How to survive the skies over Europe - European lowcost carriers

Seminar Paper, 2005

26 Pages, Grade: 2,3


Table of Contents

1 Introduction

2 Analysis of Commercial Aviation in the European Union
2.1 Main Markets
2.2 Market consolidation
2.3 Legal Requirements
2.4 Leading Market Players
2.5 Analysis of Market Players

3 Strategies to be a successful LCC
3.1 The Idea
3.2 Pricing
3.3 Cost Structure
3.4 Networks and Schedules
3.5 Aircraft Fleet

4 Closing Remarks

1 Introduction

The popular saying “The only constant thing in aviation is change” has never been more omni-present as in the recent years. Some 20 years ago, the skies over Europe were dominated by a handful of state-owned airlines, most notably British Airways, Air France and Lufthansa. A flight between two European capitals would cost about a week’s salary for the average worker; today the ticket fare represents only a day’s salary. To allow such dramatic change to take place, much convenience such as free meals and drinks had to be abandoned. The market has undergone significant change over the last decade. And it is the last two years that has seen an increasing trend towards the low-cost model.

As a result, customers can choose from a greater choice of routes at lower fares than ever before. But not only passengers benefit. Low-cost carriers (LCCs) have created a large amount of jobs. Many aviation professionals who were made redundant by struggling airlines such as Sabena or Swiss after September 11th got jobs with LCCs.

Only due to their rapid success, growth of European aviation is back on the level it was before 9/11. Nevertheless, airline managers are starting to realize that the time of endless growth and success is slowing down or, in the worst case, coming to an end. This for example, has caused easyJet, one of Europe’s largest low-cost carriers, to launch a long-term management programme. The aim is to realize its strength and weakness by scrutinizing the market and to position the airline in a way that substantial long-term growth is still possible. Especially as market consolidation is already taking place and competition is increasingly fierce: The outlook is that the market will be dominated by just two or three low-cost carriers within Europe and some full-service airlines operating world-wide networks.

Strategies must be determined now to find the best market, the right network and competitive costs.

This essay will firstly look at commercial aviation in Europe. Following that will be an analysis of the leading carriers and their business strategies.

2 Analysis of Commercial Aviation in the European Union

After the economic collapse following the year 2001 the air transport industry has been struggling to recover. In 2003, “the War in Iraq, SARS and a world-wide economic slowdown”[1] put even more pressure on airlines. However, with these factors disappearing and cost-cutting measures taking effect, air traffic finally started to recover.

2.1 Main Markets

Especially Europe has experienced strong growth since summer 2003.

The number of carried passengers in the EU25 reached 590 million[2], which was an increase by 7.5%. An Average Annual Growth Rate of 4.8% is projected through 2008[3] by IATA, the International Air Transport Association. IATA represents 265 airlines, which is 93% of international scheduled air traffic[4].

Europe’s largest countries also produced most passengers: the UK reported 178m passengers, Germany 121m, Spain 120m and France 96m.

Busiest airport is London/Heathrow (LHR) counting 63m passengers[5], followed by Frankfurt/Main (FRA) and Paris/Charles-de-Gaulle (CDG) with about 48m each. The importance of the London area in general is stressed by the fact that Gatwick airport is also generating almost 30m, Stansted close to 19m passengers. That brings the number of London passengers to more than 112m. On the other hand, taking Orly airport into account as well, gives an estimated 70.5m passengers for Paris.

Other hubs are Amsterdam (close to 40m passengers) and Madrid (35m).

When it comes to domestic passengers (national air traffic), Spain is in the lead with 31m passengers, followed by France, Italy, Germany and the UK. These five countries account for 86% of European domestic air transport[6].

Looking at international flights, most passengers are reported on flights between Spain and the UK (32m), Germany-Spain (18m) and France-UK (10m). The new EU member states of Eastern Europe such as Poland and the Baltic states are attractive to LCCs as well. EasyJet (EZY) for example launched routes to all the joining states[7]. However, Western Europe remains to be the primary market[8].

According to a recent market survey by Davy European Transport and Leisure, 25% of all inter-EU flights today are on LCCs[9]. The market is said to have massive potential for the leading LCCs[10], an annual growth at “just under c. 14.5%” is projected[11]. This can be achieved by gaining market share from incumbent airlines and smaller companies. Expanding into domestic markets will be another source of growth[12].

The general popularity of non-premium travel has brought a large number of new companies on to the scene. Compared to three years ago, the number of LCCs has increased from seven to 47.[13]

In the USA, homeland of low-cost travel, LCCs now account for over 30% of air traffic[14]. Current trends and the amount of ordered aircraft suggest that this is going to 50% over the next decade. Mercer Management Consulting projects a market share of 33% by 2010 for Europe[15]. Passenger figures are estimated at about 400–450m, whereas low-cost share is about 92m. An assumed total "low-cost" aircraft fleet of 440 represents about 26% of the total European short-haul fleet of c.1700[16].

There are a number of smaller low-cost airlines, mostly operating in peripheral markets. Examples are dba (German), Basiq/Transavia (Netherlands), SkyEurope (Slovakia), Vueling (Spain) and Wizz Air (Poland)[17].

