German Airlines Left at the Gate

Aviation is growing in Europe, but big German airlines, including Europe's largest, Lufthansa, might miss out as competitors take off.
Europe's airline industry is growing again.

All the talk in German aviation these days is about shrinkage, whether at Lufthansa, Europe's largest airliner, Air Berlin or air traffic control. Only big airports such as Frankfurt and Munich still talk about growth.

It's jarring because elsewhere in Europe the industry is not doing so badly. Sure, airlines in other parts of the world are expanding their product range much more quickly. Also, the profits of airlines in Europe leave much to be desired.

But European aviation is no longer the problem child it once was, according to statistics kept by the International Air Transport Association, or IATA.

Europe gained 5.8 percent in the number of available seats per air kilometer last year, according to IATA. The continent was the fourth strongest growing region in the world – even ahead of big and important markets such as North America. For the current year, IATA experts predict similar growth.

But market growth is largely passing both of the big German airlines, Lufthansa and Air Berlin. In the first quarter, Air Berlin increased available seats by only 1.5 percent. For rival Lufthansa, the increase was only 1 percent.

In contrast, low-cost British carrier EasyJet this week announced a 3.6 increase in capacity for the first half of its fiscal year.

Lufthansa and Air Berlin must also think about expansion and growth. Airlines that restructure too slowly and for too long will be left at the gate.

British Airways’ owner, IAG Holding, even increased offered seats in Europe by a total of 12 percent in the first three months of the year, aided largely by its low-cost subsidiary Vueling.

The reasons for the discrepancy are clear. Both Lufthansa and Air Berlin are cutting back on less lucrative routes. That is understandable. Even if the economic situation of the companies is not comparable, they share a few big problems – they are not competitive and not profitable.

One has to first clean up shop. With those words, the new CEO of Air Berlin, Stefan Pichler, got to the core of the matter on Tuesday when the company reported quarterly figures.

It's no news in the business world: Companies that grow permanently at a lower rate than their market will have serious problems in the long term.

That also applies in aviation, where there’s a special challenge: Without a strong base at home, airlines cannot remain strong in other markets.

With all due understanding for needed restructuring and cost cutting, Lufthansa and Air Berlin must also think about expansion and growth. Airlines that restructure too slowly and for too long will be left at the gate.

Lufthansa and rivals Operative Margin-01

Lufthansa’s rival IAG is an example of how to do things right. The holding company for British Airways and Iberia managed to have figures in the black in the industry-wide weak first quarter.

Even more significant are other figures. IAG pushed a full 5 percent more capacity into the market in the first quarter. A large part of that growth came from the low-cost subsidiary Vueling. But both the core brands, British Airways and Iberia, increased available seats together by about 3.9 percent – clearly stronger growth than at Lufthansa.

IAG had to put up with declining average revenue per available seat in Europe. But that’s because capacity was expanded at the expense of prices. In the end, the average revenue of IAG in the first quarter only declined about 0.8 percent. Lufthansa in contrast booked a minus of 2.5 percent – and that while the airline hardly grew.

Those figures are telling. Shrinking capacity might be an effective measure in one phase of restructuring. But it is not a strategy for the long term. The trick is to find a way to grow again at the right time – before the competition has flown out of reach.

Lufthansa Europe’s Biggest airline in terms of passengers -01

 

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