Survival of the fittest, as airlines heat up competition
NORTHERN EUROPE AIRLINES COMPETITION: It is a battle to win the most passengers – at the lowest cost. And, preferably, without having to cut down too much on service, free drinks and peanuts.
In the Nordic and Northern Europe, a few airlines gear up to fight a combat that in a few years might leave passengers with one or two less carriers to chose from than today.
“Our focus right now is on our own company and our program to save costs to help up our margins. The room we have to think about other things is limited”, says Aage Dünhaupt, communications manager at Germany’s airline Deutsche Lufthansa, to news agency TT. Lufthansa’s shares lost 33 percent in one year.
European airlines in tough competition.
It has been a well-know secret for a few years that Lufthansa has analysed a possible bid on the troubled SAS, with its ownership and operations split between Sweden, Norway and Denmark. But, even though Lufthansa increased its traffic in the Nordic and Baltic countries last year, it does not mean the German flag carrier is out of problems. Soaring fuel costs and hungry smaller competitors make life hard for more than the Germans.
SAS’ latest hit, for its part, was a downgrade in February of its long term credit outlook, which was somewhat expected. With a right-wing government in office in Sweden – SAS’ majority owner – a change of ownership would be possible, if it wasn’t for one disturbing fact: No one is likely to make an offer. As one of SAS’ own CEO’s commented a few years back: A good way to become a millionaire is to invest a billion in the airline business.
I few months back, Spanish Spanair was forced into bankruptcy, another blow worth SEK 1,7 billion for SAS which own a big shunk of Spanair stock.
“If Spanair is counted in, the financial result för 2011 in very disatisfactory”, SAS’ CEO Rickard Gustafson concluded to Swedish daily Svenska Dagbladet in February as he reported the company’s full-year figures för 2011.
Around the same time, on of the hungry competitors of northern Europe, Norwegian, showed its strength by ordering 200 new aircrafts in one single draw. Hungry Norwegian has successfully taken over some of the former routes of capsized Danish airline Stirling and is growing very fast. By the time it has all its new aircrafts delivered, its size will likely have surpassed that of SAS. Add to that the aggressive strategy of British Ryanair, and Rickard Gustafson has many good reasons to feel weary.
As international fuel prices fluctuate – more upwards than downwards at times – and the European debt crisis shows no signs of cooling off, more than one airline chief will have to announce bad news in the years to come.
And for passengers? Well, with no lack of competition, it could mean lower prices. But not too low, since earnings have to be kept up of airlines wish to avoid paying the ultimate price. Some of them probably will anyway, sooner than later.
“We’ve seen several airlines file for bancruptcy and there will probably be more this year. One of the reasons margins are low in this business is that many companies sell their tickets too cheap, because they haven’t the need of making a profit”, says Harro Julius Petersen, Lufthansa’s Nordic chief of operations, aiming at government-backed former flag-airlines such as SAS. “We are not in that position, we are not protected by a state”, Petersen says.
