vfw614
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Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 3:45 pm

The German domestic market has changed pretty dramatically over the past 10 years. There were times not too long ago when up to 5 airlines were competing on the German domestic market, despite high-speed trains and free autobahns: Lufthansa, airberlin, dba, HLX, Germanwings (plus, on a limited scale / shoter periods GEXX, LTU). Fares back then were quite affordable, although not rock-bottom cheap. In 2013, the market has now boiled down to two airlines offering domestic services after HLX and dba were integrated into airberlin and Germanwings is remodeled as the domestic/continental Lufthansa carrier. And on top of that, ailing airberlin has been forced to cut quite a few domestic routes on which LufthansaGermanwings now can act at will.

We now pretty much have the situation we had in the mid 1990s when only Lufthansa and dba were offering domestic services. With AB and LH enjoying a nice duopoly, fares have significantly increased over the last two years and there was an article recently in one of the German broadsheets in which it was asked if we are returning to an era in which domestic air travel will only be something for business people again. The article, quite correctly, points out that while high speed rail connections in Germany are excellent, they are also quite expensive as the ticket costs are more or less based on travel times rather than distance covered, so to cover longer distances by train you either have to cough up a lot of dough or opt for a much slower, regular train which, time-wise, cannot compete with flights.

The question I have asked myself is whether the market conditions in Germany have not become favorable particularly for easyjet to enter the domestic market, given the disappearance of German LCCs that used to serve it and the inceased fares that make it easier to enter the market by price differentiating. easyjet already serve the domestic market successfully in the UK, France and Italy and Germany undoubtedly must be the largest untapped domestic market in Europe for an airline such as easyjet. They could built up services from their SXF base to places such as DUS, CGN, STR, MUC (high frequency) or FKB (low frequency) and later on routes such as CGN/DUS/STR/MUC-HAM.

Any thoughts?
 
b6a322
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 5:35 pm

While I agree that the current duopoly situation has definitely led to an increase in fares, I can't help but wonder if the duopoly would easily push a newcomer out. As such, the only possibility for entrance into the LCC market would be from an already established company which could perform a rapid, widespread rollout of new services.

I think with Ryanair expanding in Germany over the coming months to short-haul destinations within Europe, it will most likely set the stage for a new entrant into the domestic market.

One has to remember, however, that we still have to see how the Germanwings play pans out - it may turn out that it does eventually lower fares somewhat. However, I don't think we've seen the situation develop enough at this point to make a decisive call on this matter.
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flyingalex
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 6:20 pm

German domestic flights are a bit of a challenge for LCCs. The really lucrative routes involve combinations of FRA, MUC, HAM and DUS all of which are expensive airports to operate out of. CGN also offers lucrative traffic, with lower airport charges, but you're right in Germanwings's backyard. SXF is a tough case for as long as TXL is open, and Berlin traffic is not as lucrative as the big business centres in the former West Germany.

A second issue is the air transport tax, which is €8.93 per segment on domestic flights.

Looking at the price of a MUC-HAM one-way ticket on LH, they quote a Domestic Passenger Service Charge (levied by the airport) of €22.34 and Airport Security Charge of €6.23 and the aforementioned tax, for a total of €37.50 in taxes and surcharges that are from the government or airports. That's not the best position to be starting from in terms of offering cheap flights and still hoping to make a profit.

Then there's the competition offered from trains, which are a viable alternative for all but the longest domestic routes.

Ryanair had some domestic flights within Germany for a while, they cancelled all of them when the air transport tax was introduced.

[Edited 2013-04-25 11:30:25]
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flyingalex
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 6:29 pm

Oh, and one other thing. Consider the language issue. The average standard of English ability is lower in Germany than it is elsewhere in Europe. People who are not very comfortable with English will suck it up and suffer through it if they're on an international flight, but I think it would be a competitive disadvantage on domestic flights if the first language on board is not German (or if German is not spoken at all).
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vfw614
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 7:31 pm

Well, as I said, easyjet has a lot of domestic flights in Italy and France. Language should not be an issue, AFAIK, easyjet has German-(speaking) staff at its SXF base.

I don't think that FR would work on German domestics. They have tried it a few times, but it did not work (FMM-BRE, HHN-SXF).

easyjet would be a much better fit as they charge higher fares, but are still cheaper than legacies. They operate on such routes as LGW-MAN/GLA/ABZ and I don't think that these airports are (much) cheaper than potential German airports (telling from the fares easyjet charges on their routes from DUS, HAM, CGN and SXF) - and the UK has the APD. Still, easyjet has been competing nicely with competing legacy carriers like BA and BD on those markets.

