Your Opinions on No-Frills Growth ...

[bmibaby.com]

I remember about a year ago on PPRUNe there was a poll & topic with regards to where people thought the no-frills airline portion of the airline industry was headed & whether the bubble had burst?

What I'm quite interested to see are people's general opinions of the no-frills sector at the moment.

Which airlines do you think are most likely to survive & which do you think will fade away?
Do you think the present growth rate will be sustained?
Do you think there will be many more start-ups, and if so where?
For employees of no-frills airlines, where do you think your airline is headed?

My opinion as a crewmember at bmibaby, is that the airline will continue with its partnership with Germanwings, and possibly increase this to sign some sort of partnership with the Snowflake brand from SAS. I think that the three airlines will eventually have similar route networks, possibly co-operating in local markets with regards to ground handling & local marketing. Like the Star Alliance do. I do see a strong future for baby, especially with our own AOC, but I believe this has to be with the co-operation from our Star Alliance counterparts.

[Lite]

I think that EasyJet & Ryanair are the obvious contenders as the carriers that are most likely to remain as the major no-frills operators in Europe.

Although, I doubt there will only be two carriers, as many of the airline executives believe there will be. In the USA, there are six major no-frills airlines; Southwest, AirTran, JetBlue, Fronteir, Spirit & ATA. I see no reason why there would only be two carriers, there is enough market, like in the USA, for there to be maybe four or five major no-frills airlines across Europe.

There will still be upstarts. There've been many failed upstarts in the more mature US no-frills airline industry, most notably PEOPLExpress, Vanguard Airlines, Air South & EastWind. We have already seen some no-frills airlines come & go, either through take-overs or financial failures such as Go, Buzz, Debonair & Color Air.

As a former MyTravel employee from East Midlands Airport, I believe that MyTravelLite is going to become a key part of MyTravel. The Lite section is performing most strongly on sectors down to Spain & Portugal and that the airline is not most strong on business routes - with the failures of BVA/BFS/AMS.
I hope that they're able to expand on these holiday routes both from BHX & possibly other MYT bases in the UK & perhaps Scandinavia.

[onehunga]

Speaking as a pax and interested observer I think they face some challenges in the next few years. Once the route networks have matured (there are only so many secondary or smaller less congested airports you can get to in order to do your 30 min turnaround) it will be interesting to see what the yields/load factors are on a like for like basis. My guess is that a lot of the so called growth is being hidden in the numbers with fleet expansions and new routes. Once you have a relatively fixed route network and a mature business then the challenge will be for them to improve overall profitability.

This will all need to be achieved in the face of any airport subsidies ending and the possibility of competition from other airlines and LCC's. The LCC's have been pretty smart so far at generating profits from other lines of business such as rental cars, advertising on their aircraft etc so perhaps they will transform their profit generators into other parts of the business? Be interesting to see how they fare.

[Avman]

Success on some routes can also depend on frequency and timings of services. MyTravel Lite probably failed with AMS because they only offered two flights per day both poorly timed (because of the company's need to obtain maximum aircraft utilisation) - which is why I for one never used them.

[unwiseowl]

SAS have stated their intention to ditch Snowflake.

[KAT TOO]

I think there is another 2-3 years of growth left in this sector and no doubt some will come and some will go the likes of Mytravellite &TUI at Coventry aren't really loco's but more of an hybrid.

Off the rest for sure Easy & Ryan will be around in 5 years time and baby have a good chance to really grow if they can get a foot in the South East market with Gatwick but any time soon they are going to have to order some more aircraft if they want get through the 5 million pax market. as for the rest of the loco's alot will depend on what Ryan & Easy do all the more so with Donny soon to open and this could have a big impact on both baby at Teeside & EMA & JET2 at LBA.

I think the next 5 years will see launch of locost to the USA out of either Donny or Stanstead

[MELmonkey]

Ryanair and easyJet will dominate. jet2, Baby, FlyBe and the like will go to the wall lacking as they do a unique selling proposition.

