This is a very interesting and worthwhile discussion, a couple of key things spring to mind as I read:
- The decline in the number of airlines in the market (many factors driving this down including competition from loco airlines/impact of same and fuel prices etc.)
- The cost of fuel
- The recession and reduction in disposable income
It feels like the whole thing is going full circle with the reduction in the number of airlines in the market and the growth of a few loco's the fares they can chase are much higher, capacity is being matched much more closely to demand.
MOL's view was some time ago that we will have more consolidation and Europe will have 1 or 2 big (legacy) carriers, plus Ryanair and Easyjet.
Given this concept which when we see the level of consolidation in the US market post deregulation, what lies ahead for Europe considering scale and viability, we should expect the needle to move yet again to fewer airlines on the particular routes offering services that match demand and fares that give much better shareholder returns.
In terms of looking at the airlines in a spectrum from Full Service to Pure low cost, it is clear that in the extreme we have Ryanair, with easyJet certainly moving up the spectrum offering 'convenient airports' and pre assigned seats, and Ryanair staying true to its cost leader strategy.
As the pure loco's cannot get after the long haul business (or rather none have quite cracked this yet), the legacy carriers can use this to support filling seats on short haul (for interlining), hence often the legacy carrier can compete with say easyJet but not be solely reliant that point to point, moreover, this fact may in itself drive the legacy carriers to be over reliant on long haul routes and shy away from sort haul where loco's reign supreme. If looks like this in many cases, IB on the South American market, and interestingly airlines like LH reforming its own short haul outside of its main hub and transferring services to Germanwings, Iberia transferring some services to Vueling and IBexpress.
As someone has said earlier about airlines like BA , LH and to a lesser extent AF all retreating to their main hub airports, it would seem that many legacy carriers are focussing on routes/markets that the loco's cannot adequately penetrate, it seems that for the mean time these markets will be the domain of the legacy carriers while other accessible markets will become loco... the question is as the airlines attempt to differentiate from the competition will we simply see more hybrids of locs/legacy ...i.e a continual evolution up this spectrum?
That would be my take on the situation...