Industry Monitor The EUROCONTROL bulletin on air transport trends

Issue N°155. 01/10/13

European flights increased by 0.4% in August compared with the same month last year, the first real growth since October 2011. Preliminary data for September show a 0.6% increase in traffic on September 2012.

Updated IATA forecast expects European airlines to record profits of €1.3 billion in 2013 and almost doubling to €2.3 billion in 2014.

Oil prices were steady at €83 per barrel in September.

EUROCONTROL statistics and forecasts 1 Other statistics and forecasts 2 Passenger airlines 3 Airports 6 Cargo 6 Environment 7 Aircraft manufacturing 7 Regulation 8 Oil 8 Fares 8

EUROCONTROL statistics and forecasts European flights increased by 0.4% in August on 12 months before, the first real growth since October 2011 (in December 2011 flights were up 2.4% on December 2010, but the increase was driven by the weather disruption of December 2010) (Figure 1). Having been at -10% on average for most July and August, flights to Egypt declined by 50% at the end of August, following travel warnings by a number of European States. This trend continued in September (see graph: Egypt daily flights). TUI and Thomas Cook tour operators reduced their winter 2013-14 Egypt programme. Thomas Cook Germany is to resume trips to Egypt from the end of September whereas TUI decided to extend cancellations of all Egypt holidays until mid-October. In August only the low-cost market segment was showing consistent growth, and even this was only at 2.5%; far slower than historical rates of low-cost growth. Both business aviation and traditional scheduled shifted back to moderate growth, up 1% and 0.2% respectively. Charter and all-cargo both declined by 3% on August 2012.Preliminary data for September show an increase in traffic of 0.6% on the same month last year (EUROCONTROL, September). Based on preliminary data from airlines for delay from all causes, 35% of flights were delayed on departure in August, an increase of 1 percentage point when compared with August 2012. The average delay per movement in August 2013 decreased to 8.4 minutes from 8.6 minutes in August 2012 (Figure 2) (EUROCONTROL, September).

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Figure 1: Monthly European Traffic and Forecast.

Daily traffic flow to Egypt during July, August and September 2013 (excluding overflights) Internal, International Arrivals and Departures

Other statistics and forecasts IATA reported that scheduled passenger traffic (RPK) in Europe increased by 3.7% in July 2013 compared with the same month last year. Capacity was up 3.6% and the total passenger load factor was 85.5% (IATA, 3 September). ACI reported overall passenger counts at European airports to be up just 1.6% in July 2013 compared with July 2012 whereas overall aircraft movements were up 0.1%. Cargo tonnage increased by 1.2% (ACI, 4 September). IATA published its revised profit outlook for airlines in 2013 and forecasts that European airlines will post profit of €1.3 billion in 2013, up €100 million on its June forecast thanks to long-haul markets and economic stabilisation in the Eurozone. Global airlines cut their 2013 industry profit forecast by 8 percent to €8.6 billion, due to weaker growth in parts of Asia and a further slowdown in cargo demand (IATA, 23 September).

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Breakdown of average delay per flight

Percentage of flights delayed on departure

Figure 2: Delay Statistics (all causes, airline-reported delay – preliminary data for August 2013).

Passenger airlines

Capacity, costs and jobs Lufthansa plans to hire 500 new flight attendants in 2014 for its Munich-based A340-600 aircraft and Frankfurt-based B747-8 aircraft to meet summer demand (Lufthansa, 4 September). LOT is to drop flights from Warsaw to Rome, Stuttgart, Beirut, Cairo, Nice, Zurich, Helsinki and Dusseldorf, these destinations being considered either seasonal or not generating enough long-haul feed. This decision is in line with the Restructuring Plan required by the European Commission to approve the carrier’s restructuring bailout (LOT, 4 September). Finnair became the first airline to operate an Airbus A321 equipped with sharklets fuel-saving wing tip devices. The airline ordered five of these aircraft to replace its fleet of Boeing B757s (Finnair, 6 September). Aeroflot established a new subsidiary regional carrier, Taiga Airline resulting from the merge of Vladivostok Air and SAT Airlines, Aeroflot’s two Russian Far Eastern airlines (Aeroflot and RIA Novosti, 3 September). Wizzair plans to expand its operations in Summer 2014 adding new A320 aircraft to its bases in Sofia, Warsaw, Vilnius, Budapest and Lviv (new base in Ukraine). Current low-cost fleet of 36 A320 aircraft is to increase to 132 by 2017 (Wizzair, 4, 5, 16, 18 September). Delta Air Lines placed a firm order for 40 Airbus aircraft including 30 A321ceo and 10 A330-300 aircraft for delivery between 2015 and 2017 (Delta Air Lines, 4 September). Lufthansa is to place an order for 34 B777-9X aircraft and 25 A350-900 aircraft to replace its long-haul fleet of B747-400s and A340-300s by 2025. Deliveries should start in 2016 (Lufthansa, 19 September).

