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. “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 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 meals and drinks. Airplanes 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 attracting low-cost carriers to boost growth. Ryanair will concentrate less on increasing traffic and more on extracting larger amounts of money from each passenger.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 travelers. 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.
Perhaps the most dramatic example of changes in the market is Air Berlin, 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 program. 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.
Traditional airlines will have to get used to such changes. The European sky used to offer a 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.
adapted from The Economist
