European Regional Airlines still Struggling

 - November 3, 2013, 4:55 AM
ERA director general Simon McNamara listed the “uncontrollable cost” of ATC among five primary causes on the association’s agenda for this year.

When representatives from Europe’s regional airlines met in Salzburg last month at the annual general assembly of the European Regions Airline Association (ERA), they did so against a backdrop of red tape, high fuel prices, inefficient ATC and the ever growing threat from low-cost carriers and airports biased toward large aircraft. Nevertheless, the ERA was able to report that its members had managed capacity well to remain profitable, reacting to demand and becoming more efficient as signs of a return to growth become more evident.

The ERA is unusual among airline associations in that it allows manufacturers, airports, suppliers and other companies to become affiliate members and assume places on its board. That some of the ERA’s most prominent airlines have struggled in the recession and membership has dipped from 65 to 50 perhaps wouldn’t surprise anyone given the continuing low-cost onslaught from the likes of Easyjet and Ryanair. Some other ERA member airlines have struggled too–notably Carpatair of Romania, thanks to a long-standing struggle with its home airport in Timisoara over charges, and SkyWork Airlines, formerly bullish at ERA events but lacking some of its swagger since suddenly losing its main shareholder this summer. Meanwhile, some of those struggling against low-cost carriers operating Airbus narrowbodies include stalwarts Regional, BritAir and Airlinair, which now operate under the single Hop brand along with all Air France-KLM subsidiaries. The group wants to divest itself of Cityjet, while KLM Cityhopper continues with its own brand.

However, one of Europe’s biggest regional airline stories of the past year or so has involved non-ERA member Flybe, which since a disastrous IPO has had to make sweeping changes to stem losses. Flybe decided to sell its slots at London Gatwick to Easyjet, which has become the preferred airline for many on the Gatwick to Isle of Man route. Flybe now plans to drop its service on the same route. It recently turned to a former executive of Easyjet, the low-cost carrier that has caused it so much pain, to serve as CEO.

Regional Orders

The OEMs tend to use the ERA event to brief the media before the main conference sessions begin, giving updates on the status of their sales and latest programs. Embraer announced a couple of new orders for its E195 jetliner, one aircraft for Aurigny of the Channel Islands and one for Belavia, of former Soviet state Belarus. For Aurigny the order marks “a big step going from a turboprop to a jet operation,” said Aurigny Air Services CEO Mark Darby. It plans to use the aircraft to increase the frequency on its Guernsey-Gatwick route to eight rotations daily. Belavia, meanwhile, ordered two E195s after receiving “lots of positive feedback” from passengers on the two E175s it started operating last year, according to Anatoly Gusarov, the airline’s director general.

Simon Newitt, Embraer regional v-p for commercial aviation, said that 11 ERA member airlines now operate a total of 126 Embraer airplanes. Well on its way to operating 28 E-Jets, KLM Cityhopper ranks as the largest European operator.

The biggest order of the event went to ATR, which saw turboprop leasing specialist Nordic Aviation Capital (NAC) order a further 15 ATR 72-600s to add to the 35 it ordered at this year’s Paris Air Show. “In a few years we’ll see 200 ATRs in the NAC portfolio, and 300 airplanes within the next three to four years,” said NAC chairman and CEO Martin Moller. Separately, NAC announced a new initiative with Pratt & Whitney Canada for through-life support of the type’s engines. ATR CEO Filippo Bagnato, meanwhile, again alluded to the company’s serious consideration of a new 90-seat turboprop. However, Bagnato would not elaborate on what an all-new design would mean for the “family” approach, and if it could lead to an ATR 42/72 replacement. “I think the demand for the 90-seater is larger than ATR is saying,” remarked Moller.

For its part, Mitsubishi Regional Aircraft unveiled its new market forecast for 2013-2032, during which period it predicts demand for 5,240 regional jets carrying 70 to 100 seats. Not coincidentally, Mitsubishi’s MRJs fall into that size category. Following a second year-and-a-half delay, schedules now call for the MRJ to fly in the second quarter of 2015 and enter service two years later. Three customers have placed firm orders for 165 of the regional jets.

SuperJet International, also a long-time ERA affiliate member, distinguished itself at the show with a proclamation by SJI CEO Nazario Cauceglia that “the SSJ will become a key player in the regional market.” He said Sukhoi and SJI expect to capture at least 25 percent of a 20-year market for 3,750 aircraft seating between 91 and 120 seats. Nineteen SSJ100s are now flying with six customers, he reflected, the latest being the first aircraft to operate with Western launch customer Interjet of Mexico.

Finally, Bombardier replayed the first flight of its new CSeries regional jet/narrowbody, while revealing a follow-on order for a single Q400 turboprop from ERA member airline Luxair of Luxembourg. Martin Isler, executive v-p with Luxair, noted that the airplane, seven of which the airline has now ordered, would compete on routes with Easyjet A320s. Eurolot and Air Baltic are other ERA member airlines that have placed orders for the type recently, said Steve Aliment, v-p of sales for Bombardier Commercial Aircraft. The company now counts more than 140 Q400s operating in Europe, he noted. He also said that Bombardier has encouraged potential customers to take both the Q400 and the CSeries, citing their complementary roles.

Cause for Optimism

During the main general assembly on October 4, BritAir’s Marc Lamidey, outgoing ERA president after three years in the role, reflected on the state of the industry. “Since 2008 it has been a rocky road but our sector has adapted well,” he said. ERA member airlines, he added, accounted for 16 percent of intra-European traffic but only 5 percent of the available seats. Load factors have increased from an average of 59 percent to 69 percent; sector time averages 69 minutes; and the number of seats per aircraft averages 83. ERA members operate some 700 aircraft.

“Between January and July this year we have seen a slowing of the downturn, which gives us some cause for optimism,” he said, pointing to Eurocontrol forecasts that growth will return to all areas of Europe next year.

The ERA replaced Lamidey as president at the following day’s AGM with Boet Kreiken, managing director of KLM Cityhopper.

ERA director general Simon McNamara, who took over from Mike Ambrose in January, said he has spent a lot of time visiting member airlines, while also launching a strategic review of the ERA’s activities. “There are five major battles we are working on this year,” he said, listing these as passenger rights, flight-time limitations (FTL), air traffic control, Europe’s Emissions Trading Scheme (ETS) and safety. The European Parliament has since settled the issue of flight time limitations to the ERA’s satisfaction with new, more stringent rules, but others remain major concerns for the association. In air traffic control, the Single European Sky ATM Research Program (Sesar) still occupies center stage. McNamara described ATC as “an uncontrollable cost” for many of the ERA’s members. “It is reaching an important turning point and we’re working hard on grants for avionics equipage [for member airlines’ aircraft],” he said.

McNamara described EU-ETS as “frustrating” in that it still includes intra-European traffic after the European Commission agreed a one-year “freeze” on overseas flights while ICAO decided the way forward. “The EU will need to decide based on those ICAO negotiations,” he said. “I believe we are heading for an intra-European scheme that also captures non-EU operators when they are in EU airspace.”

Another key ERA initiative revealed at the conference involved regional aircraft financing. McNamara said that the association has produced a report and that it intends to attend finance conferences to address the difficult financing environment. He also said that closer cooperation with the U.S. Regional Airline Association is in discussion.

In the evening of October 3 at the ERA Awards Dinner, the Airline of the Year Gold Award went to Canary Islands carrier Binter Canarias, while Bmi Regional received the Silver and Aer Arann the Bronze. Budapest Airport took Airport of the Year honors for its fortitude despite the demise of Malev, the Hungarian national carrier.