Industry Monitor. Issue 185. 05/07/2016 Page 1 © EUROCONTROL 2016

European flight growth of 2.7% in May 2016 compared with May 2015 was in line with the forecast. Industrial action in June resulted in preliminary data to show a modest 1.2% increase of flights on June 2015.

Impact of Brexit: IATA estimates that the number of UK air passengers could be 3% to 5% lower by 2020.

Oil prices hit €45 per barrel in June due to currency movements after the Brexit vote.

EUROCONTROL Statistics and Forecasts 1

Other Statistics and Forecasts 2

Passenger Airlines 3

Airports 7

Cargo 8

Aircraft manufacturing 8

Oil 8

Regulation 9

Economy 9

Fares 9

EUROCONTROL Statistics and Forecasts

The European flight growth (ECAC – European Civil Aviation Conference area) of 2.7% in May 2016 compared with May 2015 was in line with the forecast (Figure 1). Industrial action in June resulted in preliminary data to show a modest 1.2% increase of flights on June 2015. In May 2016, 17 states contributed strongly to the growth of local traffic (excluding overflights) in Europe and together added 1,666 daily flights to the network. UK was the top contributor with record high 350 extra daily flights thanks to a solid increase in its international arrivals/departures, boosted by half-term holiday. Spain added 250 daily flights, France, Italy and Lisbon (FIR) added each circa 125 daily flights and completed the top five contributors to growth in May. At the other end of the scale, Turkey saw 155 fewer daily flights mainly due to its international arrival/departure flow which went down 12% in May as a result of security concerns impacting tourism from Russia and North West Europe (Figure 2). Charter was the weakest market segment in May, with a fall of 23%, resulting from traffic declines from/to Russia, Egypt, Tunisia and Turkey but also from some aircraft operators filing a different flight type compared with May last year.

Industry Monitor The EUROCONTROL bulletin on air transport trends

Issue N°185. 05/07/2016

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The top three extra-European partners in average daily flights on flows in both directions in May 2016 were the United States (1,000 flights, up 6%), the Russian Federation (690 flights, down 21%) and the United Arab Emirates (310 flights, up 8%). Traffic flows between Europe and Egypt continued to decline and were down 39% to 130 flights per day on average whereas traffic flows between Europe and Tunisia decreased by 32% to an average of 110 daily flights in May 2016. Comprehensive statistics on flights are available from the STATFOR dashboard1 (EUROCONTROL, June).

Other Statistics and Forecasts

IATA has released an analysis of the financial and economic impact of Brexit on the airline industry. Preliminary estimates show that the number of UK air passengers could decline by 3 to 5% by 2020 as a result of the expected downturn in economic activity and the fall in the British pound exchange rate (IATA, June). ACI reported that overall passenger counts at European airports increased by 3.7% in April 2016 compared with April last year with overall aircraft movements at airports growing by 2% (ACI, 7 June).

1 www.eurocontrol.int/statfor/sid

Figure 1: Monthly European Traffic and Forecast (based on the 7-year forecast Feb16).

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Based on data from airlines for delays from all causes, the average delay per flight in May 2016 rose to 11 minutes, an increase of 1 minute per flight compared with May 2015. Reactionary and Airline delay together were up by 0.8 minute per flight compared with May 2015. The percentage of delayed flights (>=5 minutes) was 41%, an increase of 3 percentage points when compared with the same month in 2015 (Figure 3). ATC industrial actions in France generated airport ATFM delay and En-route ATFM delay. Seasonal weather (strong winds, thunderstorms) impacted operations particularly at Paris/Orly, London/Heathrow, Istanbul/Atatürk, Frankfurt, Zürich, Barcelona and Amsterdam/Schiphol airports. Aerodrome capacity issues generated ATFM delays at Istanbul/Sabiha Gökçen, Istanbul/Atatürk, Amsterdam/Schiphol, Paris/Orly, Zurich and Barcelona airports (EUROCONTROL, June).

Passenger Airlines

Capacity, costs and jobs

Start-up Cypriot Cobalt will launch operations on 7 July with seven routes from Larnaca to Athens, Thessaloniki, Heraklion, Chania, London Stansted, Manchester, and Dublin using a fleet of Airbus A320 family aircraft (Cobalt Aero, June). Croatia Airlines reportedly plans to set up four bases in the Balkans (Tirana, Pristina, Skopje and Sarajevo), effective 1 April 2017 (Jutarnji news, 30 May). Low-cost long-haul French Blue will launch operations in September 2017 with a flight from Paris Orly to Punta Cana with one Airbus A330-300 aircraft. The carrier plans to add one Airbus A350 aircraft to its fleet by spring 2017 and will also start Paris Orly – la Réunion route in June 2017. French Blue is part of Groupe Dubreuil which owns Air Caraïbes (French Blue, June).

