ROUTES EUROPE: A Review from Budapest

Nearly 1,100 aviation industry decision makers gathered in Budapest from 12 to 14 May for the 8th Routes Europe, making it the largest regional route development event of all times. Over 4,000 face-to-face meetings took place between delegates representing 115 leading airlines, 350 airports and 50 tourism authorities.

There was no shortage of news, stories and lively discussions at this year’s event, which was attended by representatives from almost 70 countries, including many senior decision-makers from the region and beyond.

Some of the most salient topics in European aviation were discussed at the Routes Europe Strategy Summit on Sunday. More than a dozen high-profile speakers, including Wizz Air CEO József Váradi provided their views on today’s burning issues, while the Tourism Minister of Cyprus, Mr Yiorgos Lakkotrypis, explained how his country intends to attract more visitors. The speakers from Europe and beyond shed light on the “Big Freeze” concerning EU ETS, life after legacy carriers and on the question whether we will see fewer airlines in Europe any time soon.

Wizz Air CEO eyes expansion in new markets outside the EU

József Váradi, CEO, Wizz Air, didn’t mince his words about the demise of Malev 18 months ago when he addressed delegates at the Strategy Summit: “At the time it was claimed that a country can’t survive the demise of its national carrier. As Hungary’s new national carrier, we stepped up and filled the vacuum that Malev left.”

“We have 120 airlines here, I do not know if you will have 120 here in a few years’ time. For that change we have got to be ready; I am not being negative, I’m being realistic, it is dictated by economic realities,” he also noted.

After the Summit, The HUB had a chance to probe him on his future plans for Wizz Air in a video interview (click here to watch video): “Once you go east beyond the boundaries of the EU, these markets are still very restricted. As a result, they are underpenetrated and there is a genuine opportunity there if you bring low fares to the market place. You don’t need to go too far to see some sparkling spots, such as Dubai. Implementing the low cost business model between Europe and Dubai we think makes a lot of sense. But it is not only Dubai. It is the likes of Georgia, Azerbaijan, and potentially some other markets that might come up in the near future,” he told The HUB in the exclusive interview. 

Budapest Airport announces thin route incentive

Speaking at the Strategy Summit, Jost Lammers, CEO of the event’s host, Budapest Airport, was equally optimistic about the future: “2012 was extremely difficult with the collapse of our national carrier, but it was an amazing achievement to carry 8.5m passengers here last year, a mere 5% drop.”  (Click here to watch event interview).

Mr Lammers, who expects passenger numbers to be flat this year, went on to announce an innovative incentive scheme for thin routes. The incentives will be available to airlines which routes that are not yet served from Budapest with a frequency of two to four flights a week.

Already on the eve of Routes Europe, it had been announced that Bulgaria Air, the national carrier of the Republic of Bulgaria, will commence new direct scheduled services between Sofia and Budapest from June 24, 2013. The new flights will operate four times weekly.

Minister: new tourism strategy to keep Cyprus “open for business”

Also speaking at the Strategy Summit, Yiorgos Lakkotrypis, Minister of Commerce, Industry and Tourism of Cyprus declared that his country was “open for business”. “People have been hearing there is something wrong in Cyprus but could not work out what is was; let me say it loud and clear. The banking sector has shrunk but hasn’t collapsed," he explained.

"Cyprus has a population of 1 million and welcomes 2.5 million tourists per year, a very good mix of business to build on," he added. After pointing out that tourism has become even more important for his country due to the crisis in the banking industry, Mr Lakkotrypis outlined the strategy his government is putting in place to support the tourism sector which focuses on year-round use of capacity, better quality and special interest tourism.

Adding to his remarks in a video interview (click here to view video) with The HUB, he said that his country “had some pretty difficult times in recent months. We have now stabilised the situation. Tourist arrivals are up this year and we hope that we will have a fantastic year.”

SkyWork to announce second base in Germany

Tomislav Lang, chief executive officer of SkyWork, briefed The HUB in a video interview (click here to view video) on the recent management buy-out and restructuring at the Bern-based airline. He was in good spirits and hopeful that a record performance in 2012 can act as a strong platform for the carrier. The airline is now determined to break even next year. Lang also revealed that the airline is planning to set up a second base, to be located in Germany. An announcement could come as early as this summer. 

The clock has been stopped on EU ETS, but what next?

