Will the Low Cost Bubble burst?

[jason_beall]

I think not. However, I would imagine EasyJet relies heavily on business users and we are in a recession. Once the recession ends, the companies will be fat and rich again and business users won't want to put up with the lack of seat assignments and lack of food. With that said, Easy Jet will continue to grow and prosper.

I commute every other week on EasyJet from up north to Luton as my partner lives down south. We are both fed up with the stress, late flights, and hassles of EasyJet. We have started flying BA, and as we book our flights 3 months in advance, it is in some instances cheaper than EasyJet!

Don't get me wrong however, I am a huge fan of EasyJet and will continue to use them when the price and route is most appropriate for my travel needs.

-J

[gofer]

Twaddle

Fact No.1 - Airlines fly because there are customers who are willing to pay.

Fact No.2 - The customer market is segmentable

Fact No.3 - Some segments are served (& well served) by the discounter bucket airline

Fact No.4 - There is probably a lot more money in the long haul, business type markets - even if they are under severe pressure at present

Fact No.5 - Business users need flexibility - that a discounter does not provide.

Fact No.6 - If you can't book and change on a complex multileg set of tickets - you can't work.

I often have as many as 5 or 6 nested multileg tickets open at any one time - all totally flexible and bought at the best going rate for flexible tickets ! - and yes I know I'm not a totally typical - but still a fairly typical - far east traveller.

Get real guys when Easy and Ryan handle connecting flights properly - then a lot more people will use them. Hub and spoke will however continue to connect most airports around the world as point-to-point will jam the airways, and many routes don't have the traffic to justify them - example Macau - Leeds or Shenzen - Liverpool !

[brabazon]

Gofer

Don't hold your breath for the LCCs to get into connecting flights - it's the complete opposit of their low-cost point-point model.

Fact: if you want a multi-sector itinerary and have the cash don't book with the LCCs - you only set yourself up to be potentially disappointed. Ryanair actively discourage people from using them to connect, but people still do and then could either miss a connection or lose bags.

Each individual for a given travel plan may have a number of airline/route options, if the LCCs are one option then the risk of going with them has to be weighed against the possible saving.

For some itineraries the full-service network carriers still win, it's on certain point-point markets that they are losing out to the LCCs.

[PAXboy]

I go with the view that the bubble itself will not burst but the players will change.

Low Cost as a concept is here to stay, no doubt about that. The expansion potential in western Europe is very high. One of the main limiting factors at present is the way ATC is run by the politicians.

However, the LCCs will merge, take each other over and some will want to become 'big boys' and play with the big toys. We have no longstanding example of long haul LCC. South West operates within a single country and that simplifies their admin 100%.

GO is gone and others will follow, that is the way commerce operates - whether it is supermarkets or airlines!

[flypastpastfast]

This is a very interesting question, which weighs heavily on the minds of investors. It is not black and white, there is a great deal of crossover. You cannot for example state that someone who flies easy would never fly BA, and vice versa. Consider this, If I wanted to arrive at Stansted, I would fly the most convenient route, no matter what the airline. And so it is with most passengers.

As regards gradual convergence on fares, this has already happened, with airline such as BA or EI regularly showing fares cheaper than budget carriers. Perhaps airlines like BA will always (on a route comparison) have some seats that are much more expensive than say easyjet, but that is due to the fact that some BA customers do not even blink at any price (however high) provided it assures them of good service with a fully flexible ticket. All of the airlines including the likes of easyjet know this, for example, some travellers will happily pay more for the convenience of through ticketing and a business lounge. That is reality.

As regards the original question, like I said there will be convergence. For example, I know people personally who thought easyjet was the best way to get to London, until they got a cheaper price with BA recently, and all they did was rave about how much more civilised it was etc.... Now they would check prices with easyjet and BA (and other carriers), whereas in the past they believed what they were told (that BA is expensive and easyjet cheap)- they now know this is no longer the case.

The final point about investors is this, the money rushes in when their is good growth (everyone wants a slice of the pie), but already Ryanair are warning of a reduced rate of growth, and then it all comes down to credibility for investors - who will give sustained long term growth?

The other factor which may drive convergence is the pax themselves. Many who used people like ryanair were the kind of people who would in the past, only ever fly on holiday, and use the train or bus/car on domestic UK journeys. As these people become more accustomed to flying they will become more demanding, and like one person said before, the budget carriers would end up competing on service raher than cost.

I reckon all of this has already started.

[Desk Driver]

All this talk of Grand expansion makes me wonder..

When the economy start to improve and airlines start to hire again. How will the LCC's hold on to staff, especially flight deck?

They can't increase pay as this will effect their core business model and could mean a jump in fares? with the Full service carriers able to offer more (Not as much as in the past though) could the LCC's see a lot of departures and could they cope?

I wonder how southwest did it in the late 80's through the 90's

[Nothrills]

Long haul LCA - precedent?

Probably the first case of long haul LCA: AirLibExpress (www.airlibexpress.com) offers flights from Paris to Guadeloupe and Martinique for Euro 99 o/w. Do they offer full service? Is this only the beginning? In the long run, is this going to be confined to colonies?

[HZ123]

Laker - Skytrain

It is interesting that contributers have already mentioned the feasability of Long Haul travel by low cost. Within this forum there is an item on 767 low cost. Those of you that are old enough can well remember the Freddy Laker saga and USA offered for £99.
It seems that with the eventual derestriction of route control that chances will be there for the low cost long haul operator. This will once again make it more difficult for the established carriers to survive. Some might argue that low cost is manifest going south in the likes of Emirates and Quatar airlines that offer some of the most competitive fares.
Clearly the low cost bubble will reach saturation as a previous contributor has mentioned as the customer base may get fed up of a good thing?

