Will airlines start avoiding troubled Europe?


IATA in its latest “Premium Traffic Monitor” reported on a “leveling out” of international premium passenger traffic over the past three months, noting that business confidence has been in decline. But a closer look reveals that the premium traffic weakness is almost entirely a result of one thing: the ongoing euro zone crisis and the related sluggishness in EU growth driven either by the crisis itself or austerity measures meant to address it.

Premium traffic within Europe and across the North Atlantic accounts for 40% of all international premium traffic worldwide. So all carriers either in Europe or with a great deal of exposure to Europe are getting hit hard, whether in the areas of premium traffic, economy passengers or cargo carriage.

But, IATA noted, “elsewhere” both premium and economy traffic maintained “robust growth” with travel within the Far East “particularly strong.” South America, the Middle East and Africa “are also still showing solid growth,” IATA said. “Even international markets in North America and between North and South America are relatively strong.”

IATA concluded that “European weakness” is in effect “overwhelming strength elsewhere.” A couple of quick thoughts:

1) Yes, there is a global airline business (in some ways, especially given the growing prominence of the alliances, there has never been a more global airline industry), but it does not fall and rise entirely as one. Europe is one of air transport's oldest and most high-profile markets, with a number of the continent's airports serving as signature global hubs. But it is far from the entire global airline industry. Indeed, nearly everywhere else is, if not having a great year, doing at least OK in 2012. And billions of dollars worth of orders for new aircraft and engines rolled in at the Farnborough Airshow last week, underscoring long-term industry confidence.

2) Peter Foster, CEO of Kazakhstan's Air Astana, told me during Farnborough that his carrier (which operates 26 aircraft on a 50-destination network) is performing much better financially this year than it anticipated just a few months ago. “We've all had a degree of relief from fuel prices these last few months,” he said, noting that jet fuel prices are down 11% from peak levels earlier this year. He added, “What has surprised us is that the markets [the airline serves] have all stayed strong … We don't have massive exposure to Europe.” As European leaders continue to do just enough every few weeks to calm nervous financial markets, nearly the entire world stares down the EU over airlines' inclusion in the Emissions Trading Scheme and alternative transit points in the Middle East and Asia gain more traction, I wonder whether being able to make that statement—“We don't have massive exposure to Europe”—will become more and more important for a greater number of non-European carriers. There's no doubt about it: for a variety of reasons, operating flights to/from Europe has become risky business for most of the world's airlines.

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