Low cost airlines and the Euro crisis explained

When Ryanair posted its annual financial results this week, it said it expects more airlines to fail this year, as high oil prices and the recession continues to bite – it’s not easy being a low cost airline during this financial crisis.

A statement from the airline said: “The combination of rising oil prices and EU wide recession has accelerated the rate of change in the competitive landscape. A number of EU airlines have closed this year including Malev (Hungary), Spanair (Catalonia), and Cimber Sterling (Denmark). IAG have announced that Bmi Baby will close later this summer if sale negotiations are unsuccessful.

“Ryanair has responded tactically to these developments by opening a new base in Budapest, expanding bases in Spain, Scandinavia and provincial UK to maximise capacity and minimise airfares for local consumers/visitors. We expect more European failures in 2012, as higher oil prices and recession continues to expose failed airline models as well as subscale or peripheral carriers.”

Ryanair’s own figures show it made a 25% increase in profit to €503 million.

While Ryanair is profiting, the environment for operating an airline in Europe is extremely challenging. To further understand what’s going on, here are two articles and a video:

1. A comment piece from Travel Weekly UK’s aviation expert Ian Taylor. In it he explains the context within which the travel industry is working in Europe and discusses likely outcomes on the near future. A good overall analysis.

2. A wider interview in The Guardian newspaper with Ryanair chief executive Michael O’Leary on aviation policy and his concerns for  the coming year, particularly whether the economy will support the fare increases needed to maintain margins.

3. A video of from the most recent World Low Cost Airlines Congress, where chiefs from easyjet, airBaltic, Vueling, Germanwings and Norwegian Air Shuttle discuss operating an airline during a period of slow growth. A frank and high-level discussion.