View Poll Results: Will the Low Cost Bubble Burst?
No Never
97
54.19%
Eventually Yes it will
82
45.81%
Voters: 179. This poll is closed
Will the Low Cost Bubble burst?
Thread Starter
Join Date: Oct 2000
Location: near EGKK
Posts: 295
Likes: 0
Received 0 Likes
on
0 Posts
Will the Low Cost Bubble burst?
Imagine this!
In a few years time if things carry on at the rate they are most Short/Med haul airlines (Sched & Chart) are going to be some sort of low cost.
Q. How will they compete if they can't on price anymore.
a. Could it by offering free drinks then meals and then around we go again!
In a few years time if things carry on at the rate they are most Short/Med haul airlines (Sched & Chart) are going to be some sort of low cost.
Q. How will they compete if they can't on price anymore.
a. Could it by offering free drinks then meals and then around we go again!
Join Date: Feb 2000
Location: Ayrshire, Scotland
Posts: 474
Likes: 0
Received 0 Likes
on
0 Posts
They will continue to compete on costs.
There are only a very few true low cost carriers. Those limited low fares airlines such as easyJet and Fly.be will have to remain away from the low cost carriers or take them on by also becoming low cost.
I don't think there is any record of a biggish airline truly converting to low cost operations. Ryanair did it when it was a failure as a small traditional carrier. The only successful carriers in that mould have all started operations using the South West model in their own countries.
By the time Ryanair have expanded across Europe, N Africa and the Middle East nobody here will be in a position to care what happens next.
Just looking forward to lots of very affordable travel in the decade or two !!
There are only a very few true low cost carriers. Those limited low fares airlines such as easyJet and Fly.be will have to remain away from the low cost carriers or take them on by also becoming low cost.
I don't think there is any record of a biggish airline truly converting to low cost operations. Ryanair did it when it was a failure as a small traditional carrier. The only successful carriers in that mould have all started operations using the South West model in their own countries.
By the time Ryanair have expanded across Europe, N Africa and the Middle East nobody here will be in a position to care what happens next.
Just looking forward to lots of very affordable travel in the decade or two !!
Join Date: Feb 2001
Location: Nottingham, England
Posts: 208
Likes: 0
Received 0 Likes
on
0 Posts
I don't think the bubble will burst as cost is a major part of selling
a ticket, and low cost will always sell.
However, if airlines continue to swamp the market with new
startups there will inevitably be casualties - survival of the fittest!
ES
a ticket, and low cost will always sell.
However, if airlines continue to swamp the market with new
startups there will inevitably be casualties - survival of the fittest!
ES
Join Date: Sep 2002
Location: London
Posts: 26
Likes: 0
Received 0 Likes
on
0 Posts
Bubble?!
Are you lot daft.
easyJet is the biggest airline after BA in the country. Join them up with Ryanair and they carry similar amounts of pax in Europe.
During the last 12 months they have been the ONLY scheduled airlines in the UK to make money.
During the next 12 months they are the ONLY airlines with expansion plans to add significant number of new aircraft.
During the next 5 years they are the ONLY airlines that have some form of business plan that looks both viable and bold.
These airlines get in peoples faces and sell them a product they evidently wish to buy. Pax numbers up 40 odd % year on year. All those passengers aren't just trying a low cost airline and deciding whether they like it or not. The majority are REPEAT customers.
BA and BMI and their like are being beaten back to Heathrow and Gatwick and are plainly loosing the war badly in the regions. easyJet have Gatwick firmly in their sights already and nobody wants to use LHR due to the dissproportianate cost for short haul aircraft handling there.
This bubble is not going to burst.
Are you lot daft.
easyJet is the biggest airline after BA in the country. Join them up with Ryanair and they carry similar amounts of pax in Europe.
During the last 12 months they have been the ONLY scheduled airlines in the UK to make money.
During the next 12 months they are the ONLY airlines with expansion plans to add significant number of new aircraft.
During the next 5 years they are the ONLY airlines that have some form of business plan that looks both viable and bold.
