Is the loco bubble bursting?
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Is the loco bubble bursting?
Low cost flights in the UK started with Luton-Dublin (Ryanair) and Luton-Glasgow (easyJet). Both major trunk routes, both serviced at least three times a day from start-up.
Predictable destinations followed, including city-break and business destinations like Barcelona, Milan, Paris, Rome etc. Again, normally served once or twice a day at least.
Then Ryanair tweaked the model and started flying from Stansted (which it considers to be London) to more remote airports, but serving major cities - Oslo Torp, Stockholm Skavsta and Frankfurt Hahn for example. In the meantime new entrants to the loco market concentrated on leisure destinations, from both the UK as well as Germany, Holland, etc, serving the likes of Malaga, Alicante, Palma. These routes could be sustained from regional airports too, giving daily international scheduled services to airports such as EMA, Bristol, Liverpool, Leeds as well as airports across Northern Europe.
Competition hotted up more, and Ryanair tweaked the model again, this time offering services from "London" Stansted to smaller European cities/towns, apparently on the basis that airport fees were low. Places such as Biarritz, Klagenfurt, Esbjerg joined the departure boards. But still served at least daily.
Now we're seeing another Ryanair tweak - reducing flights to 3 or 4 a week, allowing more marginal routes to be introduced. Who would have expected EMA-Wroclaw or Dinard using a 189 seat aircraft a few years ago?
At the same time, new entrants have been searching for bases from which there is no competition, rather than those with a big catchment area. Look at Coventry, Bournemoth, Exeter, and Blackpool in this respect.
All of which leads me to wonder whether the loco boom is running out of steam. Most aircraft used by the locos are in the 150-180 seat capacity. Huge numbers are on order. Will there be enough punters to fill all these seats? Quite a few routes have been dropped or reduced in recent months - how many more marginal routes can be safely opened?
Over to you - debating points welcomed.
Predictable destinations followed, including city-break and business destinations like Barcelona, Milan, Paris, Rome etc. Again, normally served once or twice a day at least.
Then Ryanair tweaked the model and started flying from Stansted (which it considers to be London) to more remote airports, but serving major cities - Oslo Torp, Stockholm Skavsta and Frankfurt Hahn for example. In the meantime new entrants to the loco market concentrated on leisure destinations, from both the UK as well as Germany, Holland, etc, serving the likes of Malaga, Alicante, Palma. These routes could be sustained from regional airports too, giving daily international scheduled services to airports such as EMA, Bristol, Liverpool, Leeds as well as airports across Northern Europe.
Competition hotted up more, and Ryanair tweaked the model again, this time offering services from "London" Stansted to smaller European cities/towns, apparently on the basis that airport fees were low. Places such as Biarritz, Klagenfurt, Esbjerg joined the departure boards. But still served at least daily.
Now we're seeing another Ryanair tweak - reducing flights to 3 or 4 a week, allowing more marginal routes to be introduced. Who would have expected EMA-Wroclaw or Dinard using a 189 seat aircraft a few years ago?
At the same time, new entrants have been searching for bases from which there is no competition, rather than those with a big catchment area. Look at Coventry, Bournemoth, Exeter, and Blackpool in this respect.
All of which leads me to wonder whether the loco boom is running out of steam. Most aircraft used by the locos are in the 150-180 seat capacity. Huge numbers are on order. Will there be enough punters to fill all these seats? Quite a few routes have been dropped or reduced in recent months - how many more marginal routes can be safely opened?
Over to you - debating points welcomed.
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Coventry Airport is 15 miles (Or less!) from Birmingham airport - I'd say that's competition.
And the catchment itself is reasonable - Coventry is over 300,000 with a conurbation approaching 500,000 - and it's also close to the wealthy Warwickshire towns of Warwick/Leamington/Stratford. And South/East Brum & Solihull are a short distance away. Places like Northampton and Rugby are close by as well.
Quite a large catchment, and formidable competition.
And the catchment itself is reasonable - Coventry is over 300,000 with a conurbation approaching 500,000 - and it's also close to the wealthy Warwickshire towns of Warwick/Leamington/Stratford. And South/East Brum & Solihull are a short distance away. Places like Northampton and Rugby are close by as well.
Quite a large catchment, and formidable competition.
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Of course the loco bubble will run out of steam. There can only be so much growth in a market place.
Economic Bubbles don't tend to run out of steam though, they tend to go pop.
So who will go pop?
Economic Bubbles don't tend to run out of steam though, they tend to go pop.
