Low-cost airlines

No Flight of Fancy

NLD, Niederlande, Flughafen Amsterdam Schiphol, 05.06.2015: EasyJet Airline, Airbus A319-111 / Registrierung: G-EZIV NLD Netherlands Airport Amsterdam Schiphol 05 06 2015 Easyjet Airline Airbus A319 111 Registry G
EasyJet is taking off to another level of competition.
  • Why it matters

    Why it matters

    Many traditional airlines are having to rethink their strategies, especially on business travel, in face of stiff competition from low-cost carriers.

  • Facts

    Facts

    • EasyJet launced its first flight, between London and Glasgow, in November 1995.
    • According to a German aviation study, the number of discount flight routes in and from Germany increased to a record 754 this summer.
    • Lufthansa is trying to trim costs to meet the tougher competition, causing big problems with unhappy employees.
  • Audio

    Audio

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It’s something you never want to hear your pilot say: “I wasn’t sure if it would ever really take off,” recalled Fred Rivett, who piloted the first EasyJet flight from London to Glasgow in 1995.

Mr. Rivett spoke a few days ago at an event to celebrate the British budget airline’s 20th anniversary — and he wasn’t talking about the actual plane he flew that day, but about the airline itself.

Even a decade ago, budget carriers were thought of as exotic aviation newcomers. But today doubts about the survival of EasyJet — and discount aviation in general — have vanished. After Ryanair, EasyJet is the second-biggest low-cost carrier in Europe, and has just reported new record figures.

For German competitors, including traditional airlines such as Lufthansa and Air Berlin, EasyJet’s profits are anything but good news. The discount airlines have long been in competition with them, and not just for bargain-hunting customers.

With offers like seat reservations and priority boarding, EasyJet and Ryanair are courting business travelers with increasing success.

Nowadays the discounters are poaching the most profitable sector of traditional airlines. With offers like seat reservations and priority boarding, EasyJet and Ryanair are courting business travelers with increasing success.

The offers are not about to force immediate changes at big airlines, especially since the discount carriers still don’t have lounges or frequent-flyer programs. But for many self-employed people, or for employees of cost-conscious companies, budget airlines are increasingly an attractive alternative.

And they are turning the air travel industry on its head. While discount airlines are biting into the premium segment, price competition is forcing Lufthansa boss Carsten Spohr to act. He is trying to trim Germany’s biggest airline to meet the tougher competition — and strict cost management is causing big problems with employees.

But the low-cost carriers’ latest records show that Mr. Spohr has little alternative. Business clients also want to travel at reasonable prices. So traditional airlines are having an increasingly difficult time with their business class on short flights. And fewer business travelers are prepared to pay hefty extra charges for a little more comfort.

While the established airlines are shrinking, aggressively priced competitors are growing. Discount airlines are the only growth sector in Europe’s air-travel industry. According to a German aviation study, the number of discount flight routes in and from Germany increased to a record 754 this summer. The trend is only expected to accelerate.

For established airlines, which for decades subsidized short-haul flights with profits from more lucrative long-haul routes, there is only one bitter conclusion: They have to adapt or withdraw from some markets. That’s a drastic shift in the power structure. The one-time exotic newcomers are now increasingly dictating the rules. And many of the established, fat-cat airlines, which dominated the market for years, are in need of restructuring and looking for a new perspective.

How will the industry pan out in 20 years?

There are many indications that the aviation industry map will be fundamentally redrawn by that time. To some extent, it will depend on whether politicians clear the way for consolidation: Up to now, regulations have made major acquisitions impossible.

It is also impossible to say yet if the big airlines are capable of reforming from within. Current resistance from Lufthansa employees is certainly reason to doubt it.

But it is probably no longer a bold prediction to say there will be a radical transformation. The once-ridiculed newcomers have now become feared competitors and perhaps even potential partners.

EasyJet boss Carolyn McCall has no doubts about where her airline will be in 20 more years. “We will be one of two big airlines in Europe and immensely successful,” she predicted.

The fact that Ms. McCall only sees one other airline beside hers should be taken by Lufthansa boss Mr. Spohr as it was intended — an open challenge.

 

To contact the author: Herz@handelsblatt.com

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