Horus
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Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:33 am

There was an interesting article in the newpaper today about low cost carriers and how high fuel prices are effecting them.

The soaring cost of oil recently reached a peak of $42.3 and many aviation analyst are suggesting many carriers will fail as oil prices rise and overcapacity continues.

Airliner World's Richard Maslen confirmed that, 'The budget airline bubble looks about to burst'.


Here are some statistics about some European LCC

Airline: key route / number of planes / passengers per year / profit or loss / chance of survival

Ryanair:London to Dublin / 72 / 23m / +£152m / 95%

Easyjet:London to Nice / 84 / 21.8m / +£96m / 90%

FlyBE: Birmingham to Jersey / 31 / 4m / +£31m / 20%

BmiBaby: Nottingham to Alicante / 13 / 3m / -£9.8m / 40%

MyTravelLite: Birmingam to Knock / 2 / 1m / -£149.6m (incl MyTravel) /30%

Germanwings: London to Cologne / 5 / 2.4m / N/A /50%

Air Berlin: London to Berlin / 42 / 9.6m / N/A / 80%

Basiq Air:London to Rotterdam / 24 / 4.2m / +£15m / 50%

Wizz Air: London to Katowice / 6 / 3m / N/A / 60%

Volare: London to Cagliari / 8 / 3.5m / -£29m / 40%


It looks like a bleak future for airlines that previously had grown spectacularly back in 2001 and 2002, when the majors were failing.

EGYPT: A 7,000 Year Old Civilisation
 
Pe@rson
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:44 am

Interesting, especially FlyBE being given a 20% chance - half that given to BMIBaby.

I do hope Volare doesn't fold, as I'm due to fly aboard the carrier (FCO-VCE) in August.
"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
 
ltbewr
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:49 am

It is obious that a significant number of the LLC in Europe are going to fail - just like all the LLC's that were established in the 1980's in the US failed by the late 1980's or became swallowed up by majors. (Southwest started in the 1970's) Europe's airline deregulation occured about 18-20 years after ours in the USA did and is now going through a shakedown like we did back in the 1980's. Even those Euro LLC's whom are in good shape and of fairly large size now may face the problem all airlines are having - the conflict of low enough fares to attract enough people in the seats but high enough to pay for costs and make some profit. The high fuel prices, combined with the economic affects on the individual of those same higher fuel prices for all consumer products may cause an economic dip soon leading to fewer people traveling. From your post above, maybe only 4-5 of these LLC, of various sizes and time in existance will survive for the near future. Of course - God forbid - terrorism could kill all but 1-2 of these companies as well.
Could the large and recent expansion of the EC into Eastern Europe create new opportunities or an expansion of routes for some of these LLC's?
 
Horus
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:55 am

Could the large and recent expansion of the EC into Eastern Europe create new opportunities or an expansion of routes for some of these LLC's

The article actually highlighted that very point. They used Wizz Air as an example of a LCC that only started up last month and is trying to take advantage of the EU expansion.
EGYPT: A 7,000 Year Old Civilisation
 
L410Turbolet
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:56 am

I'd say there are opportunities in the Eastern Europe, but limited though since the passengers will be generated mainly from "old europe" due to limited purchase power of the average population in most new EU countries.
How can they predict survival chance of WIZZ AIR, which has been in operation for some two weeks only and coudn't possibly show any results?
 
snnams
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 7:01 pm

I dont agree with many of the survival ratings at all. Many of these airlines (eg Basiqair) have nicely settled into niches which should see them alright. eg the Rotterdam base. I really dont see FR or EZY encroaching on some of these airlines bases anytime soon.

Airlines that find a niche and stick to it can prosper be they low cost or "legacy". The assertion that all low cost airlines muct have plans of "World domination " in order to survive is flawed.
 
