Warsaw -- A slump in demand has caused a crisis for European regional airlines prompting a call for government support an industry conference heard yesterday at the European Regions Airline Association (ERA), which represents 60 intra-European airlines, recorded passenger growth of 0.4% for its airline members in 2008, down from 7.5% in 2007. Worse yield is not growing in the face of rising fees.

Members meeting at the annual ERA Regional Airline Conference in Warsaw, Poland heard load factors remained reasonably stable, dropping only 0.5 percentage points to 64.5% (compared with 65% in 2007), indicating that intra-European airlines are cutting capacity to cater for the slump in demand.

But airline leaders warned the figures masked the true state of the industry. “This is an industry in crisis,” said ERA Director General Mike Ambrose. “The economic crisis became evident from the start of the third quarter and what has been significant is the severity and speed of it. Traffic has dropped away dramatically and this is marked in the very modest growth figures. The worst part is the significant element induced by fear (uncertainty) which is clouding objectivity and judgment. Airlines must adapt to remain viable."

Ambrose believes there won't be a recovery in growth this year with only modest growth in 2010 in some areas. "While pockets of growth are apparent in some geographic regions in 2008, particularly in some Scandinavian, Baltic and Eastern European states, initial indications for the early part of 2009 show a considerable worsening in demand as the economic crisis begins to cut across this whole sector of aviation," he said.

Ambrose called on Europe’s regulators to avoid introducing inefficient and burdensome requirements and look instead at supporting beneficial projects, such as SESAR, with public funding.

"We must all work together to ensure aviation continues to contribute to Europe’s overall employment and social goals. We are not asking for the direct subsidies received by other modes if transport, such as high-speed rail. Nonetheless, there are some funding mechanisms, already in place for other industries, that could help European aviation through this period of global financial disruption and economic recession.”

When the last downturn in traffic occurred, after 9/11, EU regulators called in aviation trade bodies for talks within weeks of 9/11. "The downturn started last autumn yet the first meeting, in Brussels, of all (aviation) trade associations, took place just two weeks ago,” said Ambrose. “We are being fair and realistic, we don't expect action immediately but regulators should assess their work programs to identify and dismiss measures that add little or no economic or safety value to the aviation industry."

Nearly 200 executives of European regional aviation, including airline presidents and airport directors, are attending the conference. Later the conference heard from Steve Fletcher, a London-based analyst with New York consulting firm SH&E.

He forecast a 6.5% cut in passenger numbers in Europe this year with airlines cutting capacity by 1.2%.Premium traffic fell by 17% in January but has recovered slightly in February. "It’s not just the major airlines that are feeling the pinch,” he reported. “The low cost airlines are also cutting capacity and growth. Ryanair reported growth of 25% in 2008 but are forecasting 5% for 2009. Their latest figures also show that yield is not growing despite the growth in the airline's ancillary revenues. This shows that rising costs which are responsible for the stagnating growth."

Financier Christian McCormick, chief executive officer of Natixis Transport Finance, revealed cash was becoming increasingly unavailable for airlines to invest in aircraft and other equipment. "Banks have either gone out of business or have left the market place,” he said. “The cash available has shrunk by as much as 75% in the past year."

Aircraft financing alone accounts for some $68 billion this year and is facing a $35 billion shortfall, he said. Some $8bn is due for aircraft deliveries in China and he expects the Chinese authorities to provide or guarantee the funding of these aircraft. “Manufacturers will treble their financing commitment from $2 billion last year to $6 billion this year,” he said. “That's not unusual but is a significant rise. We hope that government will do more to bridge the remaining gap."

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