Low-cost carriers seek blue skies after turbulent 2011

Newsroom 20/02/2012 | 10:45

Wizz Air shook up the local airline market last year when it overtook national carrier Tarom. BR surveys some of the other major changes on the market and budget carriers’ plans for 2012.

“Following last year’s natural selection on the airline market, I believe the survivors are safe now,” said Sherif Ussama, GM of Blue Air, at a recent press conference. While internationally tough economic conditions have led to the collapse of Spanair and Malev, locally, too, the market has undergone considerable structural changes.

The most important was low-cost carrier Wizz Air’s dethroning of national airline Tarom last year after boosting its number of passengers by 28 percent y-o-y.

In total, Wizz Air reported 2.76 million passengers in Romania in 2011, while Tarom failed to reach its 2.4 million passenger target, flying only 2.19 million.

The local low-cost airline market is dominated by Hungarian Wizz Air and local Blue Air while international giants haven’t yet managed to gain considerable market share. Some players had a hard time in 2011. Easy Jet, the second largest low-cost airline in Europe, announced it would close its local operations. The airline had operated flights to Milan and Madrid from Otopeni for four years, reporting about 200,000 passengers in Romania annually.

German Wings, the low-cost division of Lufthansa, will also scale down local operations this year. The airline announced that it had given up on flights on the Bucharest-Stuttgart route and flights to Berlin will also cease, leaving only the Bucharest-Koln route.

Wizz Air now claims a 66.4 percent share of the Romanian low-cost market. The company says that the budget segment will continue to be the main driver of passenger increases through the main airports in Romania, but the market will continue to face challenges not only locally but also at a regional European level – volatile fuel prices, the new carbon certificates and the exchange rate, Balazs Varro, corporate communications manager at Wizz Air, told BR.

The Hungarian carrier estimates that the low-cost segment has a 36 percent share of the entire local market. This year the airline has plans to consolidate its position in Romania, launch new routes from Bucharest to Budapest (March), Verona and Palma de Mallorca (June), and from Cluj to Budapest (April) and increase the frequencies on other routes.

The second biggest player on the market, Romanian carrier Blue Air, reported fewer than 1.5 million passengers last year, down by about 200,000 against the peak recorded in 2009. The decrease comes after the airline reduced its flight capacity by 15 percent in 2011, following a restructuring program. Blue Air estimates a EUR 149.5 million turnover for 2011, down 9 percent y-o-y, but said that it has managed to “slightly” increase its profitability. This year it is hoping for a turnover increase of 3 to 4 percent.

For 2012 Ussama has disclosed that his airline has plans to expand to a neighboring country but the only detail he gave was that it was not Hungary.

The carrier has also announced that it will increase its number of flights on several routes. At peak season it will operate 85 flights per week from Otopeni and another 36 from Bacau, its second hub. For this the carrier has acquired two more airplanes and a third should be added this summer, taking Blue Air’s fleet to 10 aircraft.

From Baneasa to Otopeni
As of March 25 all low-cost flights to and from Bucharest will be relocated from their present hub at Baneasa to Otopeni, said representatives of the Bucharest Airports National Company, according to media reports, adding that budget carriers will be forced to transfer after airport taxes at Baneasa are hiked.

Ussama said Blue Air was ready to make the shift, commenting that the change would not generate significant hikes in fares. “Some have spoken of price increases of EUR 4, 5 or 10. In fact, prices are set by supply and demand and on most of our routes they will not increase,” said the Blue Air GM. Blue Air representatives added that due to the increase in airport taxes at Baneasa it was no longer cost-efficient to operate from there.
Wizz Air’s corporate communications manager told BR last week that the company “has not received any formal notification or confirmation about a possible price increase at Baneasa Airport, so it would be premature to speculate about any potential scenarios”. He added that “any increase in airport charges has a major pressure on ticket prices”.

Jozsef Varadi, Wizz Air’s CEO, said last November that should low-cost airline be forced to operate from Otopeni, the airline would have no other choice but to increase fares and adjust flight capacity due to the higher taxes at Otopeni. The carrier has often denounced in recent years what it considers to be a very high level of airport taxes at Otopeni.

The battle for Budapest

The announcement that Malev had succumbed earlier this year left a gap on the local market too, which Wizz Air and Tarom scrambled to fill.

On the Romanian market, Malev operated flights to Budapest from Bucharest, Cluj-Napoca and Targu Mures, having about 300,000 passengers in 2010. Compatriot Wizz Air announced shortly after the news of the Hungarian flag carrier’s demise that it would expand its operations from Budapest, including the launch of flights to Bucharest, while Tarom also said it would increase its number of flights on this route.

Blue Air on the other hand said that it was not planning to expand in Hungary as it wouldn’t be a good move for the airline, because Wizz Air and Ryanair had got in there first.

Simona Bazavan

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