Figure 2: Main changes to traffic on the European network in May 2016.

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Lufthansa Group low-cost affiliate Eurowings Europe based in Vienna started operations to up to 18 destinations by November with one Airbus A320 aircraft which will grow to a fleet of three A320 aircraft by October (Eurowings, June). Italian Fly Ernest will start operations on 1 July with flights from Tirana to 9 destinations in Italy (Fly Ernest, June). The Turkish government has reportedly increased the subsidies it grants to charter airlines to attract foreign tourists into the country between June and August. Last February, the Turkish government granted its financial support to the Turkey’s tourism sector which has been severely affected by the Russian travel ban in place since November 2015 and the repeated terrorist attacks in the country. Year-to-date flights between Turkey and Russia declined by 64% compared with 2015. Charter flights between Turkey and Europe decreased by circa 40% during the period Jan-May 2016 (vs. Jan-May 2015) (Reuters, 10 June and EUROCONTROL/SID, June). Ryanair confirmed it will cease operations at Oslo Rygge airport as from 29 October reportedly in answer to the introduction of the Air Passenger Duty in Norway (IM184). Oslo Rygge closure will result in the cancellation of 16 routes (50% of its Norwegian traffic). The carrier will launch two new routes from Oslo International (Gardemoen) to London Stansted and Vilnius (Ryanair, 1 June). SAS has faced a 5-day strike (10-14 June) by its Swedish and Norwegian pilots in a dispute over wages along with the airline cost-cutting programme to better compete with low-cost carriers in Europe and in the Middle East. Negotiations with pilots unions started in April and led to an agreement end of June. SAS reported that the 5-day strike resulted in the cancellation of circa 1,000 flights (SAS, June).

Breakdown of all-causes delay per flight

Figure 3: Delay statistics (all-causes, airline-reported delay – preliminary data for May 2016).

Percentage of flights delayed on departure

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easyJet expects lower profit for its third financial quarter (April-June), blaming lower passenger demand due continued terrorist attacks, flight cancellations from repeated French air traffic controllers strikes. easyJet reported that circa 700 flights were cancelled in June, mainly due to industrial action. The carrier also forecasts its half year results to be negatively impacted by economy and passenger demand uncertainty after the Brexit vote and oil prices increase resulting from the recent GBP to USD exchange rates (easyJet, 27 June). Sardinian Meridiana, the Italian government and unions have reportedly signed a framework agreement establishing a new labour contract for the airline. The agreement consists of 400 redundancies (25% of its workforce), a salary reduction of 20% and a three-year contract. This was the prerequisite for Qatar Airways to acquire a 49% stake in the loss-making airline when they both signed a Memorandum of Understanding last February (IM181) (Thomson Reuters Zawya, 27 June). SAS has disposed of the remaining 20% stake it held in Widerøe to an investment company to which SAS sold already 80% of its shares in September 2013. Widerøe mainly operates domestic flights in Norway with a fleet of 40 Bombardier Dash 8 aircraft (SAS, 30 June).

Traffic Statistics: May Update

Figure 4 and Figure 5 compare May 2016 figures with May 2015 figures for the European carriers. In addition to the number of passengers (PAX), passenger capacity is measured in available seat kilometres (ASK), traffic is measured in revenue passenger kilometres (RPK) and load factor as a percentage (%).

Figure 4: Main carriers’ traffic statistics.

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Failures

Regional Italian Air Vallée has suspended operations after its Aircraft Operator Certificate was withdrawn by the Italian Civil Aviation Authority (ENAC) due to operational concerns. The carrier operated flights to Albania, Greece and Italy with one Fokker 50 aircraft (Air Vallée, June). VLM has filed for bankruptcy and ceased operations on 22 June after its restructuring plan proved to be unsustainable. The airline operated a fleet of 11 Fokker 50 aircraft. Last February VLM launched three German domestic routes but also canceled its order for 14 Sukhoi SSJ100 aircraft (VLM, June).

