The graveyard of European airlines has become a bit fuller
recently, and analysts said more are likely to fall amid consolidation and
higher fuel costs.
Among the recent casualties:
- Primera Air abruptly
ended operations in early
October 2018 weeks after putting out a press release detailing its plans for
transatlantic expansion.
- Cyprus-based Cobalt Air ended operations in
mid-October 2018 and entered into administration proceedings.
- Airberlin ended operations in October 2017 and
was largely gobbled
up by Lufthansa and EasyJet.
- U.K.-based Monarch Airlines ended
operations and filed for
insolvency in October 2017.
Iceland-based Wow Air, which recently trimmed back capacity
on its transatlantic flights, which offer rock-bottom fares, is
set to be acquired by
Icelandair, although Icelandair intends to maintain the Wow brand. Low-cost
carrier Norwegian has
been courting suitors for an
acquisition, as well.
Part of the challenge unique to Europe is its hub structure,
ICF aviation group SVP Samuel Engel said. As major carriers in the U.S. have
consolidated hubs over the past decade or two—moving out of markets like Kansas
City, Memphis and Pittsburgh—Europe still has about 30 loosely defined hubs,
even while its territory is more compact. As such, the average population a
U.S. airline hub serves is about 5.5 million; in Europe, it's about 2.4
million. "That suggests that they still have beyond the number of optimal
connecting hubs and says structurally, there's still more consolidation to
go," Engel said.
That adds another layer of difficulty to the flight path for
small startups like Primera and Cobalt, he said. With small fleets, they
"are putting a huge amount of financial risk in the air with every
flight," he said. "There's very little flexibility because you don't
have a connecting network to help fill the flights and you don’t have a backup
fleet to cover for disruptions. The winds blowing against a long-haul startup
are strong and unforgiving."
Of course, some have pulled success from failure. Amid the
high capacity going through Iceland—this past summer, there were more flights
between the U.S. and Iceland, which has a total population of about 340,000
people, than to either Spain or Ireland, Engel pointed out—Wow made enough of a
mark that Icelandair has decided to keep the brand going. Similarly,
"Norwegian will continue to exist in some form" despite the M&A
activity that surrounds it, Engel said.
Rising fuel costs, meanwhile, add to the fatal
atmosphere for long-haul low-cost carriers, which do not have their legacy
competitors' lucrative revenue streams, such as premium cabins and corporate
contracts. Oddly enough, however, high-fuel-cost environments can make a ripe
climate for more new startups. "When fuel prices spike, we historically
see large-scale retirements of prior-generation aircraft," Engel said.
"They become very affordable—until the next maintenance check, at least—so
we could see a fair bit of startup activity."