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BOOM OR BUST?The future of thelow-cost airlines
in EuropeDr Nigel Dennis
Senior Research FellowTransport Studies GroupUniversity of Westminster
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TRAFFIC OF LOW-COST AIRLINES2002
Airline Passengers* (million)
Ryanair 14.5
easyJet 8.8go 6.0
Virgin Express 2.4
buzz 1.8#* on scheduled flights# estimateSource: IATA, CAA, Virgin Express (some figures provisional)
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DIFFERENCE IN COST LEVELS
British Midland 7.4p per seat km easyJet 4.5p per seat km
Ryanair 2.8p per seat km This enables low fares to be offered
Source: Calculated from CAA/IATA Statistics 2001Costs are in sterling
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REVENUES AND COSTS PER PASSENGER
British Midland 108/110 (lf 65%) easyJet 49/43 (lf 81%)
Ryanair 37/28 (lf 74%)
Source: Calculated from CAA/IATA Statistics 2001Average length of haul: bmi 965 km, easyJet 830 km, Ryanair 718 kmCosts are in sterling
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FAST TURN-AROUND TIMESBENEFIT PRODUCTIVITY
all timings with jet aircraft: 737 (STN/LHR), Avro RJ (LCY/LGW)
Blocktime
Turn-around
Output per14 hour day
Stansted-Hahn 1:15 30 min 8 sectors
London City-Frankfurt 1:30 30 min 7 sectors
Heathrow-Frankfurt 1:35 45 min 6 sectors
Gatwick-Frankfurt 1:50 45 min 5 sectors
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INCENTIVES TO RYANAIR AT CHARLEROI For 1 million passengers on 12 routes
Ryanair pays Charleroi Airport2m Euros airport charges and handling fees
Ryanair receives from Charleroi Airport1.9m Euros new route incentives2m Euros marketing support1.5m Euros staff and infrastructure support
NET COST TO AIRPORT3.4m Euros
Source: Aviation Strategy, July/August 2001, P3
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GROWTH OF LOW-COST AIRLINES IN THE UK MARKET1998-2001 (13 million extra low-cost passengers in 2001)
New generation(5 million passengers )
Growth diverted fromtraditional scheduled airlines*(7 million passengers)
Growth diverted fromcharter airlines*(1 million passengers)
* compared to expected growth rates
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PASSENGERS COME FROM FURTHER AFIELD When Stansted had only traditional
airline service it effectively actedas a regional airport for people inEast London and East Anglia
Now it taps into the much largertraffic base south and west of London
Many people drive past Heathrow oror Gatwick to obtain a cheaper flight
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PASSENGERS COME FROM FURTHER AFIELDSample of Ryanair Passengers at Charleroi - Residential Location
Region Proportion of traffic
Brussels Area 25%
N Belgium 19%S Belgium 18%
Netherlands 17%Luxembourg 8%
France 7%
Germany 6%
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CATCHMENT AREAS CAN CONTRACT AGAIN
Liverpool
East Midlands
Luton
Liverpool
East Midlands
Luton
Leeds/Bradford
Birmingham
Catchment area forEast Midlands - Barcelona serviceSpring 2002 (bmibaby)
Catchment area forEast Midlands - Barcelona serviceSpring 2003 (bmibaby and easyJet)
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LOW-COST CARRIER TRAFFIC BETWEENLONDON AND NORTH WEST ITALY
Thousand Passengers
1999 2000 2001 2002
Bergamo - - - 186Brescia - 85 189 189Genoa 70 130 154 150Milan Linate - 148 230 124Milan Malpensa - 202 23 -Turin 122 179 190 144
TOTAL 192 744 786 793
Source: Compiled from CAA Statistics
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LOW-COST CARRIER TRAFFIC BETWEENLONDON AND SOUTH WEST FRANCE
Thousand Passengers
1999 2000 2001 2002 2003
Bergerac - - - 49Biarritz 43 87 110 116Bordeaux - 56 105 94 *Carcassone 90 109 122 119
Marseille - 57 91 81 *Montpellier - 6 2 84Nimes - 44 156 154Pau - - - - +Perpignan - 56 98 109Rodez - - - - +Toulon - - - 54 *Toulouse - 9 5 39 *
TOTAL 133 424 689 899
* routes discontinued by Ryanair + new Ryanair routesSource: Compiled from CAA Statistics
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SERVICE CAN GO DOWN AS WELL AS UP
Source: OAG
London-Salzburg London-Turin
Summer 1998 Summer 1998
1xLGW (Lauda) CRJ 2xLGW (Alitalia) ARJ
