Why European airlines are yet to fly out of losses

By Philip Mwakio

European airlines must have the correct regulatory framework for a sustainable future as red ink is splattered across their accounts.

Excerpts from a report contained in the latest edition of 4Hoteliers, an online publication for hospitality, hotel and travel news indicate that the International Air Transport Association (IATA) forecasts a loss of $1.3 billion.

IATA adds that it is the only region predicted to record deficit. This year’s average GDP growth of 0.8 per cent is not enough to support recovery.

IATA further states that the euro is under pressure from failing economies, high unemployment and threats as actual labour strikes continue to dent demand.

The ash cloud crisis, which shut down European airspace for five days in April, worsened an already perilous situation, according to IATA.

About 70 per cent of the $1.8 billion loss in revenue as a result of the ash crisis was borne by European carriers. "Europe’s over-reaction to the Icelandic volcano eruption cost the European economy $6.36 billion," says Giovanni Bisignani, IATA Director General and CEO.

"This is an embarrassment of global proportions. We are eager to work with the European leadership to develop the solutions needed. It is critical that the European Commission follows up with guidance to its member states on compensating airlines for these losses," he said.

But the issue of guidance is stuck in a classic Catch-22 situation.

The European Commission has said it will issue guidelines when enough member states come forward with the intention of compensating airlines.

Compensation packages

However, the European nations are in turn saying they can only work out compensation packages once the guidelines are issued.

Airlines are caught in the middle and obtaining the justified recompense from countries with bare coffers will prove a challenging task.

Already, the UK has announced that it will not give compensation to airlines. But there are some silver linings. European carriers reported five per cent growth in August, compared with the same period last year. A slow start is being eradicated somewhat by long-haul expansion.

But far more must be done in Europe. It is not only about efforts to move European airlines into a profitable future.

The region is still a massive market and its decisions have knock-on effects globally. All carriers will feel the force of the Emissions Trading Scheme, and could benefit from a Single European Sky .

"When the volcano went to sleep, politicians developed amnesia about the lessons learned," says Bisignani.

"The much-anticipated accelerated progress on the SES has been truncated at incremental change.

"The traveling public and Europe’s struggling economy deserve much better than this policy myopia."

A host of regulatory oversights on the agenda could have an enormous impact on carrier operations and revenues.

For instance, slot allocation at European airports is being examined by an outside consultant.

IATA will meet with the consultant to discuss the issue and make clear its objections to any slot auction processes.