These airlines get in peoples faces and sell them a product they evidently wish to buy. Pax numbers up 40 odd % year on year. All those passengers aren't just trying a low cost airline and deciding whether they like it or not. The majority are REPEAT customers.
BA and BMI and their like are being beaten back to Heathrow and Gatwick and are plainly loosing the war badly in the regions. easyJet have Gatwick firmly in their sights already and nobody wants to use LHR due to the dissproportianate cost for short haul aircraft handling there.
This bubble is not going to burst.
Join Date: Nov 2000
Posts: 115
Likes: 0
Received 0 Likes
on
0 Posts
Mr Evans, agree with most of your points but one possible problem for Easyjet in the future?
All this expansion at a time when interest rates are low. Although there are surplus a/c at cheaper rates around, presumably they are buying on credit. When the rates do eventually rise, this may have a big adverse effect on Easyjet.
All this expansion at a time when interest rates are low. Although there are surplus a/c at cheaper rates around, presumably they are buying on credit. When the rates do eventually rise, this may have a big adverse effect on Easyjet.
Join Date: Sep 2002
Location: London
Posts: 26
Likes: 0
Received 0 Likes
on
0 Posts
tango - airlines often don't own their own aircraft. They are often managed by lease companies or large finance houses. Any debt that EZY have as a result of buying aircraft could be structured in any number of ways. Just like every other airline.
Where EZY do have an advantage is:
1) Buying in a recession. Boeing and Airbus are twisting each others arms and giving each other chinese burns in their squabble to supply EZY. You can bet they get their aircraft at a VERY good price because they are buying when nobody else is.
2) EZY are bulk buying. An order of 100 a/c with a further 100 options is a large order. Discounts that only the likes of LH, BA and AF usually see are going to be on the table.
So we have bulk discounted aircraft sold in a buyers market.
In five years time those 737-700's will probably be worth MORE than they were bought for; such is the nature of this business and the business cycle. Fancy that - aircraft as an APPRECIATING balance sheet asset!
All the above pertains to Ryanair as well and possibly more so.
Ben.
Where EZY do have an advantage is:
1) Buying in a recession. Boeing and Airbus are twisting each others arms and giving each other chinese burns in their squabble to supply EZY. You can bet they get their aircraft at a VERY good price because they are buying when nobody else is.
2) EZY are bulk buying. An order of 100 a/c with a further 100 options is a large order. Discounts that only the likes of LH, BA and AF usually see are going to be on the table.
So we have bulk discounted aircraft sold in a buyers market.
In five years time those 737-700's will probably be worth MORE than they were bought for; such is the nature of this business and the business cycle. Fancy that - aircraft as an APPRECIATING balance sheet asset!
All the above pertains to Ryanair as well and possibly more so.
Ben.
Join Date: Nov 2000
Location: London,Bucharest...wherever...
Posts: 1,014
Likes: 0
Received 0 Likes
on
0 Posts
reducing costs, increasing loads and reducing yields can only have a finite base...
with the MSG 3 type maintenance programs adopted for the new generation aircraft, 737NG included, they are great until year 7 or 9 depending on your utilisation then they really kick in with additional environmental and fatigue related inspections (just like MSG 2 'AD' add ons CPCP and SSID/SIP)...therefore they will become a liability and temptation for the majors will be to release them back onto the market and bargain with Mr. Boeing for new ones...
this pattern has been seen with earlier MSG 2 types and is likely to occur again on MSG 3 aircraft...their value will drop at the time of first major expenditure...
however at this time the operator will no doubt have at least halved the aircraft on his books...
with the MSG 3 type maintenance programs adopted for the new generation aircraft, 737NG included, they are great until year 7 or 9 depending on your utilisation then they really kick in with additional environmental and fatigue related inspections (just like MSG 2 'AD' add ons CPCP and SSID/SIP)...therefore they will become a liability and temptation for the majors will be to release them back onto the market and bargain with Mr. Boeing for new ones...
this pattern has been seen with earlier MSG 2 types and is likely to occur again on MSG 3 aircraft...their value will drop at the time of first major expenditure...
however at this time the operator will no doubt have at least halved the aircraft on his books...
