Boom or bust The future.pdf

7/31/2019 Boom or bust The future.pdf

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BOOM OR BUST?The future of thelow-cost airlines

in EuropeDr Nigel Dennis

Senior Research FellowTransport Studies GroupUniversity of Westminster

[email protected]


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TRAFFIC OF LOW-COST AIRLINES2002

Airline Passengers* (million)

Ryanair 14.5

easyJet 8.8go 6.0

Virgin Express 2.4

buzz 1.8#* on scheduled flights# estimateSource: IATA, CAA, Virgin Express (some figures provisional)


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DIFFERENCE IN COST LEVELS

British Midland 7.4p per seat km easyJet 4.5p per seat km

Ryanair 2.8p per seat km This enables low fares to be offered

Source: Calculated from CAA/IATA Statistics 2001Costs are in sterling


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REVENUES AND COSTS PER PASSENGER

British Midland 108/110 (lf 65%) easyJet 49/43 (lf 81%)

Ryanair 37/28 (lf 74%)

Source: Calculated from CAA/IATA Statistics 2001Average length of haul: bmi 965 km, easyJet 830 km, Ryanair 718 kmCosts are in sterling


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FAST TURN-AROUND TIMESBENEFIT PRODUCTIVITY

all timings with jet aircraft: 737 (STN/LHR), Avro RJ (LCY/LGW)

Blocktime

Turn-around

Output per14 hour day

Stansted-Hahn 1:15 30 min 8 sectors

London City-Frankfurt 1:30 30 min 7 sectors

Heathrow-Frankfurt 1:35 45 min 6 sectors

Gatwick-Frankfurt 1:50 45 min 5 sectors


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INCENTIVES TO RYANAIR AT CHARLEROI For 1 million passengers on 12 routes

Ryanair pays Charleroi Airport2m Euros airport charges and handling fees

Ryanair receives from Charleroi Airport1.9m Euros new route incentives2m Euros marketing support1.5m Euros staff and infrastructure support

NET COST TO AIRPORT3.4m Euros

Source: Aviation Strategy, July/August 2001, P3


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GROWTH OF LOW-COST AIRLINES IN THE UK MARKET1998-2001 (13 million extra low-cost passengers in 2001)

New generation(5 million passengers )

Growth diverted fromtraditional scheduled airlines*(7 million passengers)

Growth diverted fromcharter airlines*(1 million passengers)

* compared to expected growth rates


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PASSENGERS COME FROM FURTHER AFIELD When Stansted had only traditional

airline service it effectively actedas a regional airport for people inEast London and East Anglia

Now it taps into the much largertraffic base south and west of London

Many people drive past Heathrow oror Gatwick to obtain a cheaper flight


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PASSENGERS COME FROM FURTHER AFIELDSample of Ryanair Passengers at Charleroi - Residential Location

Region Proportion of traffic

Brussels Area 25%

N Belgium 19%S Belgium 18%

Netherlands 17%Luxembourg 8%

France 7%

Germany 6%


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CATCHMENT AREAS CAN CONTRACT AGAIN

Liverpool

East Midlands

Luton

Liverpool

East Midlands

Luton

Leeds/Bradford

Birmingham

Catchment area forEast Midlands - Barcelona serviceSpring 2002 (bmibaby)

Catchment area forEast Midlands - Barcelona serviceSpring 2003 (bmibaby and easyJet)


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LOW-COST CARRIER TRAFFIC BETWEENLONDON AND NORTH WEST ITALY

Thousand Passengers

1999 2000 2001 2002

Bergamo - - - 186Brescia - 85 189 189Genoa 70 130 154 150Milan Linate - 148 230 124Milan Malpensa - 202 23 -Turin 122 179 190 144

TOTAL 192 744 786 793

Source: Compiled from CAA Statistics


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LOW-COST CARRIER TRAFFIC BETWEENLONDON AND SOUTH WEST FRANCE

Thousand Passengers

1999 2000 2001 2002 2003

Bergerac - - - 49Biarritz 43 87 110 116Bordeaux - 56 105 94 *Carcassone 90 109 122 119

Marseille - 57 91 81 *Montpellier - 6 2 84Nimes - 44 156 154Pau - - - - +Perpignan - 56 98 109Rodez - - - - +Toulon - - - 54 *Toulouse - 9 5 39 *

TOTAL 133 424 689 899

* routes discontinued by Ryanair + new Ryanair routesSource: Compiled from CAA Statistics


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SERVICE CAN GO DOWN AS WELL AS UP