In Europe HLX and GermanWings and Volare might stand a chance as will AirEuropa and Air Berlin.

All the other continental low cost pretenders are whistling in the wind frankly.

Of all of them I give easyJet the best chances of making their business model work. There really is a sustainable all year market for a no frills reliable service between major airports.

Thomsponsfly? Sounds like a disease mate?!?

Monkey.

[Lite]

I think that flybe. might have some form of survival because their business model seems to be rather similar to AirTran in the USA. Both carriers are using smaller aircraft than the major no-frills operators, which means they can go into a number of markets where a 148-seat 737-300 would not be able to make money. AirTran have become the second largest operator at ATL, flybe. use a number of a major airports for their domestic operation which could be expanded to flying to more international cities also. Like AirTran also, the airline has stated their intention for larger aircraft to be able to serve the bigger markets.

flybe. has shown they are flexible, so I don't see them going down the tubes. Although I don't think carriers like Thomsonfly or MyTravelLite have much hope. It would be better for the major charter operator to simply introduce no-frills-type ticketing on the mainline product from regional airporrts

[colegate]

While I cannot speculate on who might or might not survive I can give you something to think about. The first is that more than 99.9% of all British airlines ever formed have failed. It will continue to be thus. The reason for that is that ALL airlines in the world fundamentally have the same cost structure. It may be high or low but the structure is the same. It is called a front end loaded marginal cost structure. Front end loaded because there have to be large committments to aircraft, crews, reservations systems, marketing, cost management etc before any revenue can be earned. Marginal because there are costs that are only incurred if the flight actually takes place. Things like fuel, landing fees etc. It is exactly the same sort of cost structure that applies in railways. It is always an unsound and risky cost structure.

All airlines are risky businesses. There are two many factors outside managemnet control for it to be otherwise. How an airline manages those risks is a crucial guide as to whether it will be successful. It is not a matter of opinion, it is a matter of fact. The biggest risk of all is excess capacity. If you have excess capacity it is almost impossible to control the price at which you can sell tickets. Too many seats and the price comes down. It can easily come down to the point at which the marginal round trip costs are not covered. That is always the start of the slippery slope.

One way to avoid excesss capacity is to use small but efficient aircraft. This is clearly part of the Easy Jet model. Another is to avoid head to head competition with another low fare airline on the same airport pair. It is much easier to compete with a high fare airline than with another low fare airline. In the school playground bullies do not bully each other.

In all industries that grow rapidly painful consolidation follows. This is like night following day and it applies everywhere. In the low fare airlines in Europe capacity has been growing far faster than the average long term growth in passengers. It is inevitable that saturation will be reached in many markets, probably quite soon. BFS is a good example of a market where saturation is approaching. BCN/UK might be another. VCE seems tempting to the airlines just now but for the life of me I do not know why so many people want to go to such a scruffy expensive place. But there are stlll many markets which could take more service. AGP in the summer is one. ATH is another. There are stlll no low fare services to SKG, for example. LBA is the second largest conurbation in Britain and the level of air service it has is pathetic. Does this mean that Jet 2 will be the subject of a takeover by someone wishing to dominate that market?

To try and make a judgement about who will fail, and failures or take-overs are inevitable, look for weaknesses. Typical examples of weaknesses are unfocused managements, perhaps trying to do too many disparate things. By contrast Ryanair is dominated by Dublin and STN. It dominates the Irish sea routes and no one else comes anywhere near them at STN. That is why GO was so vulnerable. Critical mass is always important in any significant business. As example of what I mean here is that Baby are starting LGW/PRG at the same time as BA and EZY. Why? What will they uniquely bring to the market in these circumstances?

Then look at aircraft operated. A320/319, 737 and 738 have unmatched low seat mile costs. Airlines having any of those types will always have the upper hand. Anything else is struggling. You cannot compete in a ruthless low fare market unless you can get up there with the very best on costs. That requires a huge front end investment of the kind that Easy and Ryan have made.

