Is the world of low-cost carriers limitless?

The pier is brand new, painted in bright colours and interspersed with patios that bring a touch of greenery and coolness to a city, Toulouse in this case, where summers are often very hot. "It was an unavoidable investment, a necessary one in fact, because our low-cost traffic is boomingexplains Philippe Crebassa, Chairman of Toulouse Airport's Management Board. The new Concourse A pier has been designed to accommodate the aircraft of low-cost carriers as well as regional aircraft and, above all, to offer passengers a high level of comfort."

With this €10 million investment, Toulouse airport is clearly betting on low cost. Like many of its European counterparts, because it's worth the risk. In Toulouse, for example, more than 42 % passengers travelled on this type of route in 2018. "Low-cost transport accounted for only 29 % of all passengers in 2013. The increase is absolutely remarkable"says an enthusiastic Catherine Gay, the airport's Director of Development. Throughout Europe, low-cost traffic is courted, if not celebrated, having acquired its credentials in just a few decades. Just think back to thirty years ago, Ryanair and easyJet were entering the European scene, generating scepticism and even contempt from their peers, the traditional companies.

Across Europe, low-cost traffic is being courted, having established its credentials in just a few decades.

The low-cost carrier model is simple: reduce operating costs as much as possible by using aircraft intensively - more than ten hours a day - for point-to-point links no more than three hours' flying time. An important element of this strategy has been the choice of airports. With a view to minimising their costs, low-cost carriers have often chosen so-called secondary airports. And this is probably where these companies have won their bet. Because they have become spearheads many hubs threatened with abandonment by the major traditional airlines, whose offer was refocused on one or even two hubs in the 1990s and 2000s. For example, what would Basel-Mulhouse or Geneva have become without easyJet following the departure of Swiss, or Barcelona without easyJet? Vueling after the withdrawal of Iberia, and Cologne-Bonn without Eurowings ?

Half a billion seats

Last year, according to statistics from the consultancy OAG - which analyses airline schedules and movements - low-cost carriers offered more than half a billion seats on the European market. This is a first, since ten years ago the capacity of these players was half that, at 224,300 seats. The annual growth in low-cost capacity over a decade has reached 9.4 % per yearHowever, 2018 saw a slowdown, with growth of just 7.4 %.

OAG estimates that 36 % of air capacity in Europe was accounted for by low-cost airlines and that the 50 % mark should be reached by 2027. Certain hubs such as London Stansted and Luton in the UK, Malmö in Sweden - but also close to Copenhagen - and Cologne/Bonn have become specialist low-cost airports over the years.

Although France took a later look at this phenomenon, unlike Spain or the UK, for example, it has been moving at the same pace as the rest of the European Union for the past decade. In its 2018 annual report, the French Airports Union (UAF) shows that 34 % of air traffic in France is due to low-cost airlines. That's almost four points more market share than in 2016.

Although France took a longer time to address the issue, it has kept pace with the rest of the European Union over the last decade.

The emergence of low-cost airlines is of particular benefit to traffic in the provinces. While low-cost airlines generate just under 22.5 % of passenger movements at Orly and Roissy, this market share rises to 46.4 % at regional airports with more than five million passengers, and even 54.8 % of traffic at regional airports with between one and five million passengers.

According to UAF, fifteen French airports are seeing more than half of their traffic generated by low-cost carriers. Leading the way are Bergerac and Carcassonne, whose low-cost traffic is close to 100 %, followed by Béziers, Nîmes and Beauvais to within a few decimal places. Among the major regional airports, Basel-Mulhouse, Bordeaux and Nantes have low-cost traffic of between 55 % and 67 % of total passengers.

To compensate for the departure of the national airlines, which are now concentrating on their hubs, the low-cost carriers have often benefited from certain largesse to help them establish themselves. This ranges from marketing aid for the opening of new routes - a procedure regulated by the European Union - to the creation of turnkey terminals. The MP2 terminal in Marseille, which has since become terminal 2, and the 'billi' terminal in Bordeaux are just two examples of these minimalist terminals specially created to meet the needs of low-cost traffic. To reduce operators' operating costs, these shoebox-style terminals offer simplified passenger processing As well as their luggage, they do without a direct boarding gate to the plane and ignore all superfluous elements. "We offer a service that corresponds to what the airline and their passengers want, with the lowest possible operating costs, savings that are passed on in the price of the ticket. But each carrier has a choice of terminalexplains Clémentine Irvoas, communications manager at Bordeaux airport. In our case, for example, Vueling and Volotea are in Concourse A of the main terminal and not in 'billi', because their brand positioning is different from that of a pure low-cost airline."

A la carte services

The question is how far passengers are prepared to sacrifice comfort in order to pay less for their ticket. Because the services offered on the ground can also act as a deterrent for business travellers. The airport authorities at London-Luton, one of easyJet's main bases, have understood this by offering à la carte services just like the airlines. For 4 pounds, or 4.50 euros, travellers can use fast-track services for priority passage through security and identity checks. For £26.99, they can also access a business lounge.

But airport management, particularly in Toulouse, is increasingly trying to integrate passengers from traditional airlines with those travelling on low-cost carriers. Because they are aware that the business passenger travelling with Air France one day will probably take easyJet for leisure, or even for business purposes if their company applies a more restrictive travel policy.

The dividing line between full-fare and low-cost formulas has in fact disappeared completely over the last decade, with low-cost airlines having succeeded in imposing their business model on all the players in the airline industry. The best example of this evolution is this tariff segmentation has become almost uniform on all European airlines. Passengers can now choose between a basic fare that only includes the flight, an intermediate fare that includes baggage and seat selection, and a premium fare that is very similar in concept to a business class ticket.

