Network re-jig key to Air Europa turnaround

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Air Europa is confident that it can build on its strategy to connect Europe with Latin America after its successful turn-around last year, and expects to maintain its cost advantage over local rival Iberia.

The Spanish carrier converted a €37 million ($50 million) loss in 2012 to a record profit last year as it transitioned to a hub-and-spoke operation focused on Europe-Latin America services.

The SkyTeam operator “delivered a €66 million net profit in 2013, which is around a 4.6% margin”, says Albert Muntane, Air Europa’s head of network and distribution. “That’s a result of the shift in the business model that we’ve undertaken over the last few years.”

Air Europa carried 8.7 million passengers in 2013 and Muntane expects this to rise slightly to around 9 million passengers this year. “We expect to be profitable again this year, but we’ve been hit by the situation in Venezuela and this will have an impact on our results,” says Muntane.

“The most positive development for us is that, like most airlines, our cost per ASK is rising due to inflation and fuel prices etc, but the increase in our revenue per ASK has been much, much bigger, so we managed to go from losses in 2012 to record profits in 2013.”

Muntane says that Air Europa’s transition was instigated in response to the downturn in Spain, with capacity being redeployed from point-to-point domestic routes onto feeder flights connecting to its long-haul services at Madrid. The long-haul services are operated using a fleet of 14 Airbus A330s, which will be joined in 2016 by the first of at least eight 290-seat Boeing 787-8s.

“We’re linking Europe with Latin America, which has been key to the company’s turnaround,” says Muntane. “What we’ve seen is that because of the geographic location of our hub in Madrid, we definitely have a competitive advantage in terms of cost, compared with other carriers in Europe.”

Air Europa has also piled the pressure on struggling Iberia, which has been restructuring to reduce its structural cost base and is starting to transition from fuel-thirsty Airbus A340s to more efficient A330 twinjets.

“Competing with Iberia, we have a long-haul A330 fleet which allows us to be very competitive,” Muntane says.

He adds that while Iberia is bringing in A330s to reduce its costs, Air Europa is already to moving a step ahead: “By the time these aircraft have replaced Iberia’s A340s, we will have our 787s in place, which is a better platform from a cost perspective.”

“We’re bringing in eight 787-8 in 2016 and 2017, and that aircraft will give us an even better cost structure,” he says.

Ahead of the 787 introduction, Air Europa will refresh the interior of its A330s. The airline’s long-haul fleet has a two-class business/economy cabin and from next year new business class lie-flat seats and new in-flight entertainment system will be installed. “It will be the same product on the A330 and the 787 fleet,” says Muntane.

The airline is considering doubling its 787 order to 16 aircraft, and possibly adding a further eight options to take its Dreamliner commitments to 24. “We are considering the 787-9, and the -10 could be interesting to us from the size perspective,” says Muntane.