So who will go pop?
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Don't want to make this another Stansted vs Luton debate, but you are wrong where you discuss Stansted. Stansted is designed to be an airport for London and it serves this purpose well. Luton has extra catchment area such as Luton itself, Milton Keynes, Beford and several more. Stansted does have local traffic from Cambridge, but other than that its main catchment is London for those that dont want to pay the prices at either Heathrow or City.
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According to a recent CAA survey the future growth of air travel will depend mainly on the wealthier sections of society taking more trips.
It found that over half the passengers on budget airlines came from the richest 25% of society with passengers using Stansted having an average annual income of £51,000. These people are taking an ever increasing number of short break holidays on budget airlines with three or four-day foreign holidays being by far the fastest-growing sector of the air travel market. One in six travellers from Stansted was visiting a second home abroad.
In contrast the poorest 25% of the population took only 10% of flights on budget airlines last year.
The CAA report stated, “As affluence increases, so does the willingness to spend money on foreign holidays.”
On this evidence there still seems some way to go in the low cost airline market in the UK, although future growth might be more uneven with airports serving wealthier catchments doing better in the low cost stakes.
It found that over half the passengers on budget airlines came from the richest 25% of society with passengers using Stansted having an average annual income of £51,000. These people are taking an ever increasing number of short break holidays on budget airlines with three or four-day foreign holidays being by far the fastest-growing sector of the air travel market. One in six travellers from Stansted was visiting a second home abroad.
In contrast the poorest 25% of the population took only 10% of flights on budget airlines last year.
The CAA report stated, “As affluence increases, so does the willingness to spend money on foreign holidays.”
On this evidence there still seems some way to go in the low cost airline market in the UK, although future growth might be more uneven with airports serving wealthier catchments doing better in the low cost stakes.
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A saturated market would spell the end of some traditional established carriers before low cost airlines.
Ryanair has a huge cash reserve, as does easyJet and they are unlikely to be hit first.
If a traditional airline goes bust, Alitalia for example which is on very fragile grounds at the moment, then a massive market would open up in Italy to exploit further.
In Europe the introduction of new member states is also increasing the market place for low costs to exploit - look at Wizz and how well they have done.
Tweaking of a business model doesn't mean the bubble is bursting, more that they're evolving to serve the market best. This shows that they can adapt to different market situations meaning they are more likely to survive.
Look at Aer Lingus....they had to change their business model dramitically following 9/11 to survive.
MoL has said in the future the UK will only have 2, maybe 3 low cost airlines. They will be Ryanair and easyJet and perhaps FlyBe who serve more niche routes and dont compete directly. Jet2 and bmiBaby will either die or be eaten up by the other 2.
Ryanair has a huge cash reserve, as does easyJet and they are unlikely to be hit first.
If a traditional airline goes bust, Alitalia for example which is on very fragile grounds at the moment, then a massive market would open up in Italy to exploit further.
In Europe the introduction of new member states is also increasing the market place for low costs to exploit - look at Wizz and how well they have done.
Tweaking of a business model doesn't mean the bubble is bursting, more that they're evolving to serve the market best. This shows that they can adapt to different market situations meaning they are more likely to survive.
Look at Aer Lingus....they had to change their business model dramitically following 9/11 to survive.
MoL has said in the future the UK will only have 2, maybe 3 low cost airlines. They will be Ryanair and easyJet and perhaps FlyBe who serve more niche routes and dont compete directly. Jet2 and bmiBaby will either die or be eaten up by the other 2.
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Aren't Ryanair experiencing an aircraft shortage (Boeing strike) forcing them to reduce frequencies?
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dont expect the baby to disappear anytime soon or in the future!
the reason baby are successfull is because we dont start routes willy nilly anymore like other airlines, yes okay ryanair and easyjet have the money to do this, but its important to maintain the routes you've got and build your reputation on that
for baby the routes that we fly and the a/c we operate 300/500 it satisfies the demand, and if an opening arises for a new route or venture then it will be done.Dont just think that because nothing is happening that things are not rosy!
baby will be about, hence the reason we keep getting voted best low cost airline for the past few years!
the reason baby are successfull is because we dont start routes willy nilly anymore like other airlines, yes okay ryanair and easyjet have the money to do this, but its important to maintain the routes you've got and build your reputation on that
for baby the routes that we fly and the a/c we operate 300/500 it satisfies the demand, and if an opening arises for a new route or venture then it will be done.Dont just think that because nothing is happening that things are not rosy!
baby will be about, hence the reason we keep getting voted best low cost airline for the past few years!