As for the German routes, I don't think that FRA is all that important. dba was never bothered to serve FRA, IIRC, and AB only has a token presence there as far as domestic routes are concerned.
 
flyingalex
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 7:49 pm

Quoting vfw614 (Reply 4):
easyjet would be a much better fit as they charge higher fares, but are still cheaper than legacies. They operate on such routes as LGW-MAN/GLA/ABZ and I don't think that these airports are (much) cheaper than potential German airports (telling from the fares easyjet charges on their routes from DUS, HAM, CGN and SXF) - and the UK has the APD. Still, easyjet has been competing nicely with competing legacy carriers like BA and BD on those markets.

I agree, if anyone can make it work it would be easyJet. But I don't see them being that interested at present.They're not interested in a three-way fight between them and LH and AB. If AB fails at some point, I'll think they'll step up quickly, but until then I suspect they'll largely stick to the status quo.

Quoting vfw614 (Reply 4):
As for the German routes, I don't think that FRA is all that important. dba was never bothered to serve FRA, IIRC, and AB only has a token presence there as far as domestic routes are concerned.

FRA has - or rather, had - the problem that it was tough for new carriers to get slots in sufficient numbers to make an operation work. The new runway has made that easier.

However, FRA remains a very expensive airport to operate from. And their passenger fees are higher than at other airports too.

And then there's the fact that you're going up against Lufthansa in their backyard. There's no way anyone can match the frequency LH have at FRA on the main domestic feeder routes.
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vfw614
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 8:14 pm

Plus FRA is not that important for domestic services as it is right in the centre of Germany and in the centre of the railnetwork. I think there is more potential for routes like BER-CGN/DUS/STR/MUC, HAM-CGN/DUS/STR, MUC-HAM/BRE/DUS/CGN/HAJ/FMO. Pretty much what dba did.
 
flyingalex
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 8:24 pm

Double post due to browser trouble, sorry.

[Edited 2013-04-25 13:27:26]
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flyingalex
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RE: Time For LCCs To Enter German Domestic Market?

Thu Apr 25, 2013 8:25 pm

Quoting vfw614 (Reply 6):
Plus FRA is not that important for domestic services as it is right in the centre of Germany and in the centre of the railnetwork. I think there is more potential for routes like BER-CGN/DUS/STR/MUC, HAM-CGN/DUS/STR, MUC-HAM/BRE/DUS/CGN/HAJ/FMO. Pretty much what dba did.

I would tend to agree. There are really only three domestic routes ex-FRA where flying makes sense on a stand-alone trip. HAM, BRE and TXL. MUC and HAJ are marginal, depending on where you're starting from relative to the airport. For everything else, you're usually quicker on ground transport.

However, the routes that you mentioned are the ones where we already have Air Berlin and/or Germanwings.

MUC is also difficult. Slots there are becoming harder to get, and LH has a sizeable network from there too.
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vfw614
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RE: Time For LCCs To Enter German Domestic Market?

Fri Apr 26, 2013 5:26 pm

Quoting flyingalex (Reply 8):
However, the routes that you mentioned are the ones where we already have Air Berlin and/or Germanwings.

I think there should be enough market for two - more or less - traditional carriers (LufthansaGermanwings and airberlin) and a LCC. From a strategic point of view, the weak state of airberlin and their likely inability to enter a prolonged fare war is a good opportunity to make a move for the German market
 
r2rho
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RE: Time For LCCs To Enter German Domestic Market?

Thu May 02, 2013 1:39 pm

The increase in domestic fares over the past 4 years or so is very noticeable indeed. But there has never been much domestic competition in Germany, so I'm not sure the duopoly is at fault. OTOH, that duopoly is increasingly becoming a monopoly due to AB's restructuring and pull-out or severe cuts in many markets, which is definitely going noticed where AB had a strong presence.

The problem lies more in the high taxes & fees, and Germany's recently introduced version of the APD - the Luftverkehrssteuer, has only worsened the situation. Add to that the 19% VAT, high airport fees, etc etc. Adding fuel & crew costs, you can directly write-off the first 100-110+EUR of a round-trip ticket. German domestic flying is a very high cost environment, even FR or U2 wouldn't be able to offer dirt-cheap domestic fares due to this fact.

Quoting flyingalex (Reply 2):
A second issue is the air transport tax, which is €8.93 per segment on domestic flights.

Looking at the price of a MUC-HAM one-way ticket on LH, they quote a Domestic Passenger Service Charge (levied by the airport) of €22.34 and Airport Security Charge of €6.23 and the aforementioned tax, for a total of €37.50 in taxes and surcharges that are from the government or airports.

Nope, it is actually 46.43EUR, because the air transport tax applies twice (once per departure) on domestic flights. And we haven't even added VAT into that yet.

