With Covid-19 restrictions now steadily disappearing, leisure airlines foresee not only their best year since the start of the pandemic but new, record levels of travel.
Alan Dron reports.
Over the past two decades, the rise of low-cost carriers (LCCs) has led to airlines that specialise in the leisure sector fading from the public’s view.
Part of the reason for that, of course, is that several well-known names have disappeared, such as Thomson, Thomas Cook and Monarch in the UK alone. But elsewhere in Europe, others have also vanished from sight. How many people, for example, now remember Danish carrier Primera Air, which expanded quickly but then collapsed in 2018? And, late last year, Italian leisure carrier Blue Panorama ceased operations – although, at the time of writing, a new backer was waiting in the wings to recapitalise the company.
Despite these losses, there remain companies whose main business activity consists of flying holidaymakers out for their two weeks of baking on a Mediterranean beach, or on longer haul flights to the Caribbean.
Several can be found as members of Airlines International Representation in Europe (AIRE). Formerly known as the International Air Carrier Association, most of its members are involved in charter or leisure services, although scheduled carriers also feature in its membership.
AIRE is now Europe’s second-largest airline grouping, after Airlines for Europe (A4E). And AIRE’s members seem ready to bounce back as the tourism market re-ignites. “Considering where we were last year, and in the even worse circumstances of the year before, there’s a very strong revival, and that’s very positive,” said AIRE’s director general, Michael Harrington.
Cost pressures
“However, there are a number of factors which are hindering that revival. Fuel price is one,” said Harrington. This is particularly a problem in mainland Europe because, whereas in the UK holiday packages tend to be sold at a fixed price, in Europe they are subject to fuel supplements. With the price of aviation fuel now above US$100 a barrel, this can lead to potentially significant extra costs for families, who may decide that they would rather not take the risk of expensive supplements and thus refrain from booking holidays altogether.
Allied to this problem, airlines are facing additional financial pressures, which they are passing on to passengers. The costs associated with the European Union’s Emissions Trading System (ETS), together with departure taxes (anything up to €30 ($32) per person in Spain and Italy) and other charges, typically add up to an extra €70 ($74) on the price of a ticket.
“The ETS has become unbelievably expensive,” noted Harrington, with this cost having quadrupled over the past couple of years. It is now around €10 ($11) per passenger. “It’s a crippling cost for some,” he commented, noting that, “in our view, it’s not benefiting the environment. The money goes to member states. It’s not like CORSIA [the ICAO plan to cut emissions] where the money you pay should go into very specific environmental projects. We cannot see why CORSIA cannot be adopted in Europe, so we just have one system.”
As well as the direct financial cost of paying into these schemes, airlines also face the administrative costs of having to report their emissions output not only to the EU and ICAO but also to the post-Brexit UK and Switzerland, he said: “It’s an administrative nightmare. We have to track every single flight and see where fuel is uploaded.”
All these costs threaten to put flying out of the reach of many, making flights available “only for the privileged few. In Europe, it will become too expensive for people to move within the EU,” said Harrington.
Staff pressures
Another factor causing problems for aviation sector organisations struggling to get back onto the path to profitability post-pandemic is the difficulty both airlines and airports are experiencing in re-staffing, after having shed large numbers of personnel during the pandemic.
Many staff have left the industry and others, while keen to return, face lengthy delays to have their security clearances revalidated. Many airports had relied on seasonal staff to cope with the summer rush and were finding it difficult to recruit, particularly from areas such as Eastern Europe and North Africa, traditional sources of personnel. “I could name 20 airports that are really, really struggling,” Harrington said.
Lack of financial aid from governments over the past two years has weakened them financially and because of that they have been unable to ramp up services as demand flooded back.
Additionally, high levels of staff sickness in April led to more flight cancellations and there have been problems with air traffic control in some nations, notably Poland. “Planning has been very, very difficult to forecast because it’s been stop-start, stop-start,” added Harrington.
All these factors mean that he foresees “a very troublesome summer” in 2022.
A good summer
Despite this, the recovery in flight demand is strong, said Harrington, who is also the chief executive of Spanish charter and scheduled carrier AlbaStar. Based in Palma de Mallorca, the airline has seen demand “well over 2019 levels”.
Reports of booming demand are echoed by several other carriers. The UK’s Jet2.com is adding capacity that will take it to 14% above 2019 levels. “It’s looking like it’s going to be a very busy season,” said the airline’s general manager, communications, James Pieslak.
Demand since Covid restrictions started to ease has been strong and continuous, both seat-only and particularly on the package holidays side of the equation, said Pieslak. Package holidays in the UK are enjoying a new lease of life because they are protected under a government compensation scheme, meaning that if an airline goes bust, passengers will not be stranded at their holiday destination. That peace of mind is attractive to many. Customers also like the simplicity of having all aspects of a holiday bookable through a single, reputable partner, he said.
Jet2.com’s most popular destinations are the traditional ones: the Spanish mainland, the Balearics and the Canaries. Additionally, however, the airline is seeing significant growth in holidays to Greece and Turkey, both of which offer particularly good value for money at present. The carrier has significantly increased its capacity to both countries.
The Winter 2022 season is also looking strong, Pieslak added. The company has not suffered the staffing problems of many of its counterparts and this has aided its performance. “We planned hard,” he said. “We were very much looking forward to the return of international travel and launched active recruitment from November 2021, which has been very successful.”
The strong demand has seen Jet2.com taking on extra capacity in the form of two damp-leased Airbus A330-200s. The widebody aircraft are leased from UK organisation AirTanker, which handles the Royal Air Force’s air-to-air refuelling tanker aircraft, and which can use five of the 14-strong fleet for commercial duties when not required by the military.
