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“Winter is coming”, airlines warned

2019 will be a difficult, dangerous and decisive year for aviation in Europe, an aviation expert predicts.

With an unpredictable economic environment, fluctuating oil prices, Brexit, squeezed regional carriers, bursting infrastructure and other key issues looming in 2019, airlines, airports and public authorities will have to take urgent decisions next year, aviation consultant Gerd Pontius warns.

The aviation consultant and chief executive of Prologis Strategy highlighted for the German travel news site fvw a diverse range of issues and challenges for the sector, in a preview ahead of the European Aviation Symposium in Munich on January 29-30.

“Winter is coming. This dark prophecy from the Game of Thrones series summarises the changes that the aviation industry will have to face up to in 2019,” he begins in his bleak assessment.

“The mild environment with cheap fuel, low interest rates for financing and continuously rising passenger numbers is heading for an end.

“This enabled some airlines, especially in intra-European aviation, to survive somehow despite weak capital investment and low margins. That is why the long overdue industry consolidation has so far not yet taken place.

“Whoever has not yet earned any money will find it even more difficult in future. Market consolidation will pick up speed with the forthcoming tougher operating environment.

“Larger and established players are now under pressure as well. However, consolidation will initially only mean that the number of independent market participants will fall. It does not necessarily mean there will be insolvencies or takeovers. The quieter path of joint ventures also reduces competition.”

Look at the US
Pontius says that the consolidated market in the USA is frequently taken either as a role model or a threatening scenario, depending on the interests in question. But there is a downside.

“Five airlines dominate over 80% of the market there. The downside, however, is a strong focus by the market leaders on high-revenue trunk routes, combined with a significant price increase of more than 50% on average over the last five years.”

In the US, he points out, passenger numbers are rising substantially at the major hubs, while smaller airports are being left behind more and more.

In Europe, some clear similarities to this can be seen, he says: strong passenger growth at the hubs but with declining utilisation of regional airports; increasing squeezing-out of small and specialised carriers that have little scope to respond to aggressive pricing by big low-cost carriers and airline alliances; and significant price rises as soon as one operator dominates a market.

Fit to burst
Infrastructure in Europe, meanwhile, is “bursting at the seams”, Pontius warns.

“The strains on infrastructure are becoming increasingly apparent. It is likely that the capacity limitations experienced in summer 2018, when every third flight in Europe was delayed, will be repeated in the near future.

“Both the aviation industry and transport politicians have increasingly recognised the urgent need for action. Yet too often concepts to solve these problems fail due to the conflicting interests of the involved parties.”

He concedes that measures taken by some airlines and airports to steer capacity, such as Lufthansa’s proposal of a cap on slots, can ease the pressure in the short term. But substantial investments in people, technology and logistics are needed for a long-term solution.

“In 2019, it will be necessary to work on these concepts and to make the required budgets available, so that significant relief can be felt sometime within the next few years.”

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