Europe’s large, mid-size and regional carriers are pursuing further structural changes as they look to bolster their finances in a turbulent market.
Although traffic is rebounding, and earnings prospects are on the upswing for most, considerable headwind remains. Unions are one source of tension, as is the general economic malaise throughout Europe. Both threaten to depress air traffic recovery, thus setting the stage for further efforts to revamp businesses continent-wide.
Just how precarious the situation remains for many airlines was underscored last week by the actions of Finnair. When last-minute efforts to curb a cabin crew strike failed prior to the planned Nov. 30 walkout, airline management warned that the up-to-€2.5-million ($3.3-million) daily loss from the disruption was enough to drive the airline’s projected full-year operating result into the red. Up to that point, Finnair had been on target for a slight profit.
What is more, President/CEO Mika Vehvilainen says he feels forced to impose radical restructuring on top ofseveral adjustments taken in the course of the last 15 months.
“We are assessing all of our company’s structures as well as the activities that we can profitably perform within the company in future, and also the extent to which possible partners could perform activities more efficiently on our behalf,” he says. “We must also assess the extent to which our work will be performed in Finland or whether it would be more cost-effective to carry out some of the work in locations with a lower cost level.”
Union unrest also is threatening to hit British Airways again, after a year in which the carrier suffered several disruptions and nearly £150 million ($233.7 million) in related losses. Unite, the cabin crew union, plans a new strike vote soon, with a final decision by January.
But management of the merging BA and Iberia—the deal received its final shareholder blessing last week and will take effect Jan. 24—is looking beyond the immediate labor threat. Willie Walsh, CEO of International Airlines Group—the umbrella company for BA and Iberia—signaled that the group is seeking links with other airlines. Those could be pursued through partnerships or further merger or acquisition deals.
The near-term focus is to generate the €400 million in bottom-line benefits the two hope to see within five years of merging, although management indicates it is ready to move far earlier to further increase the size of Europe’s third-largest airline.
British regional carrier Flybe has announced plans for an initial public offering (IPO). During the summer, the airline committed to a major fleet expansion with Embraer and is now looking to raise about £60 million through the share offering. Flybe wants to initiate the IPO next month, although the timing could change, pending market conditions.
The airline says the money is intended not just to finance fleet plans, but other expansion as well, potentially through acquisition. CEO Jim French recently told Aviation Week he planned to buy a Continent-based carrier soon.
“We’re looking at a range of acquisition opportunities in continental Europe, some of which we’d like to conclude by the end of this financial year [March 31],” French notes. “We’re looking to create bridgeheads to help us to develop our growth strategy in continental Europe.”
Rosedale Aviation holds 70% of Flybe, British Airways 15% and CEO French has 7%. BA has signaled it will retain its 15% holding by acquiring the required number of shares via the IPO.
Flybe took over British Airways’ Connect business three years ago and now operates a two-type fleet based around the Bombardier Q400 and Embraer E-Jet, following an extensive aircraft replacement program. Any acquisition would undergo a similar transition. “We have no desire to be anything other than a regional airline,” French says.
He believes Europe’s regional airline development will be driven by restructuring among the three principal airline groups—Air France-KLM, British Airways/Iberia and Lufthansa.
The turnaround process at Lufthansa’s subsidiary Austrian Airlines is taking another step forward after last week’s appointment of longtime Lufthansa executive Thierry Antinori as Austrian’s new CEO. The 49-year-old executive was in charge of sales and marketing at Lufthansa’s passenger airline division for 11 years. Austrian’s current executive board members Andreas Bierwirth and Peter Malanik have shared responsibility for the airline so far. The two have had significant success in improving Austrian’s financial state, returning the airline to operating profits in the third quarter. Antinori’s appointment is therefore more closely linked to group politics rather than Austrian’s condition.
Carsten Spohr is taking over as new CEO of Lufthansa Passage in January and is understood to be eager to install an entirely new management team. Nevertheless, Austrian is likely to benefit from Antinori’s skills in the sales area where the airline needs to have as many synergies with the parent company as possible to achieve its target to return to a full-year profit next year.
Austrian has now traversed what Finnair may still be facing, namely integration into a broader airline group. BA’s Walsh reiterated last week that Iberia and BA are only the initial IAG members.
No comments:
Post a Comment