The Spanish airline industry, in a state of flux

A constant flow of news is coming out of the Spanish airline industry, making it one of the hotspots of the industry in Europe, so I thought about writing this post to summarize what is going on...

One of the most amazing things is that the deep economic crisis that Spain is currently going  thorugh is not enough to deter Spanish airline entrepreneurs...one of the most exciting developments we have seen in last few months is the set-up of "stealthy" Barcelona-based airline startup, Volotea. Little is known about this project so far, except the identity of the founders, the fact that it is going to operate in the short-haul market and that its fleet is going to be composed of Boeing 717s. All these details, that were already advanced in the post I wrote a few weeks ago, have now been confirmed. Some reports in the press pointed also to the fact that it might not restrict its operations to the Spanish market only.

This is certainly an interesting timing to get into Spain's regional market, as the main incumbent in this segment, Air Nostrum is grounding up to 15 aircraft, reducing the number of staff and considering to move its headquarters from crisis-hit Valencia, on the Mediterranean coast, to the Basque city of Bilbao.

Air Nostrum operates many regional routes within Spain on behalf of Iberia

At the same time Vueling has announced an investment of €325 million and a major expansion at its Barcelona base, with 5 new Airbus A320 based there and the launch of 23 new routes. This will bring Vueling's total number of cities served from Barcelona to 70, which makes it one of the largest short-haul networks in Europe.

Vueling's recent network expansion strategy is also worth of note, not only from a quantitative but also from a qualitative point of view...I wrote not long ago about how Barcelona could fulfill its hub ambitions by having an airline develop a network linking it to second and third-tier cities around the Western Mediterranean. The aim would be to become the reference hub for this region, in a way similar to what KLM does with its links between Amsterdam and British and Scandinavian regional airports. When I wrote this what I had in mind was more of a regional type of operation (as KLM does) and I still have serious doubts about whether the Airbus A320 is the right aircraft for this type of operation based on thin routes, but Vueling's route map, particularly in France, with additions such as Bordeaux, Lourdes, Marseille, Nantes and Brest, and Italy, with Genoa, Pisa, Verona,...plus its new "connection flight" service seem to fit well with this strategy. Whether this will ultimately lead to the materialization of the much-awaited long-haul hub at Barcelona remains to be seen...

It is also noteworthy that Vueling is finally launching its first UK routes out of Barcelona (it flies already between the UK and several Spanish regional airports), a territory that, until now seemed reserved to the likes of Easyjet and Ryanair (by the way, the Irish airline has finally closed a deal with the Catalan government that will provide for 19 routes being launched or reinstated at Girona airport (GRO), just one hour drive North of Barcelona, BCN).

In the meantime, Barcelona's other carrier, Spanair, is languishing while awaiting its possible acquisition by Qatar Airways. Senior officials from the Catalan government and Barcelona City Council flew to Doha a few days ago to discuss the sale of Spanair to the Gulf carrier. As pointed out in this post, it will be interesting to see how petro-dollars affect the competitive landscape in the European airline industry. These negotiations, however, have not been obstacle for Qatar Airways to cooperate closely with Spanair's rival Iberia, to the point that it will be the only non-Oneworld airline to use Madrid's gigantic T4 terminal. Qatar Airways' passengers will also be able to use Iberia's domestic network for onward flight connections.

And I finish this post, precisely, with Iberia, as it is preparing the launch of its new low-cost airline Iberia Express. In reality, I think this move will be hardly noticeable to the average passenger: Iberia Express will be using the same aircraft and fly the same routes that Iberia already does, plus it will also offer business class. Iberia's on-board service on short-haul economy is already barely different to that of low cost airlines so not much of a change here either. So Iberia Express is more of a way to end a bitter labour dispute and lower operating costs in its short haul operations, a necessity for Iberia considering how entrenched Ryanair and Easyjet have become in the Spanish market, rather than the launch of a truly "new" airline.

What next for Girona airport?