Routes, Alliances, Codeshares

Start-up Moldovan airline Fly One has commenced scheduled service from Chisinau to the Russian Federation (Moscow Domodedova, St Petersburg and Voronezh) and destinations in Europe, including Barcelona, Dublin, Lisbon, London, Parma and Verona. The airline operates a fleet of two Airbus A320 aircraft. Fly One has been operating charter flights to Antalya, Heraklion and Rhodes since April (Fly One, June). easyJet will launch three new routes from London Luton to Toulouse, Lanzarote and Tenerife Sur in September, bringing to 57 the number of destinations from its head base (easyJet, 20 June). Czech Airlines and Alitalia entered into a new code-share agreement on over 40 services between the Czech Republic and Italy along with other destinations beyond Prague and Rome (Czech Airlines, 15 June).

Figure 5: Main carriers’ load factors.

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Airports

Busiest airport pairs in Europe (total flights in both directions) during the first semester of 2016 (growth on 1S2015):

(source: EUROCONTROL/SID, June) Passenger traffic and aircraft movements in May 2016 at top five European airports (based on the number of flight departures) compared with the same month last year were as follows (growth on May 2015): Passenger traffic Aircraft movements 1. Amsterdam Schiphol 5.7 million (+6.7%) 43.4K (+5.9%) 2. Paris CDG 5.7 million (- 1.1%) 41.7K (+1.4%) 3. London Heathrow 6.3 million (- 1.0%) 41.4K (+0.2%) 4. Frankfurt 5.3 million (- 5.5%) 41.2K (- 3.5%) 5. Istanbul Atatürk 5.2 million (- 5.2%) 39.5K (+1.0%) (source: airport reports).

Figure 6: Brent and kerosene prices.

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The Brexit vote has delayed a decision on London airport expansion until at least October, when the Prime Minister’s successor is elected. In July 2015, the Airport commission opted for a third runway at Heathrow (IM174). In December 2015, the UK government postponed its decision until the summer 2016 saying that further work on the environmental impact was needed (Heathrow, 30 June).

Cargo German trade union Verdi has reported that Lufthansa Cargo will cut circa 500 jobs as part of its C40 cost-cutting programme, representing over 10% of the freighter’s workforce (Verdi, 10 June).

Aircraft manufacturing United Aircraft Corporation (UAC, Russia) and Commercial Aircraft Corporation of China (COMAC) will set up a joint venture to build a wide-body passenger aircraft (UAC, 25 June). The COMAC ARJ121-700 aircraft, China’s first commercial regional jet entered into service on 28 June after 14 years of development (COMAC, 28 June).

Oil

Oil prices rose to €45 Converted indices for Kerosene and Brent are shown in Figure 6. In its June short-term energy outlook, EIA forecast Brent crude oil price to average €39 per barrel ($43) in 2016 and €47 ($52) in 2017, an increase of €3 ($3) and €1 ($1) per barrel respectively, compared with May’s forecast (EIA, 7 June).

Figure 7: Ticket Prices in Europe.

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Regulation The European Commission will start negotiations for EU-level aviation agreements with Turkey, Qatar, the United Arab Emirates and Southeast Asia. These agreements are part of EU’s new aviation strategy to boost Europe’s economy and strengthen its industrial base (EUROPA, 7 June).

Economy

Euro area economy indicators updates:

Annual inflation was -0.1% in May 2016 compared with 0.3% in May 2015 Unemployment rate was 10.1% in May 2016 compared with 11% in May 2015 GDP rose by 1.7% during the first quarter of 2016 compared with the same quarter

of 2015 (EUROSTAT, 7 & 30 June, 1 July)

Fares

Ticket prices in Europe decreased by 4.9% in May year-on-year, based on preliminary values. This is below the trend (12-month trailing average) shown in Figure 7 (Eurostat, 16 June). Note: to eliminate the influence of inflation on euro figures, the ticket price is deflated with a price index. The STATFOR deflated ticket prices are estimated in 2015 constant euros. A detailed explanation of the mechanism can be found here.

© 2016 European Organisation for the Safety of Air Navigation (EUROCONTROL) This document is published by EUROCONTROL for information purposes. It may be copied in whole or in part, provided that EUROCONTROL is mentioned as the source and it is not used for commercial purposes (i.e. for financial gain). The information in this document may not be modified without prior written permission from EUROCONTROL. STATFOR, the EUROCONTROL Statistics and Forecast Service statfor.info@eurocontrol.int www.eurocontrol.int/statfor