The dividing line between full-fare and low-cost formulas has disappeared over the last decade, as low-cost airlines have succeeded in imposing their model on all players.

To further blur the lines between premium and low-cost carriers, the traditional airlines have created low-cost subsidiaries which are increasingly working in symbiosis with their parent company. These include Iberia with Vueling, Air France/KLM with Transavia or Singapore Airlines with Scoot. Lufthansa is probably the epitome of the permeability that exists today between premium and low cost. A few years ago, the German carrier restructured its European network, keeping only the premium Lufthansa brand for flights to its Frankfurt and Munich hubs. All other point-to-point routes were delegated to its low-cost subsidiary Eurowings. This decision caused some gnashing of teeth in Düsseldorf, Hamburg and Stuttgart, cities with substantial business traffic.

Passengers have become accustomed to this service, especially as Lufthansa's low-cost subsidiary offers a premium class on short-haul routes. It also authorises transfers with other airlines in the Lufthansa group, and gives lounge access to business passengers and premium members of the Miles & More frequent flyer programme, while also crediting miles to travellers.

Lufthansa is pushing integration even further and is beginning to transfer certain routes to its low-cost subsidiary. Eurowings, for example, serves the Munich-Bangkok route in place of its parent company, and even flies Berlin-Munich and Berlin-Frankfurt in parallel with Lufthansa... We're well on our way far from a bipolar worldThis is an almost simplistic scenario, with low-cost carriers catering for leisure travellers on a limited budget and premium airlines tailor-made for more affluent travellers.

Business travellers generate more revenue, and are moreover at the heart of winning strategies low-cost airlines. In most cases, these are captive passengers, who often have no choice but to use a low-cost carrier to fly non-stop to certain destinations. As early as 2012, easyJet began courting business travellers, giving travel agencies access to the carrier's fare ranges on booking systems such as Amadeus. The airline is present at all the major airports and offers several daily flights between Europe's main cities, a product that is perfectly suited to the needs of mobile executives.

The business traveller, who generates higher revenues, is at the heart of the low-cost airlines' strategy to win new customers.

All that was needed to seduce them completely was to instil greater flexibilityFor example, by offering customers the possibility of changing their flight if necessary, selecting their seat or getting priority boarding. The orange airline has launched its Flexi ticket, which allows passengers to change flights, enjoy priority treatment on the ground, choose their seat and take a second piece of baggage in the cabin. The easyJet Plus annual package also includes all these options except flight changes. It is even possible to book access to a lounge at certain European airports.

For its part, Spain's Vueling has launched a corporate service allowing passengers to manage their own bookings, benefit from negotiated fares, reserve their seat in advance and include baggage. Business passengers represent 40 % of travellers choosing Vueling. At Volotea, a low-cost airline specialising in regional airports, the Flex fare allows you to change your reservation up to four hours before departure, and to be reimbursed in the event of cancellation.

After conquering airports and then business passengers, we are now moving on to conquering long-haul routes. It is perhaps in this segment that low cost is emerging for the time being. the most vulnerable in its offensive. The advantages of quick turnarounds between flights to maximise aircraft utilisation, or of fewer flight attendants, are fading in the face of existing constraints on longer flight times. However, many airlines are now positioning themselves in this market segment. Generally speaking, these are routes with flight times of around six to eight hours, such as Paris-New York, Berlin-Toronto or London-Tel Aviv. But Airbus's launch in June of theA321 XLRa single-aisle aircraft capable of covering a distance of 8,700 km and carrying fewer passengers than long-haul widebodies could open up new horizons.

The transatlantic route is the most courted by low-cost airlines such as Level, NorwegianAir Canada Rouge, Air Transat or Eurowings... But there are also exceptions. Norwegian or Eurowings offers flights to the west coast of the United States, while French Bee serves the French overseas departments and territories from Paris and IAG's low-cost subsidiary Level connects Barcelona with Buenos Aires and Santiago. In Asia, Scoot has been flying to Berlin since 2017 and has recently connected Athens to Singapore. For its part, AirAsia is working on its return to Europe.

Focus on long-haul routes

The long-haul low-cost model is only profitable if the airline faces little direct competition and, above all, if the price of fuel remains low. Last year, however, rising oil prices weighed heavily on carriers' finances, all against a backdrop of heightened competition. Norwegian, for example, had to restructure its networkThe airline is abandoning its Caribbean routes to concentrate its long-haul offer on the transatlantic route, in particular from its Scandinavian bases, but also from Amsterdam, Dublin, London Gatwick and Paris. At the same time, it has inaugurated routes between Athens and New York, Barcelona and Chicago, and from London to Las Vegas and Rio de Janeiro. Despite its delicate financial situation, Norwegian seems to have stronger backs than its counterparts. After Primera Air and Monarch in 2018, Iceland's Wow went bankrupt at the end of March. Food for thought...

The future of long-haul low-cost air travel is increasingly taking shape in the shadow of the major carriers. As in the car industry, where brands target different markets, long-haul low-cost could serve as a back-up force on secondary routes or routes with low revenue per passenger. The Eurowings/Lufthansa merger, the launch of the long-haul low-cost airline Zipair by Japan Airlines, the takeover of Hong Kong Express by Cathay or IAG's objectives on Norwegian prove that we're well and truly in the the age of segmentation for air transport. The result has been the creation of powerful airline groups. What if low cost, created with the idea of democratising air travel 50 years ago, had in fact become the cement for the globalisation of the airline industry?