Flybmi will not be the last failure of the airline, analysts say

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In two short sentences, the announcement by Flybmi of its collapse summed up the difficulties of the airline industry: fuel costs, green taxes, uncertainty around the Brexit, number of passengers falling. This could have added fierce competition, but it is probably an obvious statement.

Several European airlines have experienced financial difficulties over the past two years. The British Monarch collapsed in October 2017, while German Germany had filed for insolvency earlier this month.

Air Berlin and Alitalia went bankrupt, although the latter was supported by the Italian government.

Primera, Cobalt, Azurair, Small Planet Airlines and SkyWork may not be well-known names, but have all succumbed to the turbulence of the market that swept the sector. Flybe is saved by a consortium led by Virgin Atlantic and Stobart Air, assuming the deal is approved by shareholders.

Last month, Norwegian Air Shuttle was forced to request an emergency cash injection, questioning its promise to revolutionize long-haul travel with budget.

Ryanair's boss, Michael O'Leary, may be subject to a bit of hyperbole, but when he warned this month that the sector would face more bankruptcies, no one questioned him.

"Winter is the worst time of year for airlines," says Peter Morris, an analyst at Ascend Consultancy. "If you can spend the winter, there is a chance to get bookings for the summer."

So why are so many airlines failing? Simon Calder, travel expert, explained the basic problem as follows: "There are just too many seats and not enough people".

But the reasons are many and complex.

The growth of airlines in Europe, mainly low-cost carriers, is the result of deregulation and an explosion of road networks.

The use of new profitable aircraft operators has launched new services. If one road failed, they tried another one. Flexibility was the key.

According to the International Air Transport Association, the number of flights in Europe has increased by more than 40% compared to a decade ago. At the same time, tariffs have fallen, reducing margins and reducing financial leeway.

This expansion has not isolated the sector from broader economic shocks, such as economic slowdown, adverse exchange rates and sudden incremental costs – traffic control strikes, maintenance bills, bad weather (remember East Beast) and compensation of passengers.

The new European rules on passenger compensation have been, according to the director of Wizz Air, József Váradi, becoming a real burden for the airlines. He cited this, along with fuel costs, as the two biggest problems for many carriers.

Oil prices rose and fell in 2018 and have been rising since the beginning of the year. Fuel costs have been cited as a factor that represents almost all the problems reported by airlines over the past two years.

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Flybmi also pointed out another damaging additional cost: emissions taxes. Tim Jeans, former General Manager of Monarch and President of Newquay Cornwall Airport, acknowledges that the problem is getting serious for the entire sector.

"Carbon costs are an insidious cost for all airlines," he told the BBC. "The fees you have to pay for your flight are increasing all the time, and they now represent a considerable cost."

He thinks that many airlines have not fully budgeted this increase. "It seems like this is the case with Flybmi," he said.

There is also the question of Brexit. Critics say that it has become practical for British companies to blame the uncertainty surrounding the fact that Britain is leaving the EU to solve its problems.

But for any British airline – from Flybmi to British Airways – the potential unwinding of the European Open Skies agreement reached for decades is a source of concern, Jeans said.

This will certainly prevent some airlines from entering into agreements and offering services in case of uncertainty as to their freedom to cross Europe, he said.

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Mr Morris said that the problems International International Airlines (IAG) is facing show how much Brexit is worried about the major carriers.

To retain its operating license in Europe, IAG, which owns British Airways and Iberia, must prove that it is more than 50% owned and controlled by EU investors. Thus, IAG caps non-European investments – with the exception of UK shareholders, who will be part of the EU even after Brexit.

This is an example, says Mr. Morris, of "the way even the big boys could have problems with the aviation environment".

Will there be more air failures? "Yes, I think so," says Morris.

The airlines that are particularly vulnerable are the smaller carriers stuck between big players such as BA and Lufthansa and the big low-cost carriers like Ryanair and Easyjet, Morris said.

The former have economies of scale and a presence in major hub airports such as Heathrow. The latter operate larger, more efficient aircraft and more regular services, which enables them to reduce costs per seat. This means that both sectors can better withstand shocks.

Mr. Jeans agrees. "The disappearance of Flybmi is a perfect example of the difficulty with which it is difficult to make money in this middle ground," he says.