ANALYSIS: Europe airline market outlook March 2014

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Big spending Etihad Airways continues to be key player in the fate of European airlines as several of its existing or potential investments reach crucial points.

The Gulf carrier is still in investment talks with struggling Italian operator Alitalia. Etihad entered the final phase of investment talks at the start of February. As yet no decision has been made.

“[We’ve been] very clear on what we’d expect as investors," said Etihad chief executive James Hogan at the start of the month. “We’ve not committed in any form to invest or not.”

Hogan says any involvement in Alitalia will depend on whether Etihad believes its network is suitable, its cost base can be restructured, and whether a strong management team can be put in place. “We have to be convinced, as investors stepping in, that we can move the airline back to profitability,” he adds.

Speaking at an investor roadshow a few days ago Hogan added: “If we do step in Alitalia,it will be similar to our track record with other investments. One criteria is network and whether there is no overlap." He says there is strong fit between the Alitalia and Air Berlin networks in the northern part of Italy.

Etihad holds a 29% stake in Air Berlin and speculation has been rife over planned restructuring at the German carrier, after it twice postponed its 2013 full-year results briefings. These are now due some time in April. German media have reported that Etihand is planning to delist Air Berlin from the stock market and potentially merge it with Alitalia.

Air Berlin management says it is still negotiating a recapitalisation to strengthen Air Berlin’s equity and liquidity,, adding only that talks are being held with “certain” shareholders and financiers.

Etihad has though lifted its stake in another European operator, increasing its shares in Aer Lingus to a little over 4%. Hogan has left the door open to further investment in the Irish carrier, in which Ryanair has been told to cut its 30% stake to 5% following a UK Competition Commission ruling. “We have a very good dialogue with the [Aer Lingus] board and that will continue,” says Hogan. “That’s all I can say.”

Meanwhile Switzerland’s civil aviation authority is investigating whether Etihad Airways’ investment in Lugano-based regional operator Darwin Airline has breached European ownership and control regulations.

The acquisition has not breached ownership regulations, which demand that airlines operating under Swiss rule must be majority-owned either by Switzerland entityor EU investors. What is at issue is whether the new shareholder structure also reflects management control at Darwin. That is now being investigated, says the Federal Office of Civil Aviation.


Iberia agrees preliminary deal with ground staff, clearing its path to future growth by securing productivity deals with all its unions;

EasyJet follows up launch of Hamburg and Naples bases by striking long-term commercial deals at its two largest London operations, Gatwick and Luton airports;

Etihad Airways' investment talks with Alitalia continue beyond initial 30 day period, while another Italian carrier Blue Panorama Airlines says it is in negotiations with an "international investor";

Ryanair secures a “BBB+” rating from Standard & Poor’s, opening the door to it using the enhanced equipment trust certificate market for aircraft financing;

Transaero agrees to lease six Airbus A321s from Chinese lessor ICBC, part of a plan to take 30 A321s over the next five years;


European carriers have continued their strong start to the year in passenger traffic growth. European airline traffic was up 6.2% in February. This builds on the 7.8% growth reported in January.

This growth continues to outpace the capacity added in the market. European airlines added 5.8% capacity as measured in ASKs in February. Consequently passenger load factor among European operators was up 0.3 percentage points to 76.9% compared with the same month last year.

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Passenger traffic among European mainline carriers was up 5.3% in January Association of European Airlines data show. This is well ahead of the near 4% capacity AEA carriers added in January, helping to lift collective load factors a point to 77.2%.

There was particularly strong growth from European carriers to North Africa and the Middle East, showing the fastest rate of growth at 8% in January albeit it off a relatively small base. This comes at a time when several AEA members have increased their links to the Gulf - for example Air France-KLM launching a wide-ranging codeshare with Etihad - reflecting that increased traffic flows to the Middle East are not just driven by the fast-expanding Gulf giants.

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Figures from Flightglobal’s Ascend Online database show 5,854 aircraft in service among European airlines in March. This is 33 more aircraft than in February. The correlating reduction in parked aircraft means a little over 10% of the European fleet was parked in March.

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