With traffic expected to slow, low-cost air carriers are getting fancy
Jan 27th 2011 | from the print edition
SINCE taking off in the mid-1990s, Europe’s budget airlines have soared to account for a third of all air travel in the region. But their growth is slowing. Having introduced holidaymakers to once obscure places like Tallinn and Sharm el-Sheikh, the low-cost carriers are left with few new places to explore. National airlines such as British Airways and Lufthansa have tried to defend their business by offering stripped-down service and cheaper fares on more short-haul routes. “The low-cost carrier market used to be about fast growth and uncomplicated strategies,” says Keith McMullan, of Aviation Economics, a consultancy. “Now it is about slow growth and complicated strategies.”
The model for all the new outfits was Southwest Airlines, the original American budget carrier. Low-cost airlines held down maintenance costs by using just one kind of aircraft, bought in large numbers with bulk discounts. They charged for, or did away with, frills like meals and drinks. Aeroplanes flew back and forth along a single route, often between quiet, out-of-the-way airports, rather than using busy hubs. As a result the airlines could turn planes around in less than half an hour. Almost from the beginning, bookings took place online. Such savings were passed on to customers.
Ryanair, the market leader (see chart), exemplifies how the industry is changing. Its passenger growth is expected to slow from 14% in 2009-10 to 6% by 2013 and just 4% thereafter. Ryanair is still committed to cheap fares and secondary airports where landing charges are low or non-existent. But it plans to drop ultra-low fares on new routes and may move some flights to primary airports, which are wooing low-cost carriers to boost flagging growth. Ryanair has already moved into one in Barcelona. In future it will concentrate less on increasing traffic and more on extracting larger amounts of money from each passenger.
EasyJet certainly needs a new direction. It has struggled in recent years as cost-cutting ate into reliability (Ryanair, by contrast, has a good reputation for punctuality and keeping passengers together with their luggage). On January 20th easyJet’s shares fell by 16% after a trading statement forecast losses of £160m ($254m) or so in the six months to the end of March. The listed airline has sparred with its founder and biggest shareholder, Sir Stelios Haji-Ioannou, who thinks it has been buying too many aircraft and is losing too much money in winter.Its main rival is going further. EasyJet already offers greater frequency on its routes and makes more use of primary airports such as London Gatwick and Paris Charles de Gaulle. It is also targeting cost-conscious business travellers. The firm recently smartened up cabin service. Passengers can opt for priority boarding either by paying extra for their ticket (as with Ryanair) or by joining easyJet’s loyalty scheme. There is an exception: easyJet’s German operation aims at the sun-seeker market.
Perhaps the most dramatic example of changes in the market is Air Berlin, which has swallowed several smaller carriers to emerge as Germany’s second airline and the third-biggest budget carrier in Europe. Air Berlin now arranges its timetables to encourage transfers at its Berlin Tegel, Düsseldorf and Palma hubs, like a traditional network carrier. It also has a frequent-flyer programme. Through its Niki associate in Austria, the airline even offers a direct flight from Berlin to Dubai three times a week. It is discussing a co-operation deal with Emirates, so that passengers from the Gulf carrier can connect in Vienna to fly to other European cities. Air Berlin is also joining the oneworld alliance based around British Airways and American Airlines.
Like Air Berlin, Norwegian, the fourth-largest budget carrier, is spreading its wings by offering longer flights to the Middle East and north Africa—encroaching further into traditional airlines’ territory. They will have to get used to such incursions. The European sky used to offer a stark choice between full-service and budget airlines. It is increasingly crowded with options of all shapes, sizes and costs. Take your pick, and hope your luggage arrives.
Source: Economist (http://www.economist.com/node/18010533?story_id=18010533)
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