European Airlines Cost Pressures grows ©

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The year has begun with enormous cost pressures in the airline sector as legacy carriers continue to evolve their business models to ensure competitiveness and long-term viability, the transformation phase is far from over, in fact it is only has just beginning as personnel costs increasingly coming into focus to close the cost gap with LCC’s and Middle East competitors, in an uncertain economic environment, as recession looms.

Air France announced on the 13^th of January a new transformational plan which will freeze pay and cut personnel costs by €1 Billion and it plans to increase productivity, as the carrier aims to return its short and medium haul network to break-even within three years (Bloomberg 13^th January). The carrier has yet to outline the shape of its short-haul network where it has indicated routes will be axed, but has responded to the LCC threat with a new production platform using A320s at regional bases in Bordeaux and Marseille.

Since Mid-December unions at Iberia Airlines have been protesting over the IAG plan to set up a new in-house Low Cost Carrier Iberia Express to enable the carrier compete effectively against LCC’s Easyjet and Ryanair in the Spanish market. The Iberia Airlines Chairman Chairman Antonio Vazquez stated the new division is crucial to end losses on the short-haul network, as crews will be on similar conditions to those in Vueling Airlines, while the unions want to extend their employment guarantees until the end of 2015 (Bloomberg 13^th January).

Lufthansa is set to announce its new cost reduction program in the first quarter to follow its 2011 Climb program; however the carrier has already had a skirmish with its unions over the crewing arrangements using its subsidiary AviationPower GmbH for its New Berlin Brandenburg Airport Base which will open on the 3^rd of July (Bloomberg 5^th January), while it has transferred its EU flights at its Stuttgart Base to its low cost subsidiary Germanwings.

SAS Airlines has announced it is to lay off 300 indirect administration staff as part of its ‘4Excellence Plan’ aimed to reduce unit costs by 3-5% annually, also the carrier has re-positioned Blue1 to become a feeder carrier into its Copenhagen and Stockholm Hubs (CAPA 4^th January), while it is to strengthen co-operation with Star Alliance Singapore Airlines at Copenhagen after signing an MOU on the 12^th of January for joint code-sharing flights (Airline and Destinations 12^th January).

The end game of the evolution of the short and medium haul which will be adversely impacted by the response of the unions and the fallout from the recession and the lingering effects of the sovereign-debt crisis will zap any prospects for growth curbing demand for air travel. Therefore it is essential for carriers to protect their competitive position.

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