Last edited by Boss Raptor; 4th Oct 2002 at 17:00.
Join Date: Nov 2000
Location: London,Bucharest...wherever...
Posts: 1,014
Likes: 0
Received 0 Likes
on
0 Posts
I recall both Laker and Air Europe...leased almost everything, aircraft, equipment, property...as their yields dropped their cash reserves dropped lower and lower...come a sudden dip they had nothing to call upon in the bank and nothing to borrow against = collapse...also happened to a number of other carriers in recent years...
I expect this can eventually happen to any of the low cost carriers who are not building up an asset base...the cycle goes round...
I expect this can eventually happen to any of the low cost carriers who are not building up an asset base...the cycle goes round...
Last edited by Boss Raptor; 5th Oct 2002 at 08:37.
Join Date: Feb 2000
Location: Germany
Posts: 37
Likes: 0
Received 0 Likes
on
0 Posts
Here in Berlin/Germany yesterday there should have been the inaugural flight of a new airline "berlin jet" with a flight TOF-FRA for EUR 33.
This "low cost bubble burst", no aircraft came in (not the spanish one, not the austrian one as the anounced replacement).
The stranded pax did not look out very amused.
Another bad story which generates mistrust of low cost carriers to the public.
This "low cost bubble burst", no aircraft came in (not the spanish one, not the austrian one as the anounced replacement).
The stranded pax did not look out very amused.
Another bad story which generates mistrust of low cost carriers to the public.
Join Date: Jan 2000
Posts: 677
Likes: 0
Received 0 Likes
on
0 Posts
I don't think the failure of BerlinJet should be read as the bursting of the low cost bubble. Which joker thought up that name when they were going to operate an ATR42 and then a Beech 1900 - not a jet (in the sense that Joe Public would consider, in case some wiseguy says that they are TurboProps) and certainly not "low-cost" aircraft (in terms of cost per seat)
However, there are some fundamentals to be answered. Ryanair have managed to cut their costs year on year - most recently by doing 90+% of bookings through the web, thereby saving travel agency commissions, GDS fees, telesales salaries etc. Because of these cost cuts they have been able to reduce their average fare year on year, but how much more can those costs fall and when do they need to ramp up spending to cope with more aircraft, pilots, ops staff etc etc?
easyJet meanwhile have expanded by buying go, but are they gaining lower costs from this? Have they streamlined their total staff numbers or are they taking on most of go's costs.
However, there are some fundamentals to be answered. Ryanair have managed to cut their costs year on year - most recently by doing 90+% of bookings through the web, thereby saving travel agency commissions, GDS fees, telesales salaries etc. Because of these cost cuts they have been able to reduce their average fare year on year, but how much more can those costs fall and when do they need to ramp up spending to cope with more aircraft, pilots, ops staff etc etc?
easyJet meanwhile have expanded by buying go, but are they gaining lower costs from this? Have they streamlined their total staff numbers or are they taking on most of go's costs.
Join Date: Apr 2000
Location: UK
Posts: 244
Likes: 0
Received 0 Likes
on
0 Posts
I take the 'bubble burst' to be the idea that the present number of LCCs will eventually be wittled down to 2-3 strong players....perhaps easyjet and ryanair.
I don't take the bubble burst to be the absolute end of 'no-frills'....I think the public have had a taste of what it's like to fly to Rome for 30 quid....and they like it very much.
I don't take the bubble burst to be the absolute end of 'no-frills'....I think the public have had a taste of what it's like to fly to Rome for 30 quid....and they like it very much.
Join Date: Jan 2002
Location: China
Posts: 6
Likes: 0
Received 0 Likes
on
0 Posts
What bubble are we talking about anyway?
What about the stockmarket hype surrounding some of these airlines? Admittedly, easyJet and Ryanair offer a good return, as they are profitable, but is the huge market capitalization (compared with the likes of BA, Air France, etc.) sustainable in the long run?
My guess is that this is at least one part of the "low-cost bubble" that is bound to burst at one point...
JieFang.
My guess is that this is at least one part of the "low-cost bubble" that is bound to burst at one point...
