Fitch: Europe airlines operating environment tough

Despite industry indications that the "green shoots" of a possible recovery have been observed in the third quarter of 2009, evidenced by a stabilisation in air traffic demand, Fitch notes that Europe's major carriers are facing significant hurdles as the winter approaches.

"European airlines have been battling their way through the global recession, but their options are becoming more limited, particularly as many carriers have exhausted cost-cutting initiatives to match revenue shortfalls," says Sabrina Ran, Associate Director in Fitch's EMEA Corporates team. "Uncertainties related to traffic declines, fee increases, slot waivers and potential labour strikes, especially over the Christmas period, will add to the already difficult operating environment."

The high operating leverage of the industry exposes airlines to risks, especially in the current environment. In its second part industry review, Fitch's report examines the crucial cost elements affecting the profitability of Europe's five largest network carriers - Lufthansa, Air France-KLM, British Airways, Iberia, and SAS - and the two major low cost carriers (LCCs), Ryanair and EasyJet. The report also assesses the credit impact that these cost factors are having on the airlines.

(c) Centre for Asia Pacific Aviation. Date posted: 06-Nov-09