Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Too many ducks in one pond - a study of the Swedish domestic airline industry and its prospects

Magnusson, Christian (2005)
School of Aviation
Abstract
This report is intended to outline the domestic airline industry in terms of capacity and

forecasts, and to analyse the financial condition and prospects of its operators.

The outcome of the study has been severely impaired by the insufficiency of information

supplied by airlines, which has rendered the report more indicative than was initially my

intention.

The domestic airline industry, after suffering from post 9/11 turmoil, has recuperated well and

generated a 3.4% annual growth during the first 8 months of this year. Considering economic

growth forecasts as well as estimations made by LFV, the domestic air travel market is

expected to grow at around 3% in the short term. This growth will however be far from

sufficient to... (More)
This report is intended to outline the domestic airline industry in terms of capacity and

forecasts, and to analyse the financial condition and prospects of its operators.

The outcome of the study has been severely impaired by the insufficiency of information

supplied by airlines, which has rendered the report more indicative than was initially my

intention.

The domestic airline industry, after suffering from post 9/11 turmoil, has recuperated well and

generated a 3.4% annual growth during the first 8 months of this year. Considering economic

growth forecasts as well as estimations made by LFV, the domestic air travel market is

expected to grow at around 3% in the short term. This growth will however be far from

sufficient to bridge the vast gap between industry capacity and utilisation. With an average

industry cabin factor of roughly 60% during the first 6 months of this year, an approximate

two million seats were unoccupied during the period. It is clear that this overcapacity must be

corrected, and while doing so most airlines are suffering.

SAS, benefiting from the advantage of being the Swedish Goliath, is expected to turn its

recurring negative result around as its restructuring is coming into effect. In the meantime

SAS is able to endure the turbulence with its comparatively solid funds.

Malmö Aviation is the only airline that has published a first half (2005) close to break-even

result. Fleet reductions as well as renegotiated salaries in combination with financial

streamlining have enabled, on a relative base, an impressive six-month period. Taking this

positive performance in combination with an adequate wallet, Malmö Aviation appears to be

at least a short to medium term survivor.

Skyways future appears somewhat clouded as no traffic information or other statistical data is

obtainable, and what has been happening during the first part of 2005 is unknown to the

public. In 2004 however, the airline reported a significant loss compared to an industry rare

profit in 2003. By the end of 2004 Skyways available funds did not look impressive, and

unless the bad performance has been turned around, the company could be heading for

potential troubles eventually leading to a call for a cash infusion.

Skyways is the only one of the five major airlines not to fly on the more important domestic

routes. This could possibly pose a threat if other airlines experiencing grander economies of

scale decided to enter into Skyways? turf.

Due to lack of financial data, not much can be noted about flynordic, apart from the

occasional cries of delight in the media by the CEO. According to the company, flynordic is

the fastest growing Swedish operator and generated a 73% cabin factor during the first half of

2005. flynordic has also got a steady cash book to lean upon in the owner Finnair, which

purchased the company in 2003.

FlyMe looks to be in a very vulnerable position. With a cash burn rate of around SEK10mn a

month during the first six months of the year, and with only SEK44mn of funds left at the end

of June, its survival is seemingly hanging onto a loose thread. The airline has already raised

new funds twice during 2004, but has since commencing its operation never managed to

report a profit. Since FlyMe is running out of money fast and most probably not able to raise

new funds, it is heading for bankruptcy. It is likely that this takes place before the end of this

year. (Less)
Please use this url to cite or link to this publication:
@misc{1326686,
  abstract     = {{This report is intended to outline the domestic airline industry in terms of capacity and

forecasts, and to analyse the financial condition and prospects of its operators.

The outcome of the study has been severely impaired by the insufficiency of information

supplied by airlines, which has rendered the report more indicative than was initially my

intention.

The domestic airline industry, after suffering from post 9/11 turmoil, has recuperated well and

generated a 3.4% annual growth during the first 8 months of this year. Considering economic

growth forecasts as well as estimations made by LFV, the domestic air travel market is

expected to grow at around 3% in the short term. This growth will however be far from

sufficient to bridge the vast gap between industry capacity and utilisation. With an average

industry cabin factor of roughly 60% during the first 6 months of this year, an approximate

two million seats were unoccupied during the period. It is clear that this overcapacity must be

corrected, and while doing so most airlines are suffering.

SAS, benefiting from the advantage of being the Swedish Goliath, is expected to turn its

recurring negative result around as its restructuring is coming into effect. In the meantime

SAS is able to endure the turbulence with its comparatively solid funds.

Malmö Aviation is the only airline that has published a first half (2005) close to break-even

result. Fleet reductions as well as renegotiated salaries in combination with financial

streamlining have enabled, on a relative base, an impressive six-month period. Taking this

positive performance in combination with an adequate wallet, Malmö Aviation appears to be

at least a short to medium term survivor.

Skyways future appears somewhat clouded as no traffic information or other statistical data is

obtainable, and what has been happening during the first part of 2005 is unknown to the

public. In 2004 however, the airline reported a significant loss compared to an industry rare

profit in 2003. By the end of 2004 Skyways available funds did not look impressive, and

unless the bad performance has been turned around, the company could be heading for

potential troubles eventually leading to a call for a cash infusion.

Skyways is the only one of the five major airlines not to fly on the more important domestic

routes. This could possibly pose a threat if other airlines experiencing grander economies of

scale decided to enter into Skyways? turf.

Due to lack of financial data, not much can be noted about flynordic, apart from the

occasional cries of delight in the media by the CEO. According to the company, flynordic is

the fastest growing Swedish operator and generated a 73% cabin factor during the first half of

2005. flynordic has also got a steady cash book to lean upon in the owner Finnair, which

purchased the company in 2003.

FlyMe looks to be in a very vulnerable position. With a cash burn rate of around SEK10mn a

month during the first six months of the year, and with only SEK44mn of funds left at the end

of June, its survival is seemingly hanging onto a loose thread. The airline has already raised

new funds twice during 2004, but has since commencing its operation never managed to

report a profit. Since FlyMe is running out of money fast and most probably not able to raise

new funds, it is heading for bankruptcy. It is likely that this takes place before the end of this

year.}},
  author       = {{Magnusson, Christian}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Too many ducks in one pond - a study of the Swedish domestic airline industry and its prospects}},
  year         = {{2005}},
}