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Note: IAG monthly pro-forma including Vueling in the baseline.

Figure 3: Main carriers’ traffic statistics.

Ryanair signed an agreement with Stansted to grow by 50% its passenger numbers over the next 10 years in return for lower airport charges and more efficient facilities. Manchester Airport Group (MAG) acquired Stansted in February and plans to reverse a 7-year decline in passenger numbers. Ryanair also committed to encourage airlines to add long-haul flights from the airport. Following this agreement between Ryanair and MAG, UK CAA decided it would defer making a judgment on future regulation for Stansted. (UK Civil Aviation Authority, 17 September). (Ryanair and London Stansted Airport, 16 September). Air France updated its Transform 2015 plan which now aims at cutting a further circa 2,800 jobs in 2014 through voluntary departures following weaker-than-expected revenues. Air France’s initial plan launched in 2011was for 5,100 job cuts; to date the plan has already seen over 5,600 staff leave the company. The measures further include shifting more of its domestic services to its low-cost subsidiary Transavia, the latter is also to operate five additional aircraft from Orly to new European destinations in Summer 2014 (Air France, 16 September). easyJet is to open its second base in Germany after Berlin, Hamburg is due to open in Spring 2014 with three A319 aircraft and 15 new routes (easyJet, 25 September). Aer Lingus revised downwards its expected 2013 operating results and decided to reduce its short-haul capacity by a minimum of 3% in the fourth quarter compared with last year. The airline blamed the fall in short-haul booking during July and August on exceptionally good weather in Ireland, keeping potential travellers at home (Aer Lingus, 13 September). Alitalia posted €198 million operating losses during 1H13 (compared with €169 million in 1H12). In order to meet its 2013-2016 industrial plan, the Board of Directors will seek a €100 million capital increase at its shareholders’ meeting on 14 October (Alitalia, 26 September). It is reported that Norwegian is to take one of its new B787 aircraft out of long-haul service because of technical problems and demands Boeing to repair the aircraft. The carrier is to lease an A340 aircraft to fly on its two new long-haul services between Stockholm and New York and Stockholm and Bangkok (Reuters, 28 September).

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Note: IAG monthly pro-forma including Vueling in the baseline.

Figure 4: Main carriers’ load factors.

Routes, Alliances, Codeshares Low-cost Norwegian expands its long-haul operations started in May with routes between Scandinavia and Los Angeles, Oakland-San Francisco and Orlando in spring 2014; flights to Fort Lauderdale will start in November (Norwegian, 3 September). Ukraine International Airlines (UIA) signed a code-share agreement with Turkish Airlines to increase frequencies between Kiev and Istanbul Atatürk and Istanbul Sabiha Gökcen along with developing direct connection between cities of Ukraine and Istanbul. UIA also signed an agreement with Azerbaijan Airlines, increasing the frequency of Kiev to Baku to eight weekly filghts (UIA, 17 & 19 September). Royal Air Maroc reportedly announced to launch five new European routes from Rabat to Heathrow, Madrid, Milan, Marseille and Brussels by end 2013 and to expand its base in Rabat with the expected arrival of 15-20 new aircraft within the next four years (Arab Air Carriers Association, 23 September). Germanwings is to add 14 new routes in Summer 2014, nine of them in replacement for Lufthsansa summer schedule (Germanwings, September). Ryanair is reportedly planning to launch two Polish domestic routes from Warsaw Modlin to Gdansk and Wroclaw, effective March 2014 (routesonline, 27 September).

Failures Dagestan Airlines was reportedly declared bankrupt more than a year after Russian authorities withdrew the carrier’s air operator’s certificate in 2011 (ATW, 11 September).

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Figure 5: Carbon prices.

Traffic statistics: August update Figure 3 and Figure 4 compare August 2013 figures with August 2012 figures. In addition to the number of passengers (PAX), passenger capacity is measured in available seat kilometres (ASK) and traffic is measured in revenue passenger kilometres (RPK).