Transavia is currently the only airline other than Ryanair operating at GRO

Girona has been possibly the fastest growing in Spain during the last decade. From a sleepy charter-only airport, GRO has gone on to become one of Ryanair's major bases in the continent...or was it?

In fact, GRO is now going through a delicate moment, and the responsible is none other than the same airline that helped it get out of obscurity: Ryanair. The Irish airline started operating from Barcelona last September and it has been opening new routes since then, most of Ryanair's traffic at GRO are actually originating or have as final destination the city of Barcelona, an airport that has now plenty of spare capacity for the Irish airline to grow.


Ryanair's base at Girona will go from 11 to 6 aircraft permanently-based aircraft

In a recent post at AirObserver's blog I already mentioned how its arrival to Barcelona has strengthen considerably Ryanair's bargaining power at Girona. And the Irish airline has put all this market power to work: a new agreement has supposedly been reached with the Catalan authorities, providing €7.5M to keep Ryanair at Girona until. But the recent government change in Catalonia has changed spending priorities and now is uncertain whether the agreement is going to be implemented or not.

According to some reports, Spanair is being asked by the Catalan government (that has been supporting it through direct capital injections) to take over some of the routes previously operated by Ryanair, namely the Girona-Madrid one. This move would not make any sense to me.

For a start, I doubt it would work without heavy public subsidies. Spanair already tried operating this route a few years ago and it did not work. Why should it be different this time? and if subsidies are to be paid, why then all the fuss about paying them to Ryanair? the Irish airline was at least capable of bringing to Girona a volume of traffic that no one else in the industry can match.

But if we then look at the relationship between Spanair and Catalan public institutions we have that public money has been used to support this ailing airline on the grounds that it intends to develop a hub-and-spoke operation at Barcelona El Prat (BCN) that might, in the long run, make of BCN a major European airport. Making Spanair fill the gap at Girona while Ryanair is itself increasing its presence at BCN would be a total departure from this strategy!

This situation might be mitigated if Girona airport had the autonomy to set its own fees and pursue a more aggresive commercial policy (Mr.O'Leary himself said recently that Girona's fees were too high to compete effectively with Barcelona El Prat. If we are to judge from the fact that Ryanair is currently expanding at BCN despite not getting any subsidy) that includes actively looking for new routes and airlines.

At this point in time the only non-Ryanair regular route at GRO is Transavia's to Rotterdam. Have the airport managers any other option on the table? It would be a good idea to start looking for some...

Ryanair stops taking reservations from end of March for its Girona (Barcelona) routes

Passengers looking to book a flight out of Girona-Barcelona (GRO) with Ryanair for travel dates beyond 30th March are coming across this:



As Catalan daily Avui has pointed out, there are two possible reason why this is happening while bookings from the other Barcelona-area airports where Ryanair operates, Reus (REU) and Barcelona-El Prat (BCN), are working fine
Either it has something to do with ongoing negotiations to keep Ryanair at GRO or, the official version, the Irish company is still defining its summer flight schedule.

On one hand and as my article of a few days ago at AirObserver pointed out, Ryanair's recent arrival at BCN strengthens its negotiating power bis a bis the Catalan authorities. The current agreement between Ryanair and the local authorities expires at the end of the year 2011 and it seems that Ryanair has been asking for 12 million euros to renew it.

This happens at a time when these same authorities seem less keen on more money handouts and risk getting caught in a "subsidies war" with other local airlines (see AirObserver's post on this too). Blocking flight reservations could be a way to send a strong signal and an important power gesture...

On the other hand, Ryanair has just opened routes to destinations from GRO, such as Larnaca (Cyprus).

So possibly there was a combination of the two factors at play, negotiation strategy and route planning. In any case, while I finish to write this post I read that sources of the Catalan government have confirmed that an agreement has been reached to keep Ryanair operating at Girona airport (although has not yet been ratified due to last week's parliamentary election in Catalonia). I am waiting for more details...

