European airlines and airports are facing fundamental changes: The increasing popularity of low-cost carriers and airlines from the Middle East is changing the competitive landscape. Leisure and business travelers' strong price sensitivity negatively affects airlines' average revenues. There are also stricter regulatory frameworks such as more extensive bans on night flights or additional safety regulations that further limit operations of airlines and airports in Europe.
Many companies in the aviation sector have already responded by launching comprehensive efficiency improvement and restructuring programs. This is why they are slightly more optimistic regarding year-on-year business development in 2013. Passenger airlines and airports both expect passenger numbers to increase by the end of the year, but remain rather more cautious regarding growth prospects than the International Air Transportation Association (IATA).
Only in the cargo segment do respondents expect better business development than the IATA forecast for 2013: Some 83% of cargo operators forecast business growth above 2.4% for this year. But the experts warn against excessive optimism: "What triggers positive expectations at first glance, could also harbor major risks if the aviation market develops sluggishly or planned actions are not implemented on time," cautions Björn Maul, Partner at Roland Berger Strategy Consultants.
The European aviation market is facing major challenges
Top decision makers worry in particular about the rise in kerosene prices: 54% expect further price hikes before the end of the year. This would have a negative impact on airlines' business development. More than a third of the participants in the study think that growth in Asian markets will slow down somewhat – and this will have significant repercussions on the passenger and the cargo business. But accelerated market consolidation (96%), stronger footprint of budget airlines (79%) and continuing expansion of airlines from the Gulf region to Europe (88%) might also increase competitive pressure considerably.
Another hurdle companies in the aviation sector are facing is ever stricter regulations for almost all business segments. Airports are being called upon to enforce new bans on night flights and both passenger and cargo airlines have to comply with stricter noise regulations and shorter operating hours for their fleets – this puts European companies at a significant disadvantage compared to their global competitors.
Companies have varying strategic focuses
To find a way out of this difficult market situation, the aviation sector plans to adopt a variety of measures – first and foremost more efficient cost management. 80% of passenger airlines are planning to further cut costs along the value chain to counteract increased competitive pressure and rising fuel prices. But cost-cutting alone is not enough: "European passenger airlines will respond to increasing competitive pressure by engaging in strategic joint ventures, adopting new pricing models and offering new services," says Maul. "Acquisitions within the industry are not currently foreseen."
Cargo airlines feel that acquiring new clients by offering more differentiation in their product range could help them grow their business. In addition to this, they plan to improve their purchasing processes and their general efficiency.
Most airports are aiming to attract new clients and improve their revenues in the non-aviation business – through retail stores, property and parking structures. But new collaboration models with airlines and key suppliers are also on the list of actions to take at more than three quarters of airport operators. "The strong business development of airlines from the Middle East and low-cost carriers will further change the competitive landscape," explains Maul. "Airports will have to respond to this with structural changes if they wish to ensure further growth in years to come."
