LCCs increasingly attracted to primary airports

Summary

• Primary and hub/gateway airports are increasingly seeking to attract budget airlines.
• The number, size, and scope of LCCs continue to grow, globally.
• Although some global scale airports have almost zero penetration by LCCs, in others it can go as high as 60%.
• LCCs want to get into hubs and many hubs are seeking more LCCs - a match made in heaven or hell?
• Self-connection plays a major role - it can turn any airport into a de facto hub.
• Low cost terminals have been popular in Europe and Asia but the trend towards hybridity means that often they are no longer the answer.

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Airports and LCCs collaborating

This report addresses the question of how to attract low-cost Carriers (LCCs) to an airport and also the art of "collaboration" between the two.

It works on the assumption that secondary level, and sometimes tertiary level, airports are in most cases by their nature attractive to LCC management (even the Belarus Minister of Transport has recently made that observation) as long as they satisfy certain criteria. Ideally they include features such as:

• open skies or bilateral agreements permit operations when they are international
• There is no chance, or very little chance, of poaching existing routes by the LCC to neighbouring airports
• Head-to-head competition with other LCCs is avoided (although some relish it)
• There is identifiable demand - at least in one direction (there are few LCC routes connecting obscure towns, especially in different countries; at least one will be a major ethnic population centre, a tourist centre, or occasionally a commercial centre)
• The airport is compliant with LCC requirements on charges and marketing support (within regulatory rules and sometimes outside them)
• Basic terminal and operational infrastructure (e.g. refuelling, surface transport) is in place to support the operation and ensure a consistent turnaround within the airline's business plan
• The airport can function on what may be only two or three services each week (in terms of staffing requirements, as well as profitability)
• There are few barriers to expansion should the LCC choose to locate a base there
• Tthere is a positive view of the airport among local inhabitants and regional bodies

Increasingly