[Desk Driver]

I don't think any Low Cost long haul will work. Unless it's a Low Cost business class model such as Blue Fox.

Don't forget First & Business subsidise economy. If you don't beleive me check out your local travel agent. I'm looking at fares in the region of £120 for London - New York - London, Full service, Direct Flights, Principle Airport to Principle airport.

Even though the Dark Arts of Yield Control take effect and these will rise to about £400 before departure, No low cost will compete with that.

In the good old days of Laker there was not so much competition as there is today and lets face it flying is not the adventure it was 20 years ago, it's now ordinary everyday and the £99 fare to NYC is not as big of a surprise it once was..

Low Cost should definately stay below 3 hours.

[Wee Weasley Welshman]

JetBlue offer some pretty leggy routes stetching to just over 5hrs. They seem successful.

WWW

[Desk Driver]

Granted but it's not their mainstay. EZY offer ATH at nearly 4 hours, I wonder if that route is as "Low Cost" as others & if it actually makes any money.

[707]

If this is true about the low cost airline starting, where will it be based what aircraft will it use and what is the prices like at the rough amount. Thank you.

[Desk Driver]

The proposed transatlantic LCC startup are calling themselves Sky-Bus International Airline using 2 x 763's on daily services from Luton - Sanford - Portsmouth.

I can't quite ascertain whether it's a UK or US based airline but I think it's US (the money is for sure)

[707]

Thank you desk driver that infomation was very good. But the only query i have left unanswered is why go to portsmouth when there must be places up north where they could probably make a lot more money. Thanks again

[jumpseater]

At 2000m length the runway at LTN might make fuel tech stops a requirement in the Boston area, I think this was frequently the case with BAL and MON when the jetstream was the 'wrong ' kind of jetstream, that'll do wonders for the bottom line if thats the case!

[Desk Driver]

707

They've chosen Portsmouth so you can link up with Jetblue flights.
They are proposing flying direct to SFB and then back up the east coast to Portsmouth.

I can't see it myself, maybe the other way round, but, passengers these days want to fly direct as possible and as stated before the established carriers can offer this at reasonable rates.

I know someone who phoned them yesterday and all they got was a answerphone??

BTW both LTN & SFB have not been approached for slots or gates and to my knowledge no Ground Handelers either.

My conclusion.....It ain't gonna happen!

[Desk Driver]

Perhaps now is the time to ask again....

"Will the bubble burst?"

The following has being borrowed from the businessGuardian.com

Guardian: budget boom too good to be true?

Following Ryanair’s £4m purchase of rival low-cost carrier buzz earlier this week, today’s Guardian examines the successes and failures to date in the budget aviation sector.
The paper reports how, courtesy of carriers such as easyJet, a weekend break from Liverpool to Alicante on Spain’s Costa Blanca can be quicker and less costly than London on the train, commenting that the situation seems too good to be true. ‘…and maybe it is. The cracks are beginning to show in the budget aviation world’.
The paper goes on to say that KLM finally lost patience with its budget offspring buzz after three years of multimillion-pound losses and ‘threw in the towel’, selling it to Ryanair for a ‘humiliating’ £4m.
WestLB Panmure analyst, Gert Zonneveld, told the Guardian that buzz was not the only operator finding the going tough. ‘It sounds very easy to say, ‘let’s start up a low-cost airline and make lots of money’. But in reality it’s not easy, and it takes quite a few years – if you’re lucky,’ he said.
Europe and the UK in particular have seen a boom in low-cost services recently. Budget airlines in the UK now account for 41% and 32% of seats on domestic and European flights respectively, with MyTravelLite, bmibaby and Jet2 setting up in the past year. Germany’s Köln-Bonn Airport, meanwhile, is getting ready for a showdown between TUI’s Hapag-Lloyd Express and Lufthansa offshoot Germanwings.
Few of the budget carriers have released financial details of their operations, but according to Zonneveld: ‘With the exception of easyJet and Ryanair, I would suspect that most of them are losing money.’
And, as the Guardian points out, there have already been casualties in the sector. Luton-Milan (Parma) carrier Ciao Fly lasted just six weeks in summer 2002, while Swedish budget airline Goodjet, launched in April last year, was declared bankrupt two weeks ago.
Ryanair, meanwhile, continues to repel competition, today raising its FY guidance to €235m (£155m). However, MyTravelLite managing director, ex-Ryanair man Tim Jeans, believes there is still room for smaller rivals.
‘Ultimately, it looks as if you will get two larger players in the industry. On the face of it, Ryanair will certainly be one of them,’ he told the Guardian. ‘The jury is still out on whether the other one will be easyJet.’
‘It is tough out there and are yields low? Is the competition white hot? Absolutely it is. What we’re looking to do is establish a niche and do it well. The bigger the big players get, the more opportunities they will leave behind,’ Jeans added.
MyTravelLite expects to lose £5m in its first full year of operations, but has already met internal targets, selling nearly 300,000 tickets since August 2002.
The competition is set to increase next week when Dart Group-owned Jet2 launches from Leeds/Bradford, to be followed by Planet Air from the same airport. Scotland will also benefit from the budget boom if Egyptian entrepreneur, Dhia Al-Ani, is able to get Air Scotland off the ground, while Flyglobespan.com starts services from Glasgow and Edinburgh in April.