Horus
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 7:43 pm

Its interesting how Ryanair have less aircraft than Easyjet yet carry more passengers and are more profitable.
EGYPT: A 7,000 Year Old Civilisation
 
BestWestern
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 8:29 pm

Low risk
FlyBE - found a niche and exploiting it
EZY and FR - 100% survival - lowest cost operators will always survive


Medium Risk
Basiq's survival now depends on what the combined KL/AF strategy is.
German wings - major consolidation needed in Germany


High Risk
Volare - touch and go - constantly chopping and changing routes. May face FR competition soon on italian domestic routes.
Wizzair - whilst costs in Poland and Central Europe are low, so is disposable income. Poor chance of survival
You are 100 times more likely to catch a cold on a flight than an average person!
 
by738
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:20 pm

"Ryanair have less aircraft than Easyjet yet carry more passengers"

Ryanair 737-800 seats 189
Easyjet 156 seats A319 ,149 on the Boeing 737-700
So maybe thats why.
 
babybus
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:46 pm

I might just have a bit of bad luck but I have yet to find any fare on Air Berlin that could possibly rank it within the low cost airline market.

I watched the loading of about 3 Air Berlin aircraft in Rome recently and none of them were carrying any significant loads, or loads you could possibly make any money out of.

My bet, therefore, is that Air Berlin will be the first to go down the pan.
and with that..cabin crew, seats for landing please.
 
L410Turbolet
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 9:56 pm

I'd guess that Wizz Air might be able to survive, given the fact that Poland, it's home is a 30+ million market and lot of Poles live abroad. I'm not sure about he situation on Poland's LCC market, but in PRG it's getting pretty crowded, with some 13 LCC flying there.
 
ScottishLaddie
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 10:31 pm

How can Flybe have such a low chance of survival?! They made a profit!
20%- Even lower than MYT Lite and look at their losses!!
 
TriStar500
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 10:37 pm

My bet, therefore, is that Air Berlin will be the first to go down the pan.

Air Berlin's City Shuttle operation (i.e. the low cost part) is only a small, albeit growing, percentage of their overall operation, which is dominated by typical charters to the Mediterranean and the Canary Islands.

They have captured very successfully a niche with their City Shuttle ops, and if you hardly find any low fares it is only an indicator that they are booked out very well (which I can attest from frequent personal travel with them). Therefore I would not give too much about anecdotal experiences like yours in Rome.  Smile


[Edited 2004-06-04 15:40:45]
Homer: Facts are meaningless. You could use facts to prove anything that's even remotely true!
 
DoorsToManual
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 10:38 pm

How exactly are the percentages calculated, or are these just guesses?

regards
 
L410Turbolet
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 10:39 pm

I think they're mostly pure speculation or reflection of someone's personal preferences, not supported by serious data and/or research.
 
SNBA319
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 10:47 pm

So whats thew prognosis, any suggestions?


Major oldskool airlines, though still cutting costs and consolidating (both have effect on pricing dynamics, will they attract more pax? Assuming that airline-consolidation will drop low-pricing incentives, yet the presence of LCC's will keep these incentives alive...

LCC's; some might fall, but the market for LCC's is there and will not disappear. Will they settle somewhere towards a slightly higher pricing range? that is what i think at least; after the price wars have taken their toll on all the hopefull candidate airlines, the remaining LCC's will stabilize their prices slightly above their current prices. But such a thing could only happen/stabilise once the whole of the region (i.e. within geographical reach of european LCC's) has been equally opened up to the possibilites entrprenuerial (LCC) airlines, so including the east of europe.


[Edited 2004-06-04 15:49:02]
 
babybus
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RE: Low Cost Bubble About To Burst In Europe

Fri Jun 04, 2004 10:50 pm

"if you hardly find any low fares it is only an indicator that they are booked out very well"

From the outside that often looks like the case. However, many airlines put their prices up when they start getting into trouble. My suggestion would be that the fares ex-London are high because they are making up revenue for the empty seats. Although I have no data on load factors and not willing to pay high fares to find out first hand.

My eyes tell me that they had 3 virtually empty flights leaving Rome. Good luck to them if they can operate expensive aircraft on such loads.
and with that..cabin crew, seats for landing please.
 
