Many of Europe’s airlines saw their net profitability wiped out in 2011, and it appears the struggle is not yet over – economic growth and air travel traffic are projected to remain gloomy for the rest of the year, and there is uncertainty over government debt that is affecting many countries in the region.
Athar Husain Khan, acting secretary general for AEA said,
2012 was predicted to have a gloomy, uncertain economic outlook, and our forecasts are proving to be accurate.
Within the region, the outlook differs by country and carrier. Markets outside the EU, such as Russia and Turkey, are experiencing significant growth. However, within the EU, both large and small network carriers have been facing a decline in profitability.
The three main network carrier groups in Europe, namely Lufthansa, Air France-KLM and International Airlines Group have been restructuring their short-haul operations, against the backdrop of poor economic conditions, rising fuel costs and declining profits.
Due to the challenging operating environment, many carriers have been focusing on cutting costs. Air France-KLM's Transform 2015 programme has a target to reduce its debt by €2 billion over the next 3 years. In the mean time, Lufthansa is aiming for €1.5 billion in efficiency improvements by 2014. Finland flag carrier Finnair is targeting to save €140 million over the next 5 years, while Scandinavian Airlines (SAS) is targeting to save SKr5 billion ($749 million) over the next 12 months.
Commenting on the outlook for European airlines, Emre Serpen, manager of airline practice at the Intervistas Consulting Group, said,
If you look at the really successful airlines, the carriers that are thriving, a combination of network and low-cost carriers, are those with an unrelenting focus on costs. The challenge is to keep reducing costs, focus on quality and give enough difference to the customer. Decide what your strength is. That's where the good CEOs come in. They manage to maintain the short-term focus, but don't lose sight of the strategic focus.
Many large airlines are facing increasing competition from low-cost carriers who are increasingly making inroads into the traditional network carrier territory – they are offering frequent flights at better prices and service. This means the airlines need to find a way to keep their feeder networks without losing their long-haul profits in the process. Lufthansa, Air France, and IAG are currently implementing various strategies and initiatives to improve their short and medium-haul operations.