Europes Differing Flightpaths

In a week where Ryanair posted some pretty awful first quarter results and British Airways and its oneworld partner Iberia reveal that they are in talks over a possible merger, airlines in Europe are still a long way off from converging their strategies to combat rising costs and pushing forward to be more efficient, productive and competitive.

Lufthansa has been stifled by unions going on strike over pay, while Ryanair CEO Michael O’Leary stands firmly resolute that the carrier would not be introducing fuel surcharges and would continue, where possible to reduce fares.

 Image courtesy of Boeing

“Whatever the causes and whatever the likely effects of the current airline industry problems might be our view can is that if Ryanair is to survive through this current crisis fully intact it needs to take drastic price increase measures combined with severe capacity cut action now.

So what should it do?

For a start management needs to climb off the high and mighty pedestal and accept that nothing short of at least a doubling of ticket prices will suffice.

Secondly, instead of talking this crisis down as an opportunity for Ryanair to gain as more and more smaller airlines across the world go bust it must accept that as long as the price of oil remains at anywhere near current levels that absolutely no one will gain.

Thirdly, instead of telling its already battered shareholders that it will take near twenty planes out of service for the short winter period it will take out nearer 50 to 60 planes out for as long as the crisis demands.

Fourthly, Ryanair must now make a humiliating admission – that the growth strategy is shattered and now completely wrong and that, having ordered far too many new Boeing planes, that it intends to now renegotiate,” says BGC Partners strategist, Howard Wheeldon.

With this is mind, British Airways and Iberia will be looking to get the benefit of operational synergies across their mainline fleets and lower their costs while being able to adjust capacity to demand as both carriers tackle rising fuel costs.

 Image courtesy of oneworld

Given the relative ease with which EU regulators cleared the merger between Air France and KLM, there should be no plausible reason to prohibit a merger between the two carriers. Indeed, even if talks come to nothing and BA elects to restart talks with American Airlines, again, under the new Open Skies regime, the EU authorities have little ammunition with which to stop such desires.

As usual, the bungling words of discord from Sir Richard Branson and his Virgin Atlantic over British Airways’ merger ambitions does little to hide the inept performance of his own airline, 49% of which is held by Singapore Airlines which it is desperate to offload. Equally, Branson voiced almost no fears of a disadvantage at Heathrow when Air France started operations to Los Angeles, yet is hypocritically quick to shoot the first arrow into virtually anything British Airways does when it looks to consolidate its operations.

In short, Ryanair’s dismal results highlights the pressing need for a major overhaul in Europe.

“The aviation landscape is changing and airline consolidation is long overdue,” says BA CEO, Willie Walsh.

Perhaps the biggest question isn’t whether regulators will hinder mergers, but rather, whether the airlines themselves acknowledge that destiny is in their own hands and they need to do something about it to survive.

1 comment July 30th, 2008