The Summit also saw a very lively discussion on Europe’s contentious emission trading scheme. “If the EU hadn’t stopped the clock, ETS would have cost the aviation industry € 3.5bn in 2012 and more every year after that,” said Vijay Poonoosamy, Vice President International & Public Affairs, Etihad Airways and Chair of the IATA Industry Affairs Committee. He also criticising the various national taxes on aviation in countries such as the UK and Germany.

However, John Hanlon, the Secretary General of the European low-fares airlines association ELFAA, was highly critical of the EU’s decision to stop the clock for one year: “The reduced scope means that only 12.5% of European aviation emissions fall under EU ETS now. You wonder how such a law gets adopted. Well, making laws is like making sausage; you better don’t look too closely how it is done.”

An early supporter of the inclusion of aviation in the emission trading scheme, Mr Hanlon is now calling for a global moratorium: “What proportion of intra-European aviation is made up by non-European carriers? It’s 0.0000%, it’s decimal dust. We will use the legal challenges available to us,” he added, referring to ELFAA’s announcement to challenge the stop-the-clock legislation in the European Court of Justice.

Christian Holzleitner, the European Commission representative on the panel stressed the common interest of industry and governments: “The industry and the European regulator have a common interest, namely to come to a market-based, global system that is easy to administer and is fair, so that there are no market distortions. All the ingredients are there for ICAO to reach a constructive solution.”

“The European Commission has done its part. We are the last ones wanting to stand in the way of an agreement, which is why we have stopped the clock on this. We need the next ICAO Assembly to take a decision, and then implement it by the one after that.”

“We have exempted international aviation for one year for 2012, this is not a long term solution, not something for the long-term, to give a signal to the international community that we are willing.”

In response to the challenge that the derogation distorts competition as ETS still applies to intra-European flights, Mr Holzleitner responded: “The rules are the same for everyone. We want to show that we will continue with ETS. It is not just the Commission, but also the member states and the European Parliament. Restarting the clock is written in the law.”

Senior Aviation Executive Jochen Schnadt doesn’t expect the EU to go back to the original plans: “Very few believe that ICAO will reach an agreement this year, nor that the EU will be able to bring back ETS in full.” Speaking no doubt for a large part the aviation industry, he stated that “it would be refreshing to see the same sort of vigour that is applied to ETS in areas such as the Single European Sky and operational inefficiencies.”

George Karamanos Teams up with ASM

Aviation consultancy ASM announced during Routes Europe that former Athens International Airport and Abu Dhabi International Airport aviation marketing supremo, George Karamanos, Managing Director of KPI, will be teaming up with the consultancy to work together as part of a unique franchise style arrangement.

This co-operation will focus initially on the launch of a new product offered by ASM, ‘The Route Development and Marketing Audit’. This product delivers an independent review of an airport’s route development and marketing activity, including a review of the airports strategy, targets, marketing and new media and results achieved.  The audit assesses the effectiveness of an airport’s route development activity but most importantly puts forward recommendations that will help airports improve their chances of route delivery success.

Economic crisis? Get used to it, say panellists

Tony Griffin, Senior Vice President at ASM, moderated a lively debate on airline consolidation. The speakers agreed that the alliance model is changing, although there was no agreement what the result of this evolution was. While there was agreement that consolidation in Europe would continue, there were diverging opinions on the speed of consolidation.

“The European economic crisis is not a challenge; it is a reality for today and for the future. The game is changing and can only be won if airlines and airports work together,” said Christian Schneider, Chief Commercial Officer of Darwin Airline. “Legacy carriers have lost a major part of the short-haul market to low-cost airlines, and the Gulf carriers have entered the long-haul market. I have not seen a good answer from anyone, so I expect significant consolidation.”

"Over the last five years there has been 44 new entrants in the regional carrier market, of those 22 went bust after the first year,” he added.

Asked about his predictions for the coming twelve months, Mr Schneider pointed to the impressive growth rates of Turkish Airlines. “I think that a big Star Alliance carrier will act and that we will see a change in ownership at Turkish.”

Kam Jandu, Budapest Airport’s Executive Director Aviation highlighted the changing alliance model: “The Emirates-Qantas link is giving things a new dynamic. In long-haul, the Big 3 Gulf carriers are leading the way. They have a big impact now on the Big 3 in Europe.”

“We spent €100m on a new terminal and a year later the national airline goes bust. Airports have to be more flexible today. The romantic model of the past is broken, at least in our case.  What we did was to focus ourselves to change our way of thinking, a certain low-cost carrier came and said we do not want a bridge, we do not want a bus. Low-cost carriers are changing airports thinking in the way it does business," he explained.

