Final call for more than 50 airlines
Warning of bankruptcies in ‘worst-ever’ trading
David Robertson, Rachel Sylvester and Alice Thomson
Airlines across Europe face their biggest crisis this winter as the high price of fuel threatens to bankrupt at least 50 carriers.
Weaker carriers will not survive the postsummer holiday crunch, aviation analysts say, as passenger demand falls because of higher fares and the worsening economy.
The gloomy outlook is shared by the heads of Britain’s largest airlines, British Airways and Ryanair. Willie Walsh, the chief executive of BA, said yesterday: “We will see a number of failures as there are quite a lot of weak carriers that will not survive. We are in the worst trading environment the industry has ever faced.”
Airlines are responding to the crisis by reducing the number of flights in the quieter winter months. BA said that it would make a series of cuts to its schedule after a 90 per cent fall in profits in the past three months. Ryanair also plans to cut routes and ground aircraft over winter.
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BA and Ryanair are among the strongest airlines operating in Europe and analysts believe that weaker carriers will be forced into more drastic action, such as merging with a rival, or they will go out of business. Douglas McNeil, of Blue Oar investments, said that more than 50 European airlines were under threat. His list includes names such as SAS (Scandinavia), Alitalia (Italy), Olympic (Greece), Malev (Hungarian) and Lot (Poland). The future of smaller British airlines such as bmi, Flybe and Monarch was also doubtful, he said in a report, Into Thin Air.
Mr Walsh said: “It’s a positive thing if some of these carriers go out of business, as it will take capacity out of the market. Look at Alitalia – it should not be allowed to continue in business. It is propped up by the illegal state aid from the Italians.”
The threat of bankruptcies could make passengers hesitant over which airlines to trust when booking winter breaks or business trips, exacerbating the problems some carriers face. Most airlines are expected to increase fares to offset the rapidly rising price of fuel, which now costs BA £8 million a day.
Michael O’Leary, the chief executive of Ryanair, has adopted a different strategy and will lower fares to keep his planes full – even if he loses money doing so. In an interview with The Times, he said that he intended to offer a million seats for £1 each in September and added that fares would fall by 5 per cent overall.
“It will never go horrendously wrong when you’re offering the cheapest fares in Europe. All we’ve got to do is keep flying more aircraft, opening up more routes and offering people more cheap flights,” he said. His strategy is to launch a price war that will put even greater pressure on weak airlines. When they go bust, Ryanair plans to step in and and take over their profitable routes.
Mr O’Leary said: “Our traffic will grow by 17 per cent, from 51 million to 58 million passengers, precisely for the reason that our profits will fall. We have guaranteed no fuel surcharges on Ryanair whatever oil price increases there are.
“We are the perfect airline for the recession. You don’t want to waste any money at the moment on overpriced flights that will be delayed out of Heathrow while your bags are lost.”
Rising oil prices have put all airlines under pressure and more than two dozen have already gone bankrupt worldwide. Airlines are adopting a number of strategies to survive, with fare increases and capacity cuts the most common. BA has raised its fuel surcharge, which is added to regular fares, three times this year. It is now £218 return for BA’s longest flights.
The airline also said yesterday that it would reduce its capacity by 3.1 per cent from October by halting flights to Newquay, Sarajevo in Bosnia, Dresden in Germany and Poznan in Poland. It will also reduce the frequency of many flights. Heathrow to New York will be cut from eight flights a day to seven and London to Tokyo from two a day to one. Other routes, such as Heathrow to Munich and Gatwick to Glasgow, will also be cut by roughly a flight a day.
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