Alliances in the air transport industry have always been fragile. Ask yourself why the customer should care about them. if he/she wants to go from EMA to AGP he/she does not care what the airline is called. The best combination of fare and schedule is what matters. If the airline cannot meet that requirement profitably it is going to have a tough future.

There is a future for full service airlines and there is a future for low cost airlines and also for specialist holiday airlines(the old charter airlines), but to succeed each has to have management that is passionate about that sector and that sector alone. I cannot recall a case where a low cost airline owned by a full service airline has succeeded. But if there is one please let me know.

[LGS6753]

Colegate -

Excellent posting. Your analysis is spot-on.:ok:

[HOODED]

Here Here, an excellent post. Nice to see someone has spotted that Jet2s move into hell on t' hill will pay dividends even if it's a takeover by one of the big 2 LoCo's. Personnaly I hope not they're an excellent airline and long may they shine in the skys over Yorkshire. Oh and no I don't work for them, well not yet any way!:ok:

[Wee Weasley Welshman]

Colegate - I can think of one; Go Fly. Hugely popular, awarding winning low cost airline with tremendous growth and profitability.

As Rod said, somedays he wishes he'd sold BA and kept Go.

That is why Go was so vulnerable

I hate to quibble but Ryanair at STN had no effect on Go at all. We only competed on one route (Rome) and the marketing, product and customer were quite different.

Go was vulnerable after Bob Ayling was ousted because the Board of BA was scared that the Pilot and Cabin Crew unions in BA would take action when they saw Go Fly expand and - as they would phrase it - 'take their work'. BA was and is vulnerable to its unions and any hint of another Cabin Crew strike would have sent the share price tumbling at a time when the Index had already seen massive drops.

With cashflow starting to look tight and an air of crisis post Sept11th descending the management took to the bunker. A quick disposal of Go would take away a potential Union conflict and raise enough capital to replenish nearly all the staplers in Waterside.

Despite Stelios offering nearly £300m for it in the form of a few quid and lot of easyJet share options they sold it some bloke with three eyes for £110m which indeed was enough to do the staplers and also give the cappuccino bar in Waitrose a fresh lick of paint.

A year later the man with three eyes decided he's quite like a couple of hundred million quid himself and flogged it to Stelios who by this time was rolling around on a King-size bed of cash inside a house made of gold.

Meanwhile the passengers flocked to Go who literally couldn't find new aircraft fast enough and who were literally about to sign on the line for a fleet of new Airbus 318/319/321 with which they were going to take over Europe and slightly beyond.

Luckily for easyJet they were able to stop that, lock the brand in the broom cupboard, repaint all the aircraft and concentrate fully on their unique Orange culture - which, I believe, is some form of fruit yogurt popular with management.

Cheers


WWW

[egnxema]

Colegate

Brilliant post! To me this is what PPruNe is about! Inciteful, intelligent, interesting comments!


If only the "Route Wish List" kids had another forum to play "fantasy regional airport" in.

Thanks again Colegate

e:ok:

[simonwa]

Wee Weasley Welshman

Have you read Barbara Cassani's book on Go?? Fascinating read, OK it's told from her point of view, but shows the struggles and victories of Go from its conception to becoming orange.

The culture of Go was unlike ezy or the Fr's of this world - a breath of fresh air. No wonder the management didn't want to let it go!

[Redstripe]

Colgate,

The first is that more than 99.9% of all British airlines ever formed have failed.

You are saying that for each successful British airline, over one thousand other British airlines have started and failed. So if we decide that BA, Bmi, Britannia, Easyjet, Monarch, and Virgin (to name but a few) are successful airlines, then 6,000 other airlines have failed. While the list of failures may indeed be long, it is certainly not that long.

You have written an intelligent post, but damaged your creditability with a daft opening statement.