Airports The main European airports posted their financial results for the first half of 2013 (in million €): 1H13 Growth on 1H12 Operating result Aéroports de Paris €487 4.1% EBITDA Fraport €375 4.7% EBITDA Heathrow (SP) Ltd €726 18.0% EBITDA (adjusted) Schiphol €266 1.0% EBITDA TAV €166 28.0% EBITDA (adjusted) UAE General Civil Aviation Authority (GCAA) certified Dubai World Central for passenger operations to start on 27 October. With the first phase of construction completed, the new passenger terminal is expected to accommodate seven million passengers a year.

Cargo Luxembourg government is reportedly in talks with Chinese investor, Henan Civil Aviation Development and Investment (HNCA) to acquire its 35% stake in Cargolux. There are three other potential investors interested in acquiring a stake in the carrier. Qatar Airways sold back its stake in 2012 further to disagreements with the carrier’s strategy (IM146) (Reuters, 17 September).

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Figure 6: Brent and kerosene prices.

Environment The price of carbon contracts for 2016 hit a high of €6/tonne for the year in September (Figure 5). The price of carbon contracts hit a record low of €2.5 /tonne in April (IM151) when EU Parliament voted against a measure to backload 900 million EU ETS allowances and jumped to as high as €6/tonne in September based on the assumption that backloading will pass the EU legislative process.

Aircraft manufacturing Airbus and the Chinese Civil Aviation Authority (CAAC) signed an agreement to extend their cooperation on aviation safety for the next five years including modernisation of China’s air traffic management system (Airbus, 6 September). In its Global Market Forecast (GMF), Airbus foresees a demand for 29,226 passenger and freight aircraft between 2013 and 2032 (against 28,200 between 2012 and 2031) of which 20% are for Europe. The aircraft deliveries are as follows: (compared with GMF 2012) Single-aisle: 20,242 (+724 aircraft) of which 4,584 (+242 aircraft) are for Europe; Twin-aisle: 7,273 (+299 aircraft) of which 1,095 (-79 aircraft) are for Europe; Very Large Aircraft (VLA): 1,711 (+5 aircraft) of which 273 (-56 aircraft) are for Europe.

(Airbus, 24 September). In its Current Market Outlook 2013-2032, Boeing forecasts a demand for 35,280 aircraft of which 21% are for Europe (IM153) (Boeing, 11 June).

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Regulation Turkish competition authority re-examined a probe into Turkish Airlines after low-cost Pegasus Airlines filed a complaint arguing that Turkish Airlines abused its dominant position in the market, preventing competitors from entering new markets. Pegasus complaint was first rejected in 2011 (Turkish competition authority, September). ICAO and EC signed a Declaration of Intent affirming their collaboration on assistance and capacity building activities to support measures to mitigate CO2 emissions from international aviation. EC intends to commit financial support of €6.5 million towards environmental action being undertaken by States in the African and Caribbean regions. A timeline through 2016 has been envisaged to realize this joint ICAO/EC capacity building initiative (ICAO, 24 September).

Oil Oil prices remained at €83 per barrel in September. Converted indices for Kerosene and Brent are shown in Figure 6. IATA expects oil prices to average €80.5 per barrel (Brent) for the year, slightly higher than previously expected (IATA, 23 September).

Fares Deflated ticket prices in Europe increased by 4.3% in August year-on-year, based on preliminary values (Eurostat, 20 September).

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© 2013- European Organisation for the Safety of Air NavigationEUROCONTROL)

This document is published by EUROCONTROL for information purposes.It may be copied in whole or in part, provided that EUROCONTROLs mentioned as the source and it is not used for commercial purposes(i.e. for financial gain). The information in this document may not bemodified without prior written permission from EUROCONTROL.

STATFOR, the EUROCONTROL Statistics and Forecast Servicestatfor.info@eurocontrol.intwww.eurocontrol.int/statfor

(

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The EUROCONTROL Statistics and Forecast Service (STATFOR)is ISO 9001:2008 certified.

© 2013- European Organisation for the Safety of Air NavigationEUROCONTROL)

This document is published by EUROCONTROL for information purposes.It may be copied in whole or in part, provided that EUROCONTROLs mentioned as the source and it is not used for commercial purposes(i.e. for financial gain). The information in this document may not bemodified without prior written permission from EUROCONTROL.

STATFOR, the EUROCONTROL Statistics and Forecast Servicestatfor.info@eurocontrol.intwww.eurocontrol.int/statfor

(

i

The EUROCONTROL Statistics and Forecast Service (STATFOR)is ISO 9001:2008 certified.