Quoting vfw614 (Thread starter):
We now pretty much have the situation we had in the mid 1990s when only Lufthansa and dba were offering domestic services. With AB and LH enjoying a nice duopoly, fares have significantly increased over the last two years and there was an article recently in one of the German broadsheets in which it was asked if we are returning to an era in which domestic air travel will only be something for business people again. The article, quite correctly, points out that while high speed rail connections in Germany are excellent, they are also quite expensive as the ticket costs are more or less based on travel times rather than distance covered,

It's a difficult situation... flying is indeed becoming more and more expensive, not quite for business people yet but some leisure travelers are definitely beginning to be priced out. But on the segments where flying makes sense (mostly north-south routes like MUC-HAM) the so-called "high-speed" trains [stopping every 50km and sharing 19th century track alignments with regional trains every now and then] are not competitive - neither in price (marginally cheaper than the flight) nor in time (much slower even accounting for checkin and airport transfer). The only solutions seems to be... stay at home!  
Quoting b6a322 (Reply 1):

One has to remember, however, that we still have to see how the Germanwings play pans out - it may turn out that it does eventually lower fares somewhat.

But 4U will not compete against LH, only complement it. And it will not aim to undercut prices, but to cut the cost base while maintaining prices, thus achieving profit in markets where LH doesn't. Only where 4U will compete against AB could we hope for somewhat lower fares.
 
musapapaya
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RE: Time For LCCs To Enter German Domestic Market?

Thu May 02, 2013 4:48 pm

Quoting flyingalex (Reply 3):
Oh, and one other thing. Consider the language issue. The average standard of English ability is lower in Germany than it is elsewhere in Europe.

I only visited germany a few times and thought they speak good english compared to people in france, italy, spain or portugal, am i missng something here?
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flyingalex
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RE: Time For LCCs To Enter German Domestic Market?

Fri May 03, 2013 6:00 pm

Quoting r2rho (Reply 10):
Nope, it is actually 46.43EUR, because the air transport tax applies twice (once per departure) on domestic flights. And we haven't even added VAT into that yet.

I was quoting the price for a one-way ticket, not a return. On a return ticket, you would have to double all the other crap too, not just the air transport tax.

Agree about the VAT though, I forgot that it applies on domestic flights.

Quoting musapapaya (Reply 11):
I only visited germany a few times and thought they speak good english compared to people in france, italy, spain or portugal, am i missng something here?

Some do, some don't. Those in the tourism or service industries or working for international companies will obviously be at the better end.

But to be honest, I had places like Scandinavia and Benelux in mind when I wrote that. I have found that, basically, the level of English in a given European country will depend on one thing: are imported films and television programs usually subtitled, or dubbed?

People from countries that subtitle (Scandinavia and Benelux, etc) will generally be better at English than people from countries that dub (Germany, France, Italy, Spain, etc).
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r2rho
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RE: Time For LCCs To Enter German Domestic Market?

Fri May 03, 2013 7:13 pm

Quoting flyingalex (Reply 12):

I was quoting the price for a one-way ticket, not a return. On a return ticket, you would have to double all the other crap too, not just the air transport tax.

Ah I see. So even my post was understated! Which basically shows that German domestic travel is by definition a pure loss-maker or break-even at best, unless you can sell enough flexible tickets for business pax or are using it to feed long-haul flights. As FR or U2 don't fit those categories, they stay out of it.
 
airbazar
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RE: Time For LCCs To Enter German Domestic Market?

Fri May 03, 2013 8:01 pm

Quoting r2rho (Reply 10):
The increase in domestic fares over the past 4 years or so is very noticeable indeed. But there has never been much domestic competition in Germany, so I'm not sure the duopoly is at fault. OTOH, that duopoly is increasingly becoming a monopoly due to AB's restructuring and pull-out or severe cuts in many markets, which is definitely going noticed where AB had a strong presence.

The problem lies more in the high taxes & fees

Bingo. I think a lot of the "high fares" are just a perception issue, based on high taxes. It's the taxes that are making domestic air travel expensive, not the fares, and LCC's can't avoid those.

Quoting musapapaya (Reply 11):
I only visited germany a few times and thought they speak good english compared to people in france, italy, spain or portugal, am i missng something here?

My perception is slightly different. I'm Portuguese and I am married to a german speaking wife but I myself don't speak any German so our common language is English. When we travel to Portugal she has no problem communicating in English. In Portugal just about everything is writen in multiple languages, right down to restaurant menus. When we travel to Germany and Austria, I am completely lost   However on a recent trip to Paris I had no problem getting by with English, and I found that to be very surprising given the reputation of the French.

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