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The number of low-cost airlines in Europe is being projected to come down as experts feel the sector is set for consolidation, drawing an analogy with the US sector. - (12/21/2005)
“With more than 50 players, the European low-cost airline sector is set for a shake-up that will clip the wings of all but a few. Analysts say the experience of the United States, where most low-cost airlines have failed, suggests that Europe cannot continue to support the slew of operators currently taking off from its runways,” reports marketwatch.com.
Referring to low-cost carriers in Europe, David Stewart, head of the European office and co-founder of aviation consultancy AeroStrategy, termed the present count as “unsustainable”.
“That total changes from week to week, as some carriers go belly up, while low interest rates, a glut of second-hand airplanes and the success of the market leaders continue to entice new entrants into the market. Stewart, meanwhile, believes only three or four big low-cost carriers will still be flying in a few years,” added the report.
The report counted Ryanair Holdings PLC, easyJet and Air Berlin among the top three players. In the latest financial year for which traffic figures were available, Ryanair carried 27.6 million passengers, easyJet 24.3 million and Air Berlin 13.8 million, it said.
The report added: In recent years, these three have eroded the turf of Europe’s three largest legacy carriers, Air France-KLM, British Airways Plc, Germany’s Deutsche Lufthansa forcing them to shift their focus to their medium and long-haul operations. In addition to these three, the survivors may include some of the low-cost subsidiaries of traditional airlines, such as BMI's BMI Baby.
“Most of the smaller carriers who are not supported by a rich parent are really skating on thin ice,” Doug McVitie of consultancy Arran Aerospace, reportedly said.
The strength of the balance sheet will largely determine which players, if any, keep flying, Stewart reportedly said. The report added: “But some niche players may come out on top. London-registered Wizz Air, for example, is seeking success by developing a niche in its own special airspace over Hungary and Poland. But even that can be tricky, says McVitie, who warns that Ryanair and easyJet’s competitors must remain small and fly low under the radar if they’re to survive.”
It shared that low-cost airlines represent 40% of traffic at London airports against only 12% in Paris and 20% in Frankfurt. EasyJet and Ryanair have a mere 7% of intra-European flights at Paris Charles de Gaulle, Orly and Beauvais combined.
“With more than 50 players, the European low-cost airline sector is set for a shake-up that will clip the wings of all but a few. Analysts say the experience of the United States, where most low-cost airlines have failed, suggests that Europe cannot continue to support the slew of operators currently taking off from its runways,” reports marketwatch.com.
Referring to low-cost carriers in Europe, David Stewart, head of the European office and co-founder of aviation consultancy AeroStrategy, termed the present count as “unsustainable”.
“That total changes from week to week, as some carriers go belly up, while low interest rates, a glut of second-hand airplanes and the success of the market leaders continue to entice new entrants into the market. Stewart, meanwhile, believes only three or four big low-cost carriers will still be flying in a few years,” added the report.
The report counted Ryanair Holdings PLC, easyJet and Air Berlin among the top three players. In the latest financial year for which traffic figures were available, Ryanair carried 27.6 million passengers, easyJet 24.3 million and Air Berlin 13.8 million, it said.
The report added: In recent years, these three have eroded the turf of Europe’s three largest legacy carriers, Air France-KLM, British Airways Plc, Germany’s Deutsche Lufthansa forcing them to shift their focus to their medium and long-haul operations. In addition to these three, the survivors may include some of the low-cost subsidiaries of traditional airlines, such as BMI's BMI Baby.
“Most of the smaller carriers who are not supported by a rich parent are really skating on thin ice,” Doug McVitie of consultancy Arran Aerospace, reportedly said.
The strength of the balance sheet will largely determine which players, if any, keep flying, Stewart reportedly said. The report added: “But some niche players may come out on top. London-registered Wizz Air, for example, is seeking success by developing a niche in its own special airspace over Hungary and Poland. But even that can be tricky, says McVitie, who warns that Ryanair and easyJet’s competitors must remain small and fly low under the radar if they’re to survive.”
It shared that low-cost airlines represent 40% of traffic at London airports against only 12% in Paris and 20% in Frankfurt. EasyJet and Ryanair have a mere 7% of intra-European flights at Paris Charles de Gaulle, Orly and Beauvais combined.
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IMHO even the big ones aren´t safe.
Many rely on sale and lease back schemes that look very good on paper, but requires a constant supply of fresh airframes and new routes/bases.