L410Turbolet
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 12:15 am

Interesting thing about LCC is that very often the most significant fraction of the total price paid for the ticket are the airport taxes, which are sometimes unbelievably high for the service one's getting. Unfortunately no one can expect any sort of competition in this respect.
 
Capital146
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 1:52 am

I was also very surprised to see the odds for FlyBE. My own opinion (not worth much I know!) is that they are much better positioned than what those figures indicate. And is Birmingham-Jersey really considered their 'key route'? Surely BHX-EDI or GLA would be more 'key' or more likely BHD-LGW/BHX/LCY.
Like a fine wine, one gets better with age.
 
Pe@rson
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 2:15 am

Cap-i-tan - their 'key route' might be in terms of yields. If this is so, then it would explain a lot, as airfares to and from JER and GCI are generally expensive to very expensive, evidenced by Aurigny charging well over 100 pounds for a return flight to MAN from JER. BE generally charges quite low fares on its BHX-EDI/GLA services.
"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
 
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TS-IOR
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 2:20 am


What about the chances of survival for Air Arabia ?
 
OD720
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 2:30 am

Air Arabia is a new airline operating in a totally different market. The rules in the Middle East are a little different and they still don't face much (if any) competition.
 
PHX Flyer
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 2:39 am

Airliners World is a nice picture book type of magazine for aviation enthusiasts. However, airline economics is not within their realm of expertise. Hence I tend to agree with those who feel that the "calculated" percentages are mere speculation. Actually, I find those numbers outright silly. Someone explain to me please, why Air Berlin - with losses 4 times higher than Germanwings on their London routes - should have a 30% better chance of survival than the latter?

Also, where is the evidence that low-cost carriers are more adversely affected by sky-rocketing oil prices than those with high operating cost?
 
amhilde
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 3:17 am

I should think that low cost carriers would take more squeeze on oil due to their lack of sky high fares for business folk. Yes we all know the B class ppl subsidize the back of the bus, but if you can fill a business section with higher fare passengers and some moderately paying passengers at the back you could still turn a profit in some way even with higher oil prices, especially on lucrative business routes. The LCCs price their seats all relatively similar and make a profit as they have relatively lower costs, but when one of those costs ( which is major) gets out of whack it would have a significant impact on the cost per passenger- impacting the profit margin more than what may be seen on a "high cost" carrier potentially.

Course it all comes down in the end to who manages their costs more efficiently in regards to revenue. And who did the best job in hedging their forward oil contracts.
Hang on tightly, Let go lightly
 
airblue
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 3:50 am

This article is rubbish.

First of all how WizzAir who started last month had carried 3m pax per year.

Then about Volare (but I think he was thinking about the Volareweb division) he puts as key route the CAG-LTN that's probably the less important route of their network. Also the children known that the key routes of Volareweb are all the routes ex Milan Linate (a slot restricted airport with almost only business traffic, where VA on some domestic routes thanks to the combination of VA and PE slots could offer more or the same number of flights as AZ). Then the Volareweb fleet is not 8, but now is 19 A320s and during last year (the first year of operation) they carried 4.5m pax on their low cost flights.

 
airbazar
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 4:05 am

Funny thing is the article doesn't take into account at all, the fact that oil is priced in dollars (dollar has been going down), and the European LCC's operate in Euros, which is about 20% higher against the dollar. What does this all mean? High oil prices haven't been that big of a factor in Europe, yet, and it probably won't for a while 'cause the Euro is far less volatile in comparison with the Dollar.
 
backfire
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 4:14 am

I'm just astonished that anyone can put this bullsh!t "survival rating" on an airline.

On what basis has it been calculated? It doesn't give a time-frame for a start. It's an insult to anyone who knows anything about mathematics.

I don't know who's more gullible. Those who printed the figures or those who believe that it means anything.
 
BFSUK101
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RE: Low Cost Bubble About To Burst In Europe

Sat Jun 05, 2004 8:09 am

What about Jet2. Flying them in August Prague-Belfast International.
Have good livery and a welcome change from Easyjet at BFS. Seem to be doing OK and recently won Best UK short haul airline, in the Guardian Travel awards 2004. Hope they can stand the test of time.