Around Europe with Ryanair

First stop: Stansted (STN)


Boarding the flight at sunrise

Second stop: Girona (Barcelona) (GRO)



It's amazing to think that Girona airport used to be always literally empty all winter less than a decade ago...

Third stop: Orio al Serio (Bergamo-Milan) (BGY)


Judging from the view, Bergamo has become an important base for Wizz Air, the main low-cost from Eastern Europe.


More Eastern European conection at Bergamo: a Boeing 737 of Romanian carrier Blue Air, serving the demand that arises from the important demographic and economic links between Italy and Romania


Next Stop: Madrid (this deserves an entirely separate post...)

Barcelona airport (BCN) or how to cope with simultaneous demand and offer shocks

foto: Terminal 1 by Ricardo Bofill (from Creative Commons)

Barcelona airport got its new terminal last month, almost doubling its capacity overnight, this would be alright was it not for the simultaneous demand and offer shocks the airport is facing.

Although designed in times of double digit growth the new terminal opens when the airport is experiencing its first decrease in passenger numbers in a very long time (-15% in the first quarter of 2009 compared with the same period last year). Europe is in the midst of one of the worst economic crisis in living memory and this would be worrying enough for an airport that relies almost exclusively on short and medium haul traffic, but is even worse when considering that the Spanish economy is among the hardest hit by the crisis. Tourist numbers are plummeting and some airlines have been cutting services (Easyjet has reduced capacity, British Airways is axing its Gatwick services). Other factors are contributing to the fall in numbers, the new high speed train link between Barcelona and Madrid has taken half of the market of the densest and most profitable route from BCN.

The recent merger between Clickair and Vueling, with the resulting company controlled by Iberia, is expect to bring some rationalization on some routes where the two companies had overlapping services. In the long term this might result in a stronger company able to maintain its base at Barcelona (Mr.O'Leary would probably disagree...).

And talking about Ryanair, the offer glut has not prevented Ryanair from opening a new base at Reus (REU), about one hour drive south of the center of Barcelona, to add to its current base at Girona (GRO), about one hour north. It seems that Ryanair is doing well in Barcelona (surely helped by the popularity of the city among the European city-breakers and young travelers). there was even talk of Ryanair eyeing slots at BCN...we do not know whether has there been a firm offer but it seems that the company expected some concessions that Aena was not ready to grant.

There is certainly the concern in certain sectors of Barcelona business and political spheres about BCN becoming an almost exclusively low cost airport. Hence, the takeover of the the troubled airline Spanair, engineered by a Barcelona-based consortium with the support of Catalan institutions, with the objective of making it the "Barcelona airline" (Vueling might also have some claim to the title). The hope is that its membership of Star Alliance will help Barcelona to become an alternative Iberian hub (although smaller than Iberia and Oneworld's at MAD). A challenging task indeed!
The reality in the short term is that Spanair does not have any long range plane in its fleet, so the long haul hub might have to wait, however the recent success of some Star Alliance partners at BCN (like the Singapore Airlines connection) allow for some optimism. Maybe Spanair could be a regional distributor, in the South-West of Europe for its long-haul Star Alliance partners? or will it continue to be a feeder for Lufthansa (a sort of Air Dolomiti)? time will say...the truth is that if it is currently difficult for BCN to become a hub, it has never had it better, since it is the first time that BCN is the base of two airlines of a respectable size.

Therefore, and despite the crisis, I am bullish on the long run prospects of BCN. It is the gateway to a densely populated and relatively rich area, with a diversified economy and some of the top tourist destinations in Europe. The airport itself is very close to the urban center (although could be better connected by public transportation with its hinterland)and there might well be a latent under served demand for direct long haul travel that is currently flowing through other airports (mainly MAD).

The 747s of the image might never materialize (smaller planes like the 787 might stand a better chance at BCN) but as Ryanair has proven at Girona (from nearly 0 regular traffic to 5,5M passengers in just over 5 years) sometimes offer can create its own demand...