Volare suspends all flights due to insurance and debt problems.

Volare Plane.

Volare, the Italian low-fare airline, has ceased flights due to a financial crisis at the airline. Volare flew domestically between Italy's main cities including Rome, Milan, Naples and Bologna, and internationally to Barcelona, Madrid, Valencia, Paris, Prague, and Bucharest. Volare stated on its website "We regret to inform all passengers that starting from 19 November all our flights are cancelled and tickets are not on sale at the moment.”

Volare began life as a charter airline in 1998, entering the low-cost market only last year. Volare made a loss last year and new management arrived at Volare in March in an attempt to improve the situation and investors put EUR80 million (USD$104.3 million) into the company. Several reports this week state that an additional EUR60 million has been injected, although others state that the shareholders refused. What is certain is that the company has a severe debt situation; estimates range from EUR250 million to EUR300 million. It currently has 1,400 staff and operates 24 aircraft. The former CFO left to start rival Myair.com which will begin operations in December.

Italy's civil aviation authority called a meeting with Volare's directors for Monday at 1500 GMT and expressed its concern over the "economic-financial conditions of the airline” and Volare has said that its board is scheduled to meet on Tuesday. In a statement, civil aviation body ENAC indicated it would make sure passengers would be reimbursed for cancelled flights.

Unions which battled with the government in recent months for government assistance after 3,700 job cuts at Alitalia have demanded the state step in to prevent further carnage at Volare. "After months in which we sounded the alarm it's finally happened, today, Volare's aircraft are grounded. And nothing was done to prevent the situation from getting to this point," Francesco D'Arigo, who represents pilots Fit-Cisl union, told Italian news agency ANSA.

AFP reported that on Friday a Volare flight flying from Paris to Bologna was delayed for more than four hours after a bailiff attempted to issue a notice warning that the plane might be seized. The bailiff arrived at the airport with a document from the company that Volare leases its planes from before the plane was due to leave, the agency said. Following discussions between the bailiff and the plane's pilot, the flight was eventually cleared to take off. Other reports suggest that Volare is unable to continue flying as it no longer has any insurance.

Uncertain future for Europe’s budget airlines.

Volare’s troubles will be good news for both the still struggling national carrier Alitalia as well as Ryanair which continues to aggressively expand in Italy. "There are many companies which said they were already losing money when a barrel of oil cost $25," Ryanair’s CEO Michael O’Leary said last week. "Now a barrel costs $50. I have no doubts that there will be more losses, more bankruptcies."

Ryanair has yet to be affected by the oil prices causing shockwaves through the industry. Sticking rigidly to his low-cost model, using only secondary airports and continuing to run a dedicated Boeing fleet, O’Leary still has some margin to play with and has suggested that Ryanair could absorb up to $75/barrel prices before they too experience difficulties. Ryanair’s nemesis Easyjet on the other hand is more exposed to fluctuations in crude prices.

It’s not all doom and gloom in Europe however. Last week FlyBE, the born-again airline formerly known as British European, burst into the black with half-year profits of £14m. Easyjet reports to the city tomorrow and is expected to meet their forecasts and unveil profits of about £62m. After a summer marred by profit warnings - which substantially lowered those expectations – Easyjet cannot afford to slip up.

Yet size is appearing to matter in the budget airline market as various airlines are either folding or at the very least look rocky. O’Leary has repeatedly predicted a bloodbath whilst oil prices remain high and it appears he’s being proven right. German outfit V-Bird stopped operating three weeks ago, following others such as Duo, Now and Air Planet whilst Jet Green lasted just six days. Virgin Express and SN Brussels have responded to the competitive threat by getting into bed with one another. Danish operator Sterling has put itself up for sale. Wizz Air, run by former executives of Hungary's Malev airline, also runs high on the list of potential casualties. The European budget airline industry could be in for a very cold, chilly, winter.