[Wee Weasley Welshman]

simonwa - I know, I worked there and talked to Babs many times.

Cheers

WWW

[Flightmapping]

"Ryanair and easyJet will dominate. jet2, Baby, FlyBe and the like will go to the wall lacking as they do a unique selling proposition."

Jet 2's usp - "we fly from Leeds, no-one else does". As said, a big catchment area (although not sure about 2nd largest connurbation - this is always open to boundary judgements. I'd always say London, then West Mids, Manchester & Merseyside could be seen as one, as could Scotland's Central belt - which has a massive propensity to fly c/f other parts of the UK).

Baby's usp? They certainly don't have a stronghold at any airports, but I need to go to Edinburgh next week, and they only want £129 for 2 tix - compared to BA wanting £600+. Is that enough of a usp for you?

Flybe - if over capacity / high fixed costs are the two biggest concerns, then using small planes has to be a pretty good way round. Surely the Q400 is way better than the 717 for cost/seat/mile. Why are there no 717's in the UK?

[Lite]

The Boeing 717 is an excellent aircraft, however it does not really fit in with the needs of many of the UK-based operators.

The type would have been a perfect replacement for for Fokker 100 over at bmi, and I believe they even looked at the aircraft around about 1999, but it makes more sense for bmi to look at the A318/A319 (which they have subsequently done) as bmi try to position themselves as an all-Airbus operator.

UK no-frills airlines prefer to fly larger aircraft in the 150/180-seat range, and as a result the 100/120 seat 717 is too small for their operations.

I do believe though that the tyoe could be an effective replacement for the BAe 146, as the aircraft have similar capacities, but the 717 offers a much better performance and is a more economic aircraft.

Just my $0.02

[Flightmapping]

Could the 717 get in & out of airports like LCY? How does it compare on noise?

[MEFLYBE]

i think a 120 seat 717 would be a perfect replacement for flybe's 146s.

regards

mike

[ALLMCC]

Interesting comments about the 717 - thought Flybe were looking at a/c in the circa 150 seat capacity - a moot question, do Flybe actually have any routes where 150 seat capacity might be needed? What are their busiest routes?

If the 717 was big enough, there are plenty available.

[Wee Weasley Welshman]

I don't think flying from Leeds is a usp. Having no slot constraints and plenty of room any other LCA could move in tomorrow and start a money bleeding competition...

Cheers

WWW

[MEFLYBE]

There are several Flybe routes that could benefit from a 120+ seater, although some markets are seasonal:

BHD-BHX
BHD-LGW

BHX-TLS
BHX-CDG
BHX-JER/GCI

JER-LGW

GCI-LGW

SOU-ALC
SOU-AGP
SOU-MJV
SOU-GVA

EXT-ALC
EXT-AGP
EXT-FAO

Regards

Mike

[Young Paul]

The thing about a 120 seat aircraft is that it needs as many crew as a 149 seat aircraft - but with fewer seats and thus (presumably) less revenue (as always, it's the yields that count - but the income potential ).

The next thing about the A320 family is scaleability - one crew can fly everything from (?) 110 seats A318 to 200 seats plus A321 - and if the airline is ever considering widebody stuff, a common type rating to bigger things as well.

Also there's the issue of maintenance - Airbus spares and engineering is all over the place; 717's are seen hardly anywhere.

IMHO, the 717 is a complete dead end - Boeing tried to adapt itself to the medium narrowbody market far too late to do anything about the fact that Airbus had already taken a stonking lead. Now had they produced the new Boeing 737 wing in 1985, it would have been a different story ......

[MerchantVenturer]

MEFLYBE

I am interested in your citing SOU-MJV as a route that would sustain a larger aircraft because the local Bristol press reported Flybe's decision not to proceed with the previously announced BRS-MJV link was because of poor loads on their route to MJV from SOU.

I didn't quite follow the relevance in the first place because poor loads from SOU would not necessarily mean poor loads from BRS.

