Airlines, airports, public authorities and other stakeholders will have to take urgent decisions next year, over Brexit, the European Single Sky and other key issues, according to aviation consultant Gerd Pontius.
The experienced German aviation consultant and CEO of Prologis Strategy highlighted diverse issues and challenges for the sector in a preview article ahead of next month’s European Aviation Symposium in Munich (on 29 – 30 January 2019). The following text is a shortened version of his analysis and predictions.
Winter is coming. This dark prophecy from the “Game of Thrones” series summarises the changes that the aviation industry will have to face up to in 2019. The mild environment with cheap fuel, low interest rates for financing and continuously rising passenger numbers is heading for an end. This enabled some airlines, especially in intra-European aviation, to survive somehow despite weak capital investment and low margins. That is why the long overdue industry consolidation has so far not yet taken place.
Whoever has not yet earned any money will find it even more difficult in future. Market consolidation will pick up speed with the forthcoming tougher operating environment. Larger and established players are now under pressure as well. However, consolidation will initially only mean that the number of independent market participants will fall. It does not necessarily mean there will be insolvencies or takeovers. The quieter path of joint ventures also reduces competition.
The consolidated market in the USA is frequently taken either as a role model or a threatening scenario, depending on the interests in question. Five airlines dominate over 80 per cent of the market there. The downside, however, is a strong focus by the market leaders on high-revenue trunk routes, combined with a significant price increase of more than 50 per cent on average over the last five years. Passenger numbers are rising substantially at the major hubs, while smaller airports are being left behind more and more.
Some clear similarities can be seen in Europe:
* Strong passenger growth at hubs together with declining utilisation of regional airports
* Increasing squeezing-out of small and specialised carriers which have little scope to respond to aggressive pricing by big low-cost carriers and airline alliances
* Significant price rises as soon as one operator dominates a market
Infrastructure is bursting at the seams
The strains on infrastructure are becoming increasingly apparent. It is likely that the capacity limitations experienced in summer 2018, when every third flight in Europe was delayed, will be repeated in the near future. Both the aviation industry and transport politicians have increasingly recognised the urgent need for action. Yet too often concepts to solve these problems fail due to the conflicting interests of the involved parties.
Measures by airlines and airports to steer capacity, such as Lufthansa’s proposal of a cap on slots that are critical for utilisation, can definitely ease the pressure in the short term. But even if the pressure on capacity can be reduced, this will only relieve the over-burdening on systems. Substantial investment in people, technology and logistics is necessary for long-term effective solutions. In 2019 it will be necessary to work on these concepts and to make the required budgets available, so that a significant relief can be felt sometime within the next few years.
Nevertheless, missing money is usually the least problem. Many of the infrastructure measures sought by the aviation industry have met with massive public resistance, especially in core markets in Western Europe. If at all, then they can only be implemented after many years of discussions. The third runway in Munich is one example of this.
When will we have a European Single Sky?
The central project in European aviation, the European Single Sky, is in a similar situation. Fundamentally, everyone agrees that Europe urgently needs a border-free, centrally managed sky. This would reduce flight times and delays, sink costs and not least substantially reduce the environmental impact from emissions. With SESAR the development of the necessary systems has been going on for years, supported by billions of euros from EU funds. These will be soon ready for operational use.
And yet whether and when these systems will ever go into operation remains up in the air. The resistance from governments within the EU to giving up sovereignty in favour of central management is too strong. And not even to mention the fear of the expected conflict with, amongst others, air traffic controllers, and not only in France. The year 2019 will show whether the EU Commission, national governments as well as those in charge of air traffic management have enough determination and the courage to implement the European Single Sky, including against the expected resistance.
* Gerd Pontius is founder and owner of the Prologis consultancy group, and has been active as a consultant and management coach in the aviation industry for more than 25 years. Prologis helps airlines and airports worldwide to analyse and plan market strategies as well as to develop and implement new processes and systems. More than 60 international companies from over 30 countries count among his clients.