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Economic troubles depress European airfreight

By Hpanchal on September 28, 2011

It is one of the ironies of the European currency union that if the European Union had applied its own rules about national economic debt back in 1999, Germany, one of the economic stabilizers in the current climate, would not have made the cut. The countries that went on to power the European economy initially lagged behind; it was the peripheral nations that roared ahead, throwing vast sums into building housing developments, business parks and roads.

As the world subsequently learned, these were roads to nowhere. The global financial crisis exposed massive holes in the public finances of the so-called “PIIGS” economies. Portugal, Ireland, Italy, Greece and Spain have terminated their lavish public expenditure programs, and consumers have slashed their personal spending. Jobless numbers mount. Further large-scale bailouts may soon be required.

Dombrowski

Politicians are talking about the crisis, but are not dealing with it, believes Nikolas Dombrowski, Geodis Wilson’s Hamburg-based airfreight director. EU auditors have worked to save the sinking economy by imposing unpopular reforms, but are losing patience with Greece for its failure to follow conditions laid down as part of its financial bailout last year. Dombrowski argues, however, that officials lack the tools to enforce sanctions on profligate member states.

“It’s difficult to encourage them to change their behavior. Sooner or later, Greece will default. The question is: Who is next? Could Portugal or Italy follow?” he asks. “We in Germany — and to a certain extent, the French — have got to fund the euro now, but we’re getting the most out of the common currency. More than 60 percent of Germany’s entire export volume goes to the EU, so we have to keep the door open to those markets.”

According to the financial analysis firm Markit, manufacturing activity in August across the members of the Eurozone shrank for the first time in two years. Translated into freight volumes, the International Transport Forum found a significant second-quarter slowdown.

Air trade volumes in the EU’s member states, which had grown in February to 15 percent above 2008, pre-recession levels, shrank back to just 9 percent above pre-crisis levels in June. The ITF also reports that trade by air between China and the EU is decreasing, with only India countering the downward trend.

IRELAND

Even historically successful Eurozone trading nations, such as Ireland, will have a hard time exporting their way out of trouble. Analysts believe the government will soon divest its remaining 25-percent stake in part-privatized Aer Lingus as part of a €5 billion sell-off of state assets.

The government has kept its stake predominantly to protect Aer Lingus from a hostile takeover by its Irish rival Ryanair, which owns almost 30 percent of the carrier. It is now thought that Ryanair would be unable to take majority ownership on monopoly grounds even if it wanted to, given that the EU blocked a proposed merger between Aegean and Olympic earlier this year.

After receiving an €85 billion bailout package from the International Monetary Fund and the EU in 2010, Ireland’s economy grew by 1.3 percent in the first quarter of 2011, prompting foreign minister Eamonn Gilmore to describe the stimulus as “the recovery story of the Eurozone.” Yet Irish manufacturing activity shrank for the third month in succession in August and economists predict that the country’s main UK, U.S. and European export markets could continue to slow into the second half of 2012.

After a “fantastic” first quarter, Ireland’s leading GSA, International Airline Marketing, saw a significant drop off in June and July. “But we’re still 6-percent ahead year on year, after growth of 4 to 5 percent in 2010,” says managing director Ian McCool.

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