It appears from your remarks implying that SOU-MJV is doing well that there was another reason for Flybe not following through with the BRS-MJV route.

[colegate]

Re Wee Wesaley Welshman's comments on Go. I fully accept that Go was vulnerable to its shareholders own pressures. That is why highly focused management and Shareholders are necessary. I just happen to think though that Ryanair would have been tempted to have a "Go" at some other of their routes from STN, just as they did with My Travel at BHX.

A problem that BA inevitably had with Go was that Go needed to operate services that competed directly with its parent. Bilbao. Bologna etc.

Actually there is a case in Europe of an airline that seems to be doing OK despite the fact that it is owned ny one of the big network carriers and that is Basiq. But there is no route duplication of any sort. Routes were transferred to Basiq from KL in some cases. But it hardly faces any direct competition, and it only serves resort destinations.

Re Redstripe's comments. Yes 99.9% is a bit dramatic but it got your attention. If you look at all the companies that have applied for licences since they were first allowed to do so back in the days of the Air Transport Advisory Council and then compare those with the number of companies now operating you will easily find that the ration of failures in excess of 90%.

Re Flightmapping's comments about LBA catchment area. I cannot remember the exact definition that was used but the CAA accepted in many route licence applications in the 1980's that LBA did have that status. It is all to do with populations living within a certain radius.

[Wee Weasley Welshman]

I doubt Ryan would ever have competed much with Go. We flew to Primary or Secondary airports whereas Ryan flies to Tertiary. Go was also rolling out a range of regional departure airports and was planning to implement a network that was somewhat more exotic than Ryanairs, e.g. Moscow, Budapest, Ankara

It would be wrong to think Go failed. Everyone that ever invested in it, used it or worked for it came away happy or richer.

If one assumes that Europe will over the next 5 years reach a low cost airline marketshare of 22% (half that of the USA) then there is still scope for both the Ryan and EZY fleets to more than double in size.

Not overoptimistic numbers in my opinion.

Cheers

WWW

[colegate]

WWW, your last posting could really take us into interesting territory. I do not know where you get your US statistic from because it is not one that I recognise. It also depends on which statistic that you use. In Europe the usual comparator is revenue pasenger kilometres(RPK's).

In the USA using that statistic produces a market share for the specialist low fare airlines, dominated by Southwest of less than 20%. I readily agree that a contributor to this is because there are virtually no long haul(e.g. coast to coast) operations by low cost airlines. The market in America continues to be completely dominated by the network carriers. In 2003 Southwest carried approx 65 million pax. Delta, a network carrier, alone carried over 100 million. Then you have got American, United, US Airways, Continental, Northwest, America West, Hawaiian.

But in a market of around 500 million pax there is no way that the low fare airlines had a market share in passenger terms of more than 20%.

In Europe the dominant airline product has got nothing to do with the big network carriers, BA, Air France and the like. The dominant market share is held by the holiday airlines. In 2002 they operated around 650 aircraft, mostly A320 size or larger. Before the low cost airlines started in Europe those holiday airlines operated around 70% of all RPK's in Europe.

That is what makes Europe completely different from the USA. All those holiday airlines are low cost. Many of therm have been around for a long while and are very professional. They are fighting to protect their business in some very interesting and diverse ways. A good example is Monarch, which I use regularly. They have high service standards( better than BA), big aircraft (A321), good schedules, excellent check-in arrangements, a superb website, which is nearly as good as the original Go site, and they have prices that are very competitive. What they have done is convert their original seat only business conducted through their Avro sister company into scheduled services. The loads that I have seen on their flights have been excellent. They are a very good example of a carrier that knows its niche and is exploiting it well.

I think that the next couple of years are going to prove very interesting as the low cost airlines try to deploy the capacity they have ordered, rejuvenated network carriers seek to protect their market shares, the holiday airlines adapt their products to meet changing demands and as consolidation inevitably develops throughout Europe.

