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Growth momentum

The European aviation industry is recording positive overall growth, but there is still room for cautious optimism. Keith Mwanalushi looks inside the low cost and regional airline scene.

The European airline industry is undergoing some significant changes, arguably the sort of changes not seen since the days of deregulation in the 1980s and 90s.

Uncertainties over the UK’s exit from the European Union and the impact that will have on aviation is certainly a key issue presently. Consolidation in the European market and how the low cost long haul model will impact the future of global competition are also other factors coming into play.

Since taking off in the early 2000s, LCCs have grown to represent 46% (within the EEA) of scheduled seats on flights within Europe in 2018 according to data from aviation consultancy firm ICF Aviation. More impressively, the first and third largest airlines within Europe – Ryanair and easyJet, respectively – are both LCCs and operate over one quarter of all seats. Contrast this with the three main European airline groups, Lufthansa Group, Air France-KLM and IAG, which operate a third of intra-European seats, according to ICF.

Carlos Ozores, Principal at ICF Aviation, feels in taking such a large share, LCCs have also forced the incumbent full-service carriers to streamline their product, blurring the lines between full-service and low fare, and, critically, driving a commoditisation of short haul travel, a strategy that plays into the LCC’s hand, as price become the central purchase-driver.

“However, the LCC market is unlikely to remain as it is for long, as there are significant changes underway,” he says. „

Ozores explains that there are three key trends impacting on European LCCs that will play out in the coming years: consolidation and weeding out of unprofitable players; upward pressure on operating costs; and evolution of their business model.

In terms of consolidation, the first LCC victim was Air Berlin – “It [Air Berlin] never had a clear business strategy and failed to achieve true low cost production, rendering it unable to compete either with true LCCs or full-service carriers.”

Most recently, as Ozores notes, Norwegian has been the subject of takeover talks by IAG as the airline is coping with very heavy loses.

The intra-European market remains highly fragmented, with the top six airline groups controlling about 60% of the market, in contrast to the domestic US market, where the top six airlines control 90% of capacity, according to ICF.
“It would be reasonable to expect a combination of rising costs and depressed fares to lead to more airline failures and or consolidation in the near to mid-term, including tie-ups between full service and low cost carriers,” Ozores predicts.

On the cost side, he feels LCCs will face increasing cost pressures, especially with creeping fuel prices. Another area of concern Ozores mentions relates to labour costs. Ryanair has, once again, been grabbing the media’s attention, this time over strikes related to crew demands for improved pay and work conditions.


“The end result will most certainly be higher pilot and flight attendant costs for Europe’s largest airline. It is unlikely, however, that the issue of crew costs will end there. Pilot availability is a serious issue for the industry, and other European airlines may seek to lure pilots from competitors, as occurred with Norwegian last year, placing further upward pressure on costs,” he says. >>


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