The European Regions Airline Association (ERA) is the trade association representing more than 55 airlines and over 130 associate members, to promote and advocate for the European regional airline market. ERA director general Montserrat Barriga provides an update on the status of the industry and how she sees regional airlines being reshaped.
How badly have Europe’s regional airlines been affected by the pandemic? The effects of COVID-19 are like nothing we’ve seen before. The decline in European traffic reached as low as -90% of pre-crisis levels at the peak of the pandemic and traffic across the European/European Economic Area/Swiss airport network and was still down by 77% in early June this year, compared to 2019 data.
Do you think we will see further regional airline failures or consolidation? Without doubt these are extraordinary circumstances, the worst in our history, so recovery will continue to be both difficult and challenging. Some of the key challenges will be at an operational level, as airlines will need to be ready to react to a change in demand and circumstances as necessary, for example with aircraft, staffing, logistics. Increased operational costs will also be challenging from a financial perspective, as are the ever-changing travel restrictions per member state, making increases and subsequent decreases in demand a constant operational risk. Most European airlines rely on a busy summer schedule to build their reserves, ready to see out the quieter winter months.
What do you see as steps helping the recovery? Following the launch of the European Digital COVID Certificate on July 1, it is hoped that passenger levels will see signs of recovery in the remaining summer months for this year. However, this of course is not expected to reach pre-pandemic levels. The winter season will therefore still be hard as operators will have to adapt to the lower revenue levels. As a result, further airline failures and consolidations are not out of the question. But the sensitivities for competitors in a relatively low-margin industry are high. If consolidated airlines achieve superior revenue quality and structural cost savings, they have the opportunity to be more price competitive. Nevertheless, this would hurt the competitiveness and margins of those working independently who provide essential and flexible connectivity to passengers. Extensive consolidation is therefore a threat to consumer choice and protection. The current diversity is needed, with smaller European carriers being more flexible to adopt changes, implement innovative technology needed for ensuring sustainability, customize their offers to passenger needs, connect remote regions to big hubs and contribute to local employment.
What other differences might we see in the regional airline market, emerging from the pandemic? Whilst it is expected that COVID-19 will have an effect on the competitive landscape of the European airline industry for years to come, how it will look in a post-crisis world is yet to be clear. With no definitive answer for navigating out of this situation, airlines are taking a variety of actions, from retiring aging aircraft, expanding routes and investing in new technology, to fleet and route downsizings. We may also see consolidation, not necessarily with mergers, but shared services. Consolidated efforts in key areas have been essential for some time, such as safety and sustainability; an example being the recent industry initiatives Aviation Round Table Report and Destination 2050 that ERA has contributed to over the past year. Benefit can clearly be gained from working together to establish initiatives. Joint procurement is equally happening already and will likely grow in the years to come with the natural evolution that partners will eventually look to negotiate jointly with suppliers in areas such as aircraft procurement, financing, maintenance, distribution and ground handling. What is clear is that it will be a recovery with sustainability, and the future of air transport as an environmentally friendly leader, at the forefront of aviation’s actions in the decades to come.
If the domestic/short-haul recovery comes first, could this actually boost regionals? While we are still far from recovery, with some estimations suggesting recovery levels won’t be achieved until 2024, one saving grace is that international and domestic passenger traffic have separate scenarios for recovery with signs of recovery for regional traffic, which we have started to see already from June. Ensuring an airline and its fleet is right-sized is more important than ever before and regional airlines, as a result, have a vital role to play in the future of European aviation. In cases where demand has dropped, the introduction of smaller aircraft enables frequency to be maintained. As a result, small- to medium-sized operators are better positioned to offer the right capacity in the right markets, and ultimately offer customers greater choice. Regional airlines could also benefit from increasing their activity as hub feeders during the recovery period. What is also essential is that regionals continue to play a key role in providing vital connectivity to the regions of Europe and essential connections to those territories that rely heavily on airlines for their communities very survival and economic well-being. In some areas, air transport is the only means of travel, and it is therefore key to survival, financial stability and development, and growth.
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