Erasmus Centre for Urban, Port and Transport Economics (UPT), Erasmus University Rotterdam (The Netherlands)
Since March 2020, the European airline industry has been heavily challenged. According to the IATA the demand in Europe has dropped over 70% compared to 2019 and the current losses for 2020 are estimated at $26.9 billion. According to IATA Chair, Alexandre de Juniac, the financial support of government was crucial to prevent several bankruptcies. IATA expects European airlines to have highrer revenues at the end of 2021 in the scenario of a widespread available vaccine.
European airlines rely heavily on international markets for revenue since there is tough competition on the short-haul European markets. According to Air France-KLM’s annual reports, in 2018 Air France suffered a € 189 million loss in the domestic network, after which it was decided to reduce capacity on domestic flights by 15% by the end of 2021. In the Lufthansa annual report of 2019, yields fell by 4.4% mainly due to the tough competition in the Germany and Austria markets. Lufthansa felt the intense competition and over-capacity on the short-haul European routes as well.
During the first months of the pandemic, the European Commission decided that airlines no longer must use 80% of their slots to secure slots up. Accordingly, airlines do not have to fly with almost empty aircrafts just to conserve their slots. This decision has been extended up to March 2021. But what to do with the slot release when networks are being reinstated?
Looking at the top 10 aviation markets between cities in Europe with the highest number of passengers in 2018, we observe a lot of domestic movements. There are only 2 intra-EU routes, while 8 out of 10 routes serve domestic markets. A train journey is a realistic option for 6 out of 10 flight routes. A realistic option means that the average duration of a train journey does not exceed 1.5 times the flight. The Madrid – Barcelona route is still heavily served by plane (6,758 daily passengers on average), while the train connection is faster or comparable to the plane.
The top two routes are both in France, the number one being the Paris – Toulouse route. In 2018, about 60 flights a day were operated on this route compared to 23 train connections.
Suppose the capacity of a train is about 375 people, while that of a plane it is about 180 people. This indicates that there is a total capacity for 19,425 people on daily bases to travel between Paris and Toulouse by air or rail. But how many people normally travel daily between Paris and Toulouse?
Estimates show that, excluding car, 14,000 people travel daily between Paris and Toulouse. The load factor of an aircraft on this route is about 80% and that of a French TGV train around 67%. About 28% of the total capacity was unused in 2018 and for the time being there is enough space to travel more by train and less by plane. Another example is the Berlin-Frankfurt route. It has an estimated capacity of 17,475 travelers, while only an estimated 12,000 people travel daily between the two cities (excluding motorists). This implies an underutilization of 31%. The load factor of an aircraft is about 75% on this route and for DB long-distance trains around 55%.
According to the basics of demand and supply, at perfect competition an equilibrium will be set, and overcapacity will disappear. However, Air France has lost about € 717 million on domestic routes since 2013 suggesting that an equilibrium has never been reached.
If countries cannot manage to reduce the high number of passengers and capacity on domestic air markets themselves, how should this be executed in a European context? In any case, let the current tumble as a result of the COVID-19 outbreak could be a turning point in how EU member states deal with domestic and intra-European air traffic. Let Ursula von Leyen and Frans Timmermans return airport slots, which are now protected, only to those flights that serve markets for which the train is not a realistic alternative. Take this opportunity an give the train a prominent role in the future of Europe.
A summary of this article was published in Het Financieel Dagblad 24th of May 2020.