Source: OAG

London-Salzburg London-Turin

Summer 1998 Summer 1998

1xLGW (Lauda) CRJ 2xLGW (Alitalia) ARJ

1xLCY (Azzura) ARJ


No service 2xSTN (Alitalia) 146

2xSTN (Ryanair) 73S


2xSTN (Ryanair) 738 1xSTN (Ryanair) 738


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CHALLENGES IN MARKET STIMULATION London is an easy market compared to other European cities

- large traffic volumes to anywhere- tourist destination as well as generator of outbound traffic- limited competition from surface modes- suitable secondary airport available (Stansted)

Paris meets the first two criteria but not the second two

Other bases are more patchy- low-cost route networks dominated by leisure services

to former charter destinations- difficult to stimulate traffic e.g. bmi baby drops

East Midlands-Brussels and returns it to bmi regional

Without hub flow, locations such as Frankfurt or Amsterdamhave limited traffic potential


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SOUTHWEST AIRLINESExample of linkages via Baltimore

Providencedep

Baltimorearr

Baltimoredep Destination

0700 0820 0855 Phoenix

0900 Norfolk

0910 Columbus0920 Buffalo

0920 Nashville

0925 Raleigh

0950 Jacksonville

1010 Albuquerque

1020 West Palm Beach


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THE GREATEST SAVINGS HAVE BEENFOR BUSINESS PASSENGERS

London-Frankfurt/Hahn booking MON 11 JUN, 2000

* requires return at 2325 hoursfares are the cheapest available for return travel and include taxes

OUT TUE 19 JUNBACK WED 20 JUN

OUT TUE 19 JUNBACK TUE 26 JUN

Ryanair 205.20 Ryanair* 35.20

Lufthansa/bmi 500.30 Ryanair 65.20

Lufthansa/bmi 74.30


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2002 - THE EMPIRE STRIKES BACK!Day Return Trip (Fixed Reservations): London - Edinburgh ()

Fares for travel on Wed 1st May, Wed 8th May and Wed 29th May 2002Fares include all taxes and charges but assume debit card payment and e-ticket

Airline -Airport 1 DayAhead 1 WeekAhead 1 MonthAhead

BA - LHR 104-234 64-234 64-119

bmi - LHR 63-74 63-139 63-104

Scot - LCY 238-344 238-344 238-344

BA - LGW 68-163 88-173 63-83

easyJet - LGW 105 75-80 35-55

easyJet - LTN 105-205 75 40-65

go - STN 98-118 98 98Ryanair - STN/PIK 39-69 23-41 23-28


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CAN THE COST ADVANTAGES BE MAINTAINED? RAPID STAFF TURNOVER AND PILOT SHORTAGES

(eg Virgin Express)

WITHDRAWAL OF OLD AIRCRAFT AND INVESTMENTIN NEW LARGER EQUIPMENT (eg Ryanair)

INCENTIVES ON AIRPORT CHARGES UNWINDOR DECLARED ILLEGAL (eg Ryanair)

'FRILLS' CREEP BACK IN AN ATTEMPT TOIMPROVE YIELDS (eg Debonair, go, easyJet?)

MAJORS RENEGOTIATE LABOUR CONTRACTS ANDREDUCE DISTRIBUTION COSTS

ADVANTAGES OF HIGH SEATING DENSITY, HIGHUTILISATION AND LOWER OVERHEADS REMAIN


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LONG-HAUL LOW-COST AIRLINES

Less scope to increase utilisation Difficult to match the marginal cost

of economy class seats in a mixedconfiguration aircraft of major carriers

Hub feed is crucial for long-hauloperations; there are few dense routes

Some former charter airlines operatelow frequency serviceseg LTU (Dusseldorf-Orlando)

Martinair (Amsterdam-Barbados)


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FUTURE FOR LOW-COST AIRLINES

20% of market in domestic US Within Europe only currently 12%

(but 35% in UK and Ireland)

Some convergence of costs likelybut cheap purchases of new aircraft

More competition between low-costairlines

Consolidation and elimination ofweaker players


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US LOW-COST CARRIERSTHE SUCCESSSTORY

FAILED ORTAKEN OVER

Southwest Airlines PeoplexpressStarted June 1971 Western Pacific262 Boeing 737s New York Air

24,000 employees Morris Air45 million annual pax JetTrain

Air SouthPan Am (Mk II)Reno AirContinental liteetc etc!


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FINANCIAL SUCCESSRyanair ***

easyJet * (go *)Virgin Express ?

(buzz ?) bmibaby ?Air Berlin ? MyTravelLite ?

Color Air ceased operationsDebonair ceased operationsAB Airlines ceased operations


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BOOM OR BUST?The future of thelow-cost airlines

in EuropeDr Nigel Dennis

Senior Research FellowTransport Studies GroupUniversity of Westminster

[email protected]

Documents

Boom or bust The future.pdf