The European airline market has been on a downward spiral over the past year or so. Air Berlin filed for insolvency in August of this year after its biggest shareholder Etihad withheld from funding the airline anymore. Though it had planned to remain operational, in September an astonishing 200 of its pilots rang in sick and didn’t show up to work. Most of them were captains, Germany’s second largest carrier divulged. It had the hallmarks of a planned and coordinated worker’s strike. For the time being, the company it’s staying afloat due to a government loan.
Alitalia has run out of such luck: the Italian airline did not receive a government bailout after filing for bankruptcy for the third time in May. Italy has gone through another banking crisis and only recently found some stabilisation, and as the airline has already ingested 7 billion euros from the public purse in the last decade, Rome is no longer offering a helping hand. Alitalia was given a bridging loan of 600 million euros by the Italian government to continue operating while it’s goes through the administration process. A recent poll suggests three quarters of the public believe the airline should be allowed to sink, despite what this would mean for their 12,500 workers.
This unfortunate trend has now reached the United Kingdom, as budget carrier Monarch became the latest airline to declare bankruptcy on October 1. After 49 years in business, the airline has fallen victim to the ongoing price war among European short-haul airlines. The sudden halt in operations and cancellations of flights left 110,000 British passengers stuck abroad. The UK Civil Aviation Authority was asked by the British government to help get these citizens home with no extra charge, which Transport Secretary Chris Grayling said was “the country’s biggest ever peacetime repatriation”. It has now been reported that over 60 per cent of passengers have been returned home.
But how can we account for the near methodical collapse of these short-haul airlines? In North America larger airlines have consolidated and bought smaller carriers – but Europe has been reluctant to follow suit. With the muscle of logistics and funding of operations by larger airlines across the pond, these short-haul flights have become less of a strain. The top four airlines in North America control 70 percent of the short-haul market, while in contrast it’s 49 per cent in Europe. North American carriers are set to make a net profit of 7.2 per cent compared to 3.7 per cent for Europe according to the industry body IATA in June.
The EU has often been labelled as protectionist, and these events give weight to this claim. As per EU rules, non-EU investors are prohibited from owning more than 50 per cent of the airlines which has scared off many. This strategy forces one third-country client to take on majority risk and responsibilities, rather than enabling the market to have multiple companies prop up a failing carrier.
On October 9 Irish carrier Ryanair has announced that 99 per cent of customers “re-routings or refunds” have been processed, following autumn flight cancellations. The reason for the drastic turn of events has been blamed on an error regarding pilot holiday rotas. The initial amount of cancellations was numbered to be over 2000 but has since been increased to more than 20,000. Head of the UK Civil Aviation Authority, Andrew Haines, is furious over the disregard for passengers and subsequently has written to Ryanair’s legal chief Juliusz Komorek. In the communication, Haines outlined breaches of passenger rights and threatened legal action under the Enterprise Act of 2002. Since then, on September 29 Ryanair agreed to meet the requirements under the EU261 obligations asked of it by the letter – avoiding a possible 20 million euro fine as compensation to its customers.
Furthermore, the budget short-haul airliner is facing a simmering revolt of employees who are being treated poorly. Many cabin crew and pilots are hired by Ryanair on a temporary agency basis rather than using local employment contracts. Working conditions have also come into question time and time again. Letters compiled by pilots highlighting demands for changes to their employment terms were met with a threat from O’Leary to take a week off their annual leave entitlement. Pilots and cabin crew have been speaking with trade unions for advice on how to handle the matter. One letter also alluded to the setting up of an unofficial union, which would combine the voices of the pilots to take on O’Leary. Ryanair immediately dismissed this notion by stating it does not recognise any union and will instead communicate with staff through their Employee Representative Councils. Ramping this debacle up further is the tax investigation pilots are facing as a result of Ryanair’s employment status.
Small short-haul airlines appear to be becoming over-bloated in order to not be squeezed out by larger companies, but overstretch to the point where their finances cannot keep up. And reports suggest companies like Ryanair are mistreating staff and customers alike. Without the strong arms of larger airlines to keep them afloat – as in North America – the short-haul market is all but collapsing like a set of dominos. Airline like Monarch and Alitalia could benefit from following the path of Air Berlin, which after filing for bankruptcy is now taking bids for its takeover by larger airlines. The EU forbids foreign investment unless they take the lion’s share of risk. But changing this rule could be a solution to the current crisis in the sector, giving private investors and companies from around the world the opportunity to revitalise the European short-haul market.