Saturday 24 August 2019

John Mulligan: 'Low-cost airlines come and go but Europe's capacity glut persists'

Primera Air ceased operations in 2018 (Joe Giddens/PA)
Primera Air ceased operations in 2018 (Joe Giddens/PA)
John Mulligan

John Mulligan

OVERCAPACITY has been a feature of the European airline market for some time. Low-cost and other operators, buoyed for years by relatively low fuel prices, were able to keep adding seats to their networks.

Any signs that capacity may be removed from the market raises investors' spirits, as they hope that fares might rise if there are fewer seats available, or if capacity just rises at a much more modest pace.

Please log in or register with for free access to this article.

Log In

Airline failures are one of the bluntest ways to eliminate capacity.

There have already been airline casualties in Europe: Primera Air, Small Planet, VLM, Azur Air Germany, Skywork and Germania are some of the carriers that have collapsed over the past year or so. But their demise still hasn't made a big enough dent in the capacity glut.

Michael O'Leary has long predicted that there'll be much more consolidation in Europe, leading to just a handful of big airline groups dominating the market. But that will take time.

Meanwhile, Hungarian low-cost carrier Wizz Air said that at least some capacity reductions are improving the overall environment in Europe.

"Higher fuel prices are supporting a stronger fare environment and we expect these macro conditions to provide Wizz Air with market share opportunities as weaker carriers withdraw unprofitable capacity," said Wizz Air chief executive Jozsef Varadi in May.

But what will happen next year, when deliveries of the 737 Max are back in full swing?

While some Max orders will replace existing aircraft, many are earmarked for helping carriers expand. European airlines are due to take delivery of about 300 narrowbody aircraft this year, with a further 400 expected to touch down next year.

"The flood of planes is in full swing in Europe as narrowbody deliveries are set to reach record highs in 2020," said Daniel Roeska, an analyst at Berstein earlier this month.

That could spell trouble for weaker airlines especially, but could also prove a boon for consumers if carriers have to cut fares to fill seats.

The legacy of the Max groundings may linger for some time to come.

Irish Independent

Also in Business