Low cost: the new standard in air transport

Faced with the Scheduled disappearance of AirBerlinGermany's second largest carrier, two airlines immediately joined the ranks of buyers. Unsurprisingly, Lufthansa showed an interest in taking over part of the business of its moribund competitor. But easyJet will also be taking over 25 of AirBerlin's aircraft in order to increase its presence in the German capital.

For a low-cost airline to come to the rescue of a traditional airline is a situation that the managers of traditional carriers never thought they would have to face, even in their worst nightmares! The only example of a scheduled carrier being taken over by a low-cost carrier occurred in Brazil ten years ago with the bankruptcy of Varig, whose assets were bought by GOL for the derisory price of 320 million dollars.

EasyJet is not alone in its assault on scheduled airlines. Ryanair had also mentioned its desire to buy AirBerlin or Alitalia, but the Irish carrier did not follow up on this proposal, as it was itself bogged down in its own fleet management and staffing problems.

However, it's clear where the trend lies today, and it's a whole new world in which the air transport industry finds itself. Having nibbled away at and conquered the point-to-point routes, i.e. those that do not generate significant connecting passenger traffic, low-cost airlines are shattering all the boundaries that separated them from traditional airlines until recently.

That's what low cost is all about!

Perhaps we need to redefine what a low-cost carrier is. Recently in Paris to sign an agreement with Air France, Eduardo Bernardes Neto, commercial vice-president of the Brazilian airline GOL, gave his own definition: "We offer airport lounges, WiFi and in-flight services. Our services are just as good as those of traditional airlines, with one exception: our production costs are among the lowest in the world, thanks to very rigorous management. That's low cost!"

How can we judge this breakthrough of the low-cost sector? First, the figures. The International Civil Aviation Organization (ICAO) put the number of passengers using low-cost carriers at 984 million in 2015, or 28 % of all air travellers worldwide. According to studies provided by the giant Boeing, low-cost air transport represented, for example 47 % of capacity offered on intra-European routesThe 50 % mark should be passed this year.

In Asia, low-cost transport accounts for 20 % of the total airline offer, a limited market share which can be explained by the relative weakness of low-cost carriers in China and Japan. If we take South-East Asia alone, Boeing gives low-cost carriers a market share of 70 % on regional routes. In the end, only Africa escaped the phenomenon, with low-cost carriers taking just 10 % of all passengers carried on the continent.

There are several reasons for this incredible surge, with ticket prices certainly the key factor in this worldwide craze. But that's not all. There is also the ease of access to the product, with low-cost airlines having integrated online booking systems and smartphone apps very early on. The third reason for this massive success is the development of point-to-point routes. virtually anywhere there is a stretch of runway. In this respect, Europe's traditional airlines have opened up a boulevard to low-cost carriers by abandoning routes that do not serve their hubs. The routes that Air France, British Airways or Lufthansa no longer offer for lack of profitability, the low-cost carriers do.

The way is clear

For example, British Airways has withdrawn from Birmingham, Edinburgh and Manchester to concentrate exclusively on London Heathrow and Gatwick. Yet until the early 2000s, British Airways accounted for almost 50 % of traffic at Manchester, Britain's third-largest airport. Today, the British carrier operates only more than just flights to London and a few seasonal routes. As a result, Flybe, Jet2com and easyJet now form the basis of short-haul routes from the UK to Europe.

Low-cost carriers are even at the origin of new air routes, sometimes so improbable that it's easy to imagine that traditional carriers would never have been interested! For example, easyJet regularly connects La Rochelle to BristolWizz Air serves Vilnius from Grenoble and Transavia, an Air France-KLM subsidiary, links Dakhla in Morocco and Tivat in Montenegro from Paris Orly. And it works: "We can see that the French have a real appetite for unfamiliar destinations"says Zoran Jelkic, Executive Vice President France of Air France-KLM.

In total, low-cost airlines carried more than 53 million passengers to French airports in 2016, accounting for 30 % of traffic last year. But outside Paris, the figure was 43.5 %. If we exclude Paris Beauvais - 99 % of whose traffic is accounted for by low-cost carriers - the major airports most dependent on low-cost transport are Basel-Mulhouse, with 70 %, and Nantes, with just over 60 %. Another example of the predominance of low cost in Europe: in five years, Barcelona airport has seen its traffic grow by more than 30 %Low-cost airlines, in particular Vueling and Ryanair, now account for 65 % of all traffic. But these are far from unique cases, as the influence of low-cost transport is similar in Berlin, Budapest, Cologne, Krakow, Dublin, Geneva, Porto and London Gatwick and Stansted.

The rise of low cost also corresponds to the relative abandonment of short-haul routes by traditional carriers, for reasons of profitability. In Germany, the decentralisation of the country means that there are several powerful economic metropolises which it was difficult for Lufthansa to ignore. The airline has therefore found the "cleverest" solution In the interests of product continuity for connecting passengers, its European network is now only operated from its two hubs in Frankfurt and Munich.

In Berlin, Cologne, Düsseldorf, Hamburg and Stuttgart, on the other hand, it is its low-cost/hybrid subsidiary Eurowings that is ensuring the group's presence with reduced costs and simplified on-board service. A model that Air France is now seeking to replicate with HOP and its new arrival, Joon, which from this winter will take over routes from Paris CDG to Barcelona, Berlin, Lisbon, Madrid and Porto. These are routes which, although they generate a high volume of passengers, are subject to fierce competition from low-cost carriers, driving prices down.

Through the examples of Eurowings and JoonThe low-cost concept continues to extend its influence. To the point of transforming the business model of traditional airlines such as Brussels Airlines, Aer Lingus and SAS Scandinavian Airlines. For several years now, these carriers have been applying good old-fashioned low-cost methods on their lowest fares, charging for baggage check-in, seat selection or in-flight services.

One might have thought that low-cost carriers would be content to take the lion's share of point-to-point routes. However, the influence of low-cost transport is now penetrating what was until recently considered to be the preserve of the traditional airlines, starting with their hub strategy.

Last September, a new thunderclap has shaken up the air transport industry with the launch by easyJet of a solution enabling passengers to book a combination of short- and long-haul flights. The "Worldwide by easyJet" product organises connections between easyJet's short-haul routes and the long-haul routes of certain partners, all at the click of a button. However, the programme is more restrictive for passengers than with a traditional airline because of the transfer times, which are set at a minimum of two and a half hours. In return, passengers are checked in from start to finish and have their baggage transferred from one flight to the next, with the service guaranteeing a seat on the next flight in the event of a missed connection.

Worldwide by easyJet began by combining travel from London Gatwick thanks to partnerships signed with Norwegian and Westjet (Canada), i.e. 16 long-haul destinations - 14 in North America, in addition to Singapore and Buenos Aires - linked to easyJet's very dense network in Europe and North Africa. While Norwegian and Westjet are also low-cost airlines, easyJet has no intention of stopping there. "Every year, we estimate that 70 million passengers at the airports served by easyJet are in fact connecting passengers. Our Worldwide by easyJet product means we can attract new customers without calling our business model into question"says Peter Duffy, easyJet's Commercial Director.

Thunderclap "by easyjet

This trial run should quickly be followed by the integration of other carriers, particularly from the Middle East and Asia. "We also want to include other airports such as Amsterdam, Barcelona, Geneva, Milan Malpensa and Paris."adds Peter Duffy. As far as Paris is concerned, this wish will be fulfilled as early as December, since two French carriers, Corsair and La Compagniehave become partners in the easyJet solution. "This new partnership opens up huge opportunities for us in terms of connectivity, explains Pascal de Izaguirre. Our diversified international network will enhance easyJet's medium-haul network at Orly. This is extremely promising."

The new easyJet service also includes the possibility of organising connections between two airline flights. The orange airline is not the first to offer this service, as Ryanair has been running a trial at Rome Fiumicino since May. Passengers can organise connections between domestic Italian routes and a number of European routes. This service already exists in Asia, with AirAsia having launched a system of connections within the group five years ago, before Jetstar, Cebu Pacific and Nok Air/Nokscoot followed suit.

Time for long-haul flights

This development is linked to low cost's other new conquest of traditional transport: long-haul routes. For a long time, it was thought that low-cost airlines could only operate short-haul routes because of their operating model, which involves intensive use of aircraft - between 12 and 13 hours of flight time per day - and very short turnaround times on the ground, averaging 30 to 45 minutes. A mistake! According to a report by the consultant Centre for Asia Pacific Aviation, 20 long-haul low-cost airlines have emerged in the space of a decade. The pioneers were Jetstar, a subsidiary of Qantas, and AirAsia X, launched in 2006 and 2007 respectively. Europe has not been left behind: 2012 saw the emergence of Norwegian in Scandinavia, and in 2015 Eurowings began opening long-haul routes from Cologne and Düsseldorf, the aim of this Lufthansa subsidiary being to lower operating costs by 40% compared with its parent company.

In 2016, the first French long-haul low-cost airline, French Blue, was launched, focusing for the time being on the Caribbean and Réunion. The last two examples in Europe are Level, an emulation of the IAG group (British Airways and Iberia), which this summer launched its first routes from Barcelona to America. And, of course, Joon. Officially a "hybrid" subsidiary of the Air France-KLM group, this carrier will adopt some of the service characteristics of low-cost carriers when it opens its first intercontinental flights next spring. Finally, the forthcoming delivery of Airbus A320s to Turkish carrier Pegasus should also result in an expansion of the low-cost carrier's network in Asia, particularly to India.

In Europe, the star of long-haul low-cost is undoubtedly Norwegian. Already present on routes from Scandinavia to North America and Asia, the airline turned a corner in 2014 with its first long-haul routes from the UK. In 2016, the carrier positioned itself on the Paris/USA route, while 2017 saw the carrier launch long-haul flights from Barcelona and five cities in the UK and Ireland, excluding London. In the second quarter of 2017, Norwegian connected 12 cities in Europe to 18 cities in America and Asia! And the airline is announcing further developments...

Because we are far from finished with the phenomenon of low-cost airlines... In his annual report, the CEO of Norwegian Airlines, Bjørn Kjos, explains "that population growth and globalisation continue to create more demand for air transport". And he predicts the next revolution: "The entry into service of the Boeing 737 MAX 8 and the Airbus 321LR over the next few years will demonstrate that we can create new markets and destabilise the industry.. The long range of these aircraft opens up new opportunitiesThis will make it possible to operate intercontinental flights from smaller cities at affordable prices. So who will still want to fly around the world via a global hub?"It's a bit of a stretch, but it's true that the use of low-cost, small-capacity aircraft is likely to change the game. Toulouse-New York or Nice-Bombay tomorrow will no longer be a pipe dream.

Source: CAPA - Centre for Aviation.

Source: Union des Aéroports Français.