Jeremy Robinson, Partner at law firm Gates & Partners, said that he was not holding his breath concerning consolidation in Europe due to the considerable regulatory hurdles that need to be overcome: “We have a confusing regulatory environment. For regulators the question is not whether consolidation is a good idea, but how consolidation is affecting customers. Airlines have to ask themselves, What is the potential for customer harm?”

Mr Máté Gergely of the European Commission gave an overview of the EU external aviation policy, outlining the Commission’s strategy in this area which rests on two pillars. Firstly, to forge closer relationships with neighbouring countries in the region, and secondly, to work more closely with key partners all over the globe.

“We are pursuing comprehensive agreements with key partners to normalise aviation, including the US, Canada, Brazil, Australia and New Zealand. The cover a whole range of topics, such as safety and security, environment, fair competition, ATM, and so on.” Next in line were Turkey, India, Russia, the ASEAN states and possibly even the Gulf states.

Munich Triumphs at Routes Europe Awards

Munich Airport was announced as the overall winner of the third heat of this year’s Routes Awards last night at a spectacular networking evening which took place at Terminal One of Budapest Airport. Over 1,000 aviation professionals were gathered to witness the presentation of the awards.

“We are really looking forward now to the World Routes awards and we are very optimistic,” said Alexander Schroll, Director, Traffic Development for Munich Airport, speaking just after receiving the award.  “We are very happy to receive this award and very excited because the competition in Europe is becoming very fierce between the airports so it’s great to be number one again after a couple of years!”

Athens International Airport, Aberdeen International Airport and Turismo de Tenerife also won sectional awards.  Rome Fiumicino, Vienna International, Dublin, Marseille Provence, Krakow and Tallinn received highly commended airports certificates, while Malta Tourism and Valencia Tourism were highly commended for their route development tourism marketing initiatives.

The ultimate low-cost carrier? Emirates

Routes’ VP Commercial Nigel Mayes moderated the final panel on “The Future Evolution of the LCC Business Model”. He highlighted that the growth of low fares airlines has been fairly flat in recent years and questioned whether this was a result of the economic crisis in Europe or maybe a sign of structural changes in the aviation market.

Francois Bouteiller, the CEO of Saudi-Arabia’s leading low-fares airline Nasair was quick to point out the differences between Europe and his home market: “We operate in a very different market. The regulations are very restricted. We even pay more for fuel than airlines in Europe. But wherever you are, someone always wants the best product and service for his money, regardless of how wealthy they are.”

Asked by Nigel Mayes whether Emirates is the ultimate low-cost carriers, he responded: “Absolutely. How do you compete on a route where an airline operates three A380 flights a day. It’s tough.”  Mr Bouteiller also remarked: “There will be more consolidation. We are slowly preparing for our IPO, but that won’t happen tomorrow.”

Lowest cost to win the “dog fight”?

European airlines are no strangers to tough times, as Fernando Estrada, Strategy & Alliance Director at Vueling was quick to declare: “We suffer from overcapacity in Europe, that’s why lowest cost always wins, at least so far. Our strategy is to keep our cost low, but we also think that some passengers are willing to pay €10 more to fly with us.”

Asked about the IAG takeover, Mr Estrada said: “It is a different model, IAG has two big airlines – Iberia and BA, one at Madrid and the other at London Heathrow. We are flying to Madrid as a destination, while at the same time operating out of Barcelona, on the other hand there are synergies in flying to other airports, we don't see any big conflicts but there could be synergies.”

“20% of our traffic in Barcelona is connecting traffic and it’s still growing but it will reach a limit. But we won’t change our model. We are profitable on a point-to-point basis, and the moment you change that you have lost your edge.”

Commenting on his airline’s take-over of Lufthansa’s short-haul network outside the big hub airports, Dirk von Kokott, Director of Business Development at Germanwings, said: “Lufthansa needed to come up with a better idea; this is where Germanwings has proved to the group we can be the solution. The big problem is, how do you keep the Germanwings low-cost DNA while harvesting the advantages of the Lufthansa Group. This is what we are trying to work out.”

“We want to give the customer everything they are willing to pay for, but will charge for what they are not willing to pay for. We want to be the best of both worlds. One of our biggest discussions is… What do customers expect? One of our challenges is not to get sucked into all the complexity of a network carrier.”

Asked about consolidation in Europe, he declares: “It will be survival of the fittest; it will be a dog fight to some extent."

Next year’s Routes Europe will take place in the French city of Marseille between April 6 and April 8, 2014 and will be hosted by Marseille Provence Airport.  Click here for more details.

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