of how airlines continually try to squeeze more out their people.
Both US and EU airlines have been aiming at increased efficiency. The dotted green line (using right axis) shows by how much the US airlines have been able to get their labor force to work harder than the EU airline labor force. The delta between US and EU airlines is quite remarkable. A number of US airlines recently started to show profits. The chart, obviously, does not show the pain suffered by staff who lost their jobs.
The EU airlines still on brink face trying times – weaker demand; poor capitalization and robust and aggressive LCCs. Within the US we have seen Chapter 11 help the legacy airlines cut their costs to become competitive with the likes of Southwest.
US and EU airlines provide great lessons – the race to lower costs never ends. State support only delays the inevitable; it is a band aid that offers no cure to the fundamental illness of too much cost. We will see additional failures in the EU this year, as several other carriers continue to struggle, and LCCs swoop in to take the most profitable routes when they fail.