JieFang.
Join Date: May 1999
Location: Vancouver, BC.
Posts: 748
Likes: 0
Received 0 Likes
on
0 Posts
Gate B40
The simple fact is, it has proved to be a sustainable and profitable business model, they generate business by offering the public what they want. easyJet and Ryanair have only scratched the surface with respect to the potential in Europe.
The simple fact is, it has proved to be a sustainable and profitable business model, they generate business by offering the public what they want. easyJet and Ryanair have only scratched the surface with respect to the potential in Europe.
Join Date: Mar 2000
Location: Belfast, N. Ireland
Posts: 55
Likes: 0
Received 0 Likes
on
0 Posts
Ben Evans : "the bubble will not burst"
Eh wake up and smell the coffee please Mr Evans.
Take one group of dedicated Al Qaeda/IRA type terrorists, add a fundmentalist suicide bomber who attacks an aircraft in Europe, and the seats will empty and there will be lots of empty and parked aircraft all over Europe.
Does my theory sound crazy ? Well just look at what has happened in Bali in the past 24 hours !
In 1968 Ulsterbus and its sister in Belfast used to operate 30 coaches and 5 hotels employed solely on inbound tourism into Northern Ireland - then the troubles started and by 1971 all 30 coaches had been sold and the hotels were closed ! Did that bubble burst ?
The economics of the airline business these days are subject to external factors - if George Bush keeps on beating his chest about war in Iraq, the transatlantic flights will empty as American companies tell their staff not to travel.
It may not be competition that bursts the bubble but something more deadly.
My condolences to all those innocent tourists who lost their lives in Bali.
Eh wake up and smell the coffee please Mr Evans.
Take one group of dedicated Al Qaeda/IRA type terrorists, add a fundmentalist suicide bomber who attacks an aircraft in Europe, and the seats will empty and there will be lots of empty and parked aircraft all over Europe.
Does my theory sound crazy ? Well just look at what has happened in Bali in the past 24 hours !
In 1968 Ulsterbus and its sister in Belfast used to operate 30 coaches and 5 hotels employed solely on inbound tourism into Northern Ireland - then the troubles started and by 1971 all 30 coaches had been sold and the hotels were closed ! Did that bubble burst ?
The economics of the airline business these days are subject to external factors - if George Bush keeps on beating his chest about war in Iraq, the transatlantic flights will empty as American companies tell their staff not to travel.
It may not be competition that bursts the bubble but something more deadly.
My condolences to all those innocent tourists who lost their lives in Bali.
Guest
Posts: n/a
Southwest Airlines remains the only airline in the US to continuously make a profit every year of its existence except the first one. They have now been around for over 30 years.
People want things to be as cheap as possible, as long as their personal safety is not compromised.
Also, there is absolutely nothing wrong with being a 'virtual' airline - what Boss Raptor obviously doesn't take into consideration is that airlines that have leased their aircraft can hand them back (with penalties) in a market downturn ... whilst those that own their aircraft will not be able to sell them and in any case will have to incurr huge book losses. Far better to have cash in the bank rather than tied up in assets!
Nor were Laker or Air Europe anything like the LCAs. Laker was a long haul operator that was not bankrupt when it was forced out of business by BA, Pan Am, TWA and BCal (only one of which is still around today); Air Europe was a cheap but full service airline which also suffered at the hands of the BA dirty tricks department.
People want things to be as cheap as possible, as long as their personal safety is not compromised.
Also, there is absolutely nothing wrong with being a 'virtual' airline - what Boss Raptor obviously doesn't take into consideration is that airlines that have leased their aircraft can hand them back (with penalties) in a market downturn ... whilst those that own their aircraft will not be able to sell them and in any case will have to incurr huge book losses. Far better to have cash in the bank rather than tied up in assets!
Nor were Laker or Air Europe anything like the LCAs. Laker was a long haul operator that was not bankrupt when it was forced out of business by BA, Pan Am, TWA and BCal (only one of which is still around today); Air Europe was a cheap but full service airline which also suffered at the hands of the BA dirty tricks department.