At the moment incumbent network and charter airlines are losing passengers to LCCs. The trend is likely to continue[18] and is forcing those carriers to specialize e.g. in high-quality long-haul flights. Network carriers, most notably LH, BA and Air France/KLM, will operate short-haul flights primarily to feed passengers into their hubs[19]. Capacity will be cut, as Swiss and LH have already done. BA is expected to close down its BACitiExpress operation, “which remains loss making”[20].

2.2 Market consolidation

Market consolidation is expected by the industry[21]. According to Mercer, most LCCs are not making any profit, partly due to the high oil prices[22].

In 2004 twelve low-fares airlines are estimated to have gone bankrupt[23], such as Italian Volareweb in November. This made expansion possible for Ryanair (RYA) and EZY, as both airlines instantly launched new routes to Italy[24].

Another consolidation recently took place in Brussels, when Virgin Express announced the merger with SN Brussels, the Belgium full-service successor to Sabena, into “SN Air”[25]

Beside consolidation in the low-cost segment, full-service airlines are under immense pressure as well[26]. Only Lufthansa (LH), British Airways (BA) and Air France/KLM are said to be in a good enough market position. Especially smaller traditional airlines, who are offering frequent domestic as well as intercontinental services such as Aerlingus or Swiss, however, will be facing fierce competition[27].

2.3 Legal Requirements

All aviation in the European Union is subject to JAR (Joint Aviation Regulations), which means that the same regulations apply to all companies and personnel, for instance flight crew licensing, maintenance schedules and operating certificates.

“In order to carry passengers […] for payment, air operators based in the European Economic Area (EEA) must hold an Operating Licence granted by the Member State in which they have their principal place of business.”[28]

For UK airlines, licensing is undertaken by the Civil Aviation Authority (CAA), for German companies the Luftfahrt-Bundesamt (LBA).

To qualify for this licence, operators must meet a number of requirements[29]. They must prove to have enough funding for the first two years of operation. Adequate insurance is required to cover potential damage to passengers and third parties in the event of an accident. There are different minimum levels of insurance cover for different kinds of operators depending on aircraft size and capacity[30].

Once a licence is granted, authorities monitor the airlines finances and operation and may revoke the licence if requirements are not deemed fulfilled any longer.

All those certificates must be carried on board the aircraft and are subject to random checks from aviation authorities.

The Market Access Regulation enables licence holders to operate on any route within the EEA.[31]

2.4 Leading Market Players

RYA and EZY are the dominating LCCs with strong positions in key European city pairs[32].

In one of the most important markets, the UK, EZY is flying more passengers than any other LCC (21.8%). RYA’s share is only 3.6%. Whereas RYA is carrying slightly more passengers between the UK and the rest of Europe (18.5% versus 13.8% in comparison to other LCCs). This is still a lot more than the next competitor bmiBaby with only 2.4%[33].

By February 2005 RYA was the leading low-cost market player in the following important markets: UK-Europe, Germany-Europe, Italy-Europe and Spain-Europe. EZY on the other hand is the number-one LCC in the domestic markets of the UK and France, between France and Europe, as well as Czech Republic-Europe, Hungary-Europe, Slovenia-Europe and Switzerland-Europe[34].


[1] cf. IATA International Traffic Statistics: December 2003, Date: 27 January 2004

[2] cf., p.1

[3] cf. IATA International Traffic Statistics: ibid.

[4] cf.

[5] Figures as of 2003

[6] cf., ibidem, p.1

[7] cf.

[8] cf. Davy Report, p.11

[9] cf. Davy Report, ibid., p.4

[10] cf. Davy Report, ibid., p.1

[11] cf. Davy Report, ibid., p.4

[12] cf. Davy Report, ibid., p.15

[13] cf. Davy Report, ibid., p.7;

[14] cf. Davy Report, ibid., p.7

[15] cf. Mercer Studie: Mit Billigtickets in den Ruin

[16] cf. Davy Report, ibid., p.7

[17] cf. Davy Report, ibid., p.11

[18] cf. Davy Report, ibid., p.15

[19] cf. Mercer Studie: Mit Billigtickets in den Ruin, ibid.

[20] cf. Davy Report, ibid., p.15

[21] cf. Davy Report, ibid., p.12, p.7; Mercer Studie: Mit Billigtickets in den Ruin, ibid.

[22] cf. Mercer Studie, ibid.

[23] cf. Davy Report, ibid., p.12

[24] Ryanair: cf. Davy Report, ibid., p.4, EZY: cf.

[25] cf.

[26] cf. Mercer Studie, ibid.

[27] cf. Mercer Studie, ibid.

[28] cf.

[29] cf.

[30] cf.

[31] cf.!celexapi!prod!celexnumdoc&lg=en&numdoc=31992r2408&model=guichett

[32] cf. Davy Report, ibid., p.4

[33] cf. Davy Report, ibid., p.60, Tables A1.24, A1.25

[34] cf. Davy Report, ibid., p.9

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How to survive the skies over Europe - European lowcost carriers
University of Applied Sciences Berlin
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Anne Pleul (Author), 2005, How to survive the skies over Europe - European lowcost carriers, Munich, GRIN Verlag,


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