There still are many ´uncharted LoCost waters´ in Europe which theoretically could provide room for expansion, but most of those countries do not have a level playing field and keep moving the goalposts in order to keep EZY, FR and AB out.
EZY´s situation in Paris ORY is a perfect example. The French government is not giving EZY any slots, and thus (indirectly) protects Air France.
In Spain, EZY never got much of a foot in the door, while Vueling is slowly spreading it´s wings.
Eastern Europe is being conquered by Wizz Air (an airline that many on this forum thought would be bankrupt within a year) and SkyEurope, both airlines that enjoy very low salary costs.
Many rely on sale and lease back schemes that look very good on paper, but requires a constant supply of fresh airframes and new routes/bases.
There still are many ´uncharted LoCost waters´ in Europe which theoretically could provide room for expansion, but most of those countries do not have a level playing field and keep moving the goalposts in order to keep EZY, FR and AB out.
EZY´s situation in Paris ORY is a perfect example. The French government is not giving EZY any slots, and thus (indirectly) protects Air France.
In Spain, EZY never got much of a foot in the door, while Vueling is slowly spreading it´s wings.
Eastern Europe is being conquered by Wizz Air (an airline that many on this forum thought would be bankrupt within a year) and SkyEurope, both airlines that enjoy very low salary costs.
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It will be very hard to stop Easy and Ryanair. Well backed, well financed. The other locos will have to work hard. Flybe and Baby serve slightly different markets but both have experience. Jet2 isn’t in the same class, i.e., under funded, 20 year old equipment and currently heading off on a very high risk tangent with the equally old albeit venerable 757 fleet. As I have stated before, two new -700’s equal the entire value of the Jet2 Fleet!
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You have to consider overall operating costs per sector, as opposed to age or value of fleet.
What Ryanair are doing is no 'sale and leaseback' - its straight purchase, but underwritten on longterm sale back to Boeing.
Their frame costs will only fluctuate with interest rates, which should be fairly stable for the forseeable future.
If you look at FR's network, they dont fly sectors any longer than 3 hrs (Apart from Tenerife i think, and they struggle for crews to fly that!), so that gives you an idea as to what their available market / coverage is within Europe.
What Ryanair are doing is no 'sale and leaseback' - its straight purchase, but underwritten on longterm sale back to Boeing.
Their frame costs will only fluctuate with interest rates, which should be fairly stable for the forseeable future.
If you look at FR's network, they dont fly sectors any longer than 3 hrs (Apart from Tenerife i think, and they struggle for crews to fly that!), so that gives you an idea as to what their available market / coverage is within Europe.
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Ryanair doesn't serve Tenerfie! Did you mean Jet2? That is a very risky route to operate for a low cost airline. If the flight is delayed they'll have crew problems and all sorts. Also, introducing a 757 into a fleet of 737s doesn't fit the low cost model - 1 fleet type for the pilots make operational costs cheaper.
My bet on bmiBaby is that they'll be screwed over by BMI's management and their fares will be incorporated into BMI like Air Canada did to Tango and Zip.
My bet on bmiBaby is that they'll be screwed over by BMI's management and their fares will be incorporated into BMI like Air Canada did to Tango and Zip.
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Jet2 underfunded? I am not saying that Jet2 is anywhere near the same league as Ryanair or easyjet but in the six months to September 30, group pre-tax profit trebled from £6.2m to £18.2m.
Meanwhile for 2004 BMI only reported a pre-tax profit of £2.1m! For the same year dartgroup reported a pre-tax profit of £8.5m, not bad going for a 'new inexperienced' airliner.
I will await the Jet2 bashing!
Meanwhile for 2004 BMI only reported a pre-tax profit of £2.1m! For the same year dartgroup reported a pre-tax profit of £8.5m, not bad going for a 'new inexperienced' airliner.
I will await the Jet2 bashing!
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No bashing from me - ive seen a lot of the planning behind the airline, and its very impressive.
Lotta people get stuck in the rut of thinking if you arent irish or Orange, then the airline will fail, but theres still a lot of tweaking to the low cost model that needs to be done.
And, often the best place to be in a new market is not number 1, but number 2. You let the leader make all the mistakes, and you learn all the lessons.
Lotta people get stuck in the rut of thinking if you arent irish or Orange, then the airline will fail, but theres still a lot of tweaking to the low cost model that needs to be done.
And, often the best place to be in a new market is not number 1, but number 2. You let the leader make all the mistakes, and you learn all the lessons.