Both the 327-seat aircraft will operate from Manchester to destinations including Majorca, Faro, Tenerife, Antalya, and Dalaman, and will operate until the end of October this year.
SunExpress rebounds
Also reporting significant growth in passenger demand is SunExpress, a joint venture of Lufthansa and Turkish Airlines. Its bookings for both this summer and next winter are above those of 2019 – which was itself a record year. “We call Turkey a ‘rebound country’. After each crisis, it has come back stronger,” chief commercial officer Peter Glade told ARGS.
In the latest revival, part of the country’s appeal is undoubtedly its low prices, a by-product of the Turkish lira’s poor exchange rate against major currencies. Glade said this was not the sole reason for Turkey’s popularity this year, but that it does give SunExpress some room to manoeuvre, with low hotel prices to some extent offsetting the higher prices it is having to pay for fuel.
Overall, it means that travellers are receiving good value for money, an important factor when so many European holidaymakers’ disposable income is being squeezed by high inflation.
SunExpress is in the early stages of a major re-fleeting exercise, with nine of an order for 42 Boeing 737 Max 8s having been delivered. At present, the fleet is built around the 737-800, but the new arrivals will need to be supplemented by leased-in additional capacity in the form of six damp leases and two operating leases.
The damp-leased aircraft are Airbus A320s from its long-term partner, Lithuanian ACMI specialist Avion Express, over the peak summer period. The operational lease aircraft will be 737-800s.
SunExpress has nurtured its relationship with Avion Express, said Glade, and this has brought benefits in the prices and conditions now available to SunExpress for leasing in the extra aircraft it needs. “We’ve remained very close to the providers that we’ve previously used,” said Glade. “We’ve found very good business models that helped them to survive, so we’ve not been struck by the price rises that have happened to some of our rivals.”
Another reason for SunExpress’s success, said Glade, has been the extremely high utilisation of its aircraft, which could reach as much as 17.5 hours over the summer period.
In total, SunExpress will operate 67 aircraft this summer. Those aircraft will be needed as the company undergoes what Glade described as the biggest network expansion in its history. Earlier this year, he handed in a budget for 9.1 million passengers in 2022 and “everyone thought I was crazy”. In fact, the airline is now looking at a possible 10 million passengers, further proof of the rebound in passenger numbers.
“We call the phenomenon ‘revenge travel’,” said Glade. “We feel people are saying: ‘We’ve beaten Covid and we can travel wherever we want.’”
However, the pandemic did cause the closure of daughter-company SunExpress Deutschland, which affected some 1,200 jobs.
SunExpress’s core market is Western Europe. Flights operated by SunExpress are solely to Turkey, but the carrier markets flights from Germany, for example, to other destinations too, notably Egypt. Those services used to be operated by the now-defunct German operation, but the company has filled the void by marketing Egyptian carrier Air Cairo. “They provide the aircraft and staff, we provide the network management, revenue management, sales etc,” said Glade. “We’re thinking of growing that concept more widely.”
For passengers heading to Turkey, there has also been a change in destinations, with travellers looking further afield than the traditional resorts of Dalaman and Bodrum, where they tended to go for full-board beach holidays in the past.
More holidaymakers are now discovering resorts such as Antalya and Izmir, or heading for hiking and skiing holidays in Erzurum or the ancient city of Diyarbakir, both in the east of Turkey. “What we’re making sure people understand now is that Turkey is more than just sun and beaches,” said Glade.
Outbound tourism from Turkey has been hurt by the falling value of the lira, but the historic links between Turkey and Germany mean that there remains a considerable level of visiting friends and relatives (VFR) traffic in both directions. Additionally, people outside Turkey tend to forget that the country has a significant domestic market: 23% of passengers on SunExpress flights are flying internally.
TUI on track
Meanwhile, Europe’s largest leisure airline, TUI Group, whose subsidiaries operate in several western European countries, expects its summer 2022 capacity to approach “normalised 2019 summer levels” as demand returns in key markets.
TUI Group chief executive officer Friedrich Joussen said while announcing the Group’s Q2 results that summer 2022 bookings across the group – which includes hotels, cruises and resorts as well as airlines – are around 85% of 2019 levels, but prices are around 20% higher.
Surging demand means that TUI can charge higher prices. “Bookings across our key markets [in the] UK, Germany and Benelux have been largely unaffected by the war in Ukraine, with only the Nordics and Poland subdued,” TUI said. Some long-haul routes from the Nordic nations have had to be cut because of airspace restrictions resulting from the Ukraine conflict.
TUI said that demand from the UK market was particularly strong; the Group bases around half of its airline capacity there. “[Given] the latest positive booking trends, combined with clear pent-up demand as Omicron-related travel restrictions ease, increasing intention to holiday abroad for a beach holiday and a later booking profile, we are confident in our summer 2022 capacity assumption of close to normalised 2019 summer levels,” TUI noted.
The company also said that its more diverse holiday industry structure, which does not rely on airline income, means that it is less exposed to some of the cost increases airlines are experiencing.
The second quarter of TUI’s financial year improved steadily. March recorded the highest monthly revenue as operations increased after a more subdued January and February, which had suffered from lingering Covid-related restrictions. The group’s liquidity was sufficiently strong for it to be able to hand back €700 million ($738 million) of state support and the Group said it anticipated returning more soon.
All of which shows that leisure sector airlines continue to have a part to play on the European scene, despite the rise of low-cost carriers.