1xLCY (Azzura) ARJ
Summer 1999 Summer 1999
No service 2xSTN (Alitalia) 146
2xSTN (Ryanair) 73S
Summer 2003 Summer 2003
2xSTN (Ryanair) 738 1xSTN (Ryanair) 738
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CHALLENGES IN MARKET STIMULATION London is an easy market compared to other European cities
- large traffic volumes to anywhere- tourist destination as well as generator of outbound traffic- limited competition from surface modes- suitable secondary airport available (Stansted)
Paris meets the first two criteria but not the second two
Other bases are more patchy- low-cost route networks dominated by leisure services
to former charter destinations- difficult to stimulate traffic e.g. bmi baby drops
East Midlands-Brussels and returns it to bmi regional
Without hub flow, locations such as Frankfurt or Amsterdamhave limited traffic potential
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SOUTHWEST AIRLINESExample of linkages via Baltimore
Providencedep
Baltimorearr
Baltimoredep Destination
0700 0820 0855 Phoenix
0900 Norfolk
0910 Columbus0920 Buffalo
0920 Nashville
0925 Raleigh
0950 Jacksonville
1010 Albuquerque
1020 West Palm Beach
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THE GREATEST SAVINGS HAVE BEENFOR BUSINESS PASSENGERS
London-Frankfurt/Hahn booking MON 11 JUN, 2000
* requires return at 2325 hoursfares are the cheapest available for return travel and include taxes
OUT TUE 19 JUNBACK WED 20 JUN
OUT TUE 19 JUNBACK TUE 26 JUN
Ryanair 205.20 Ryanair* 35.20
Lufthansa/bmi 500.30 Ryanair 65.20
Lufthansa/bmi 74.30
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2002 - THE EMPIRE STRIKES BACK!Day Return Trip (Fixed Reservations): London - Edinburgh ()
Fares for travel on Wed 1st May, Wed 8th May and Wed 29th May 2002Fares include all taxes and charges but assume debit card payment and e-ticket
Airline -Airport 1 DayAhead 1 WeekAhead 1 MonthAhead
BA - LHR 104-234 64-234 64-119
bmi - LHR 63-74 63-139 63-104
Scot - LCY 238-344 238-344 238-344
BA - LGW 68-163 88-173 63-83
easyJet - LGW 105 75-80 35-55
easyJet - LTN 105-205 75 40-65
go - STN 98-118 98 98Ryanair - STN/PIK 39-69 23-41 23-28
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CAN THE COST ADVANTAGES BE MAINTAINED? RAPID STAFF TURNOVER AND PILOT SHORTAGES
(eg Virgin Express)
WITHDRAWAL OF OLD AIRCRAFT AND INVESTMENTIN NEW LARGER EQUIPMENT (eg Ryanair)
INCENTIVES ON AIRPORT CHARGES UNWINDOR DECLARED ILLEGAL (eg Ryanair)
'FRILLS' CREEP BACK IN AN ATTEMPT TOIMPROVE YIELDS (eg Debonair, go, easyJet?)
MAJORS RENEGOTIATE LABOUR CONTRACTS ANDREDUCE DISTRIBUTION COSTS
ADVANTAGES OF HIGH SEATING DENSITY, HIGHUTILISATION AND LOWER OVERHEADS REMAIN
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LONG-HAUL LOW-COST AIRLINES
Less scope to increase utilisation Difficult to match the marginal cost
of economy class seats in a mixedconfiguration aircraft of major carriers
Hub feed is crucial for long-hauloperations; there are few dense routes
Some former charter airlines operatelow frequency serviceseg LTU (Dusseldorf-Orlando)
Martinair (Amsterdam-Barbados)
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FUTURE FOR LOW-COST AIRLINES
20% of market in domestic US Within Europe only currently 12%
(but 35% in UK and Ireland)
Some convergence of costs likelybut cheap purchases of new aircraft
More competition between low-costairlines
Consolidation and elimination ofweaker players
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US LOW-COST CARRIERSTHE SUCCESSSTORY
FAILED ORTAKEN OVER
Southwest Airlines PeoplexpressStarted June 1971 Western Pacific262 Boeing 737s New York Air
24,000 employees Morris Air45 million annual pax JetTrain
Air SouthPan Am (Mk II)Reno AirContinental liteetc etc!
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FINANCIAL SUCCESSRyanair ***
easyJet * (go *)Virgin Express ?
(buzz ?) bmibaby ?Air Berlin ? MyTravelLite ?
Color Air ceased operationsDebonair ceased operationsAB Airlines ceased operations
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BOOM OR BUST?The future of thelow-cost airlines
in EuropeDr Nigel Dennis
Senior Research FellowTransport Studies GroupUniversity of Westminster