On top of all that we have the environmentalists who are trying to stop the development of the whole industry. It looks to me to be as turbulent as it ever was when I was in it.

I am enjoying this debate.

[Chillwinston]

colegate - a refreshing change and very imformative.

I would like to add that I believe the low cost carriers will further their market share at the cost of traditional national carriers but with easyjet now proceeding with a court case against the french slot allocation agency and the ever present protectionism of certain countries how much further their share will rise remains to be seen.

The French seem to have omitted that the slots recently given out do not total the actual numbers that were used by Air Liberte and therefore Easyjet are trying through the courts to gain access to the said slots. I also believe that the French agency responsible for handing out the slots also tell you what routes you have to fly too, find this hard to believe but that is my understanding.

The european states have to become more transparant and I believe shares in national airlines have to be diluted to prevent protectionism and thus limiting not just the low cost carriers future prospects but aviation in europe in general.

Chillwinston

[MEFLYBE]

The reason Flybe did not start BRS-MJV was because they were not given the slots they requested. EXT-MJV was also pencilled in, but later changed to Faro because of the same reasons. When the new Murcia airport is up and running, I would ecpect to see a large increase in the number of flights to the UK, especially by Flybe.

Regards

Mike

[SNNEI]

Colgate,

Basiq has expanded now to a little more than resorts: Dublin, Stockholm, Oslo, Berlin, London Stansted were added from Rotterdam just recently ( in addition to their resort destinations of course)

Although some Amsterdam bound pax will be lured by the low fares, in reality much of this traffic is coming from Rotterdam, Den Haag and Delft. The fares are such that much of these passengers just would not have flown, even from Schiphol, if the low prices were not available. In that sense, it probably wont do much damage to KLM mainline in the first place.

I still wonder if the same can be said for their Schiphol based routes though...

[Tom the Tenor]

Basiq Air are doing a little curtailing of their destinations too. They are ceasing to serve AMS-Bordeaux and AMS-Marseille from 1st June. Now, I wonder where could they serve next!? ;)

[codpiece face]

I reall think that EZY have opted for airbus to give them more flexibility in future longhaul operations with either the 319 or the 332. The same could be said about JB in the US although they seem to be going down the road of smaller ac to open up marginal routes.

I know that this is not in the loco business model but you would think it was better to have the expense of changing equipment now whilst expansion and cash flow is still strong to allow you achieve growth in new markets when saturation occours.

I think it is very hard to compare euro loco ops with US loco ops because the cost structures in the expanding euroland are so different. Yes a 737 or 319 will be operated on comparable lease rates wherever they are operated but but labour costs ie flightcrew and maintenance are very different between say the UK, Germany and France to Poland, CR and Slovakia.

Once the financial institutions see good business coming out of the eastern euro countries I am sure they will be more than happy to throw money at them as they turn to a real growth area.

I think the next two or three years will be the most important in europe as the consolidations take place and the market really settles down

[Flightmapping]

One other major difference between the US & the UK is that the locos offer multi-stop (especially SWA) & connecting flights.

But there has to be one hell of a saving to want to cross the continent in 3 legs on a 737, compared to going direct on a 757 or larger.

M'O'L has always talked about wanting to make FR "like a bus", although there doesn't seem to be any move yet to offer multi-stop services.

The domestic market share in the UK (now something like 42%?) for no-frills airlines must be amongst the largest in the world?

This does pose legitimate environmental questions, possibly for another thread. IMHO, airlines can't have it both ways - "we are struggling right now, so don't tax us" and "passenger numbers are going to expand threefold in the next 30 years".

Personally, I think some of this growth can be constrained by an increased APD, or a more proportional tax on flights / fuel.

For example, I went to EDI for a meeting yesterday - in France this sort of journey could be done by TGV. Had I chosen to drive, I would have paid something like 80% duty on the fuel going up there.

Is it really right that there is no duty on air fuel? I think more tax would have been shelled out on the drive to EMA & airport parking than on the flight itself?