Low Cost Carriers (LCCs)
A key structural change in aviation over the past decade has been the proliferation of low-cost carriers (LCCs). The low-cost model has overwhelmingly been the favoured mode of airline start-up over the period, and their spread around the world, into both short- and long-haul markets, has caused a fundamental shift in the competitive dynamic of the industry.
'Classic' characteristics of the low-cost model include:
- High seating density;
- High aircraft utilisation;
- Single aircraft type;
- Low fares, including very low promotional fares;
- Single class configuration;
- Point-to-point services;
- No (free) frills;
- Predominantly short- to medium-haul route structures;
- Frequent use of second-tier airports;
- Rapid turnaround time at airports.
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Part 1 of CAPA's analysis of Spanish LCC Volotea highlighted its rapid growth, but noted that its load factor left room for improvement. The Spanish LCC flies almost two thirds of its seats in domestic Italy and France, but operates in a total of 12 countries and 66 airports across Europe. It concentrates on small and medium-sized airports, with Italy and France dominating its list of leading routes.
This second part of CAPA's report on Volotea looks at its generally favourable competitive position on its leading routes (it is the biggest airline on 15 of its top 20 routes). This positive competitive standing has been carried onto the majority of the 32 routes that Volotea has launched in the past year, although its low frequencies and very strong summer bias limit its appeal to business passengers and give it a leisure focus.
Volotea's average trip length sits between those of regional airlines and Europe's principal LCCs. This is evidenced by the fact that two of its most frequent competitors are Hop (Air France's regional airline) and Ryanair (Europe's leading LCC). Volotea's fleet strategy is now to replace its 125-seat Boeing 717s with 150-seat A319s. This will result in it butting up against LCCs more often.
Volotea is an unusual creature. It's a Spanish airline, but has almost two thirds of its seat capacity in domestic Italy and domestic France. It's an LCC, but mainly operates 125-seat Boeing 717 aircraft – much smaller than the 737-800 and A320 aircraft more typically flown by European LCCs. Nevertheless, more than four years after its 2012 launch, it is one of the fastest-growing airlines in Europe, with passenger growth of 39% in 2015 and a similar rate expected in 2016.
This first part of a two-part series on Volotea looks at the airline's growth record and load factor development. It analyses the geographic distribution of Volotea's capacity across Europe and examines its network of small and medium-sized airports. It also presents the airline's leading routes, which are dominated by Italy and France.
Part 2 of CAPA's analysis of Volotea will consider the airline's competitive position and its recent route launches. It will also analyse its low-frequency schedule and high seasonality levels, in addition to its fleet strategy.
The announcement by Eurowings that it plans to establish a base with two aircraft at Palma de Mallorca Airport next spring focuses attention on Spain's number three airport by passenger numbers. One of Europe's most important airports for LCC capacity, Palma is also very dependent on the summer schedule. The low point of the winter schedule has 78% fewer seats than the peak summer week.
Traffic at the airport held up relatively well during the second phase of Spain's 'double-dip' recession in 2011 to 2013, but its passenger growth has lagged that of the country as a whole since then. The mix of airlines has been in some flux, with Palma's leading airline airberlin gradually losing share to LCCs and the seat-only sales of charter airlines. Ryanair, number two at the airport, has returned to capacity growth there in 2016 after two years of cuts.
Eurowings' new base at Palma in May-2017 will follow the establishment of bases at the airport by easyJet and Norwegian in 2016. It is certainly a market that seems to attract the interest of Europe's leisure-focused airlines, but strong capacity growth at Palma (and elsewhere in Spain) increases the downward pressure on yields in a price-sensitive market.
OSAKA, 22 September 2016 – CAPA - Centre for Aviation is pleased to announce that Osaka will be the host city for the annual CAPA LCCs in North Asia Summit on 13-14 June 2017.
The Summit, to be hosted by Kansai Airports, is one of the largest LCC gatherings in the region, attracting LCC CEOs from across Asia.
“Kansai International Airport as the gateway to Kansai region welcomes the CAPA LCCs in North Asia Summit in Osaka. We are extremely proud that this Summit will be hosted by Kansai Airports with the opportunity to introduce the attractiveness of the Kansai Region. For several years the LCC market has been on strong growth at KIX, where we have the number one LCC network among Japanese airports. We are really delighted to host this event in 2017 since our LCC Terminal extension will be completed by the first quarter next year”, said Yoshiyuki Yamaya, Representative Director and CEO, Kansai Airports, and Emmanuel Menanteau, Representative Director and Co-CEO, Kansai Airports.
On 8-Sep-2016 LOT Polish Airlines announced its "2020 profitable growth strategy". This involves a goal to achieve "sustainable viability", after a restructuring programme which returned LOT to operating profit in 2014 after six loss-making years. Its privatisation may even be back on the agenda.
LOT currently ranks behind LCCs Ryanair and Wizz Air by share of traffic in Poland, which offers superior traffic growth potential versus Europe as a whole. The airline aims to increase passenger numbers from 4.3 million in 2015 to 10 million in 2020, growing its fleet from 43 to 70 aircraft. LOT's expansion will focus on long haul, particularly North America and Asia, where it currently has only five routes and where competition is considerably lower than on short/medium haul. Initial plans include the launch of Warsaw-Seoul this winter and a return to Warsaw-New York Newark next summer.
According to (limited) data from LOT, its restructuring has left it with a fairly efficient cost base and this will be important in competing with LCCs. LOT's growth will focus on long haul but will need short-haul European feed – and partnerships. Although LOT no longer appears to be considering leaving the Star Alliance, it remains excluded from American and Asian JVs. Further, those JVs preclude members from working with LOT. Partnership growth will be as critical as it will be challenging.
Jet2.com is to establish London Stansted Airport as its ninth UK base in spring 2017. This will be the first base in the South of England for the Leeds-based airline with proud roots in the North, and will coincide with the launch of its previously announced new base at Birmingham. The LCC, owned by Dart Group PLC, believes that "Stansted has great potential for our holiday business", serving the populations of North and East London and the East of England.
Stansted airport is dominated by Ryanair, Europe's largest and lowest cost LCC, which prices at a 62% discount to Jet2.com. Although Jet2.com competes with Ryanair at all its other bases, nowhere does the Irish airline have the same dominance as at Stansted. Dart Group manages its airline as an integrated division with its package holidays business, which generates 40% of the airline's ticket sales. This gives Jet2.com some protection from pure price-based competition for seats.
Nevertheless, Jet2.com will find Ryanair a formidable competitor at Stansted, especially as Ryanair looks to increase its own sales of integrated leisure products through its website and app through partnerships with travel suppliers.