Traffic Rises at European Airlines

Posted by: Kerry Capell on July 07

Wire services are reporting today that a handful of European airlines are defying the double whammy of record high oil prices and the credit crunch by reporting increases in passenger numbers in June.

Europe’s biggest airline Air France-KLM said the number of passengers carried in June rose 1.3% to 6.8 million. Britain’s Easyjet, Europe’s second largest discount airline reported a 19.5% jump in traffic in June carrying 4.1 million passengers, thanks in part to its recent purchase of GB Airways from British Airways. Irish carriers Ryanair, Europe’s biggest budget airline and Aer Lingus have also reported a 19% and 7.6% increase in passenger numbers.

But take a closer look and the gains aren’t quite as impressive as they seem. While overall passenger numbers are up, the number of bums on seats—or load factors in industry parlance—is down. That’s in large part due to the fact that many European carriers have added capacity at a time when other major airlines, especially in the U.S. have retrenched. Air France-KLM’s fell by 1.2% to 81.5%, from 82.7%, because capacity was up 4.1%. Load factors in June also fell at Ryanair, British Airways and Aer Lingus by 1%, 3.8% and .5%, respectively. Only Easyjet managed to increase its load factor by a modest .1% to 86.9%

The question is for how much longer can European carriers buck the trend? After all, Credit rating agency Moody's recently called the business models of many carriers “unsustainable.” They noted that U.S. airlines especially were vulnerable to high oil prices and warned that even large airlines might be forced into bankruptcy. And European airlines aren’t immune from the impact of oil at $145 a barrel. British Airways recently warned that its profits could be wiped out this year while Ryanair predicted it might actually lose money.

Europe’s carriers may have ridden out the current downturn in better shape than their American counterparts. But already there are signs that even the strongest players are expecting things to get worse. Air France-KLM lowered its passenger growth forecast on Monday, saying it expected a 2.0% increase in capacity for its winter flight program--from the end of October to the end of March--instead of a 4.0% increase, according to Thomson Financial News.

So far the budget carriers have survived by slashing fares but analysts say the days of bargain basement fares have ended. A recent report from Morgan Stanley predicts if oil prices stay high, fares could rise by as much as 40%. They claim Ryanair passengers face the biggest increase, potentially rising by as much as 50% a person while passengers at Easyjet and British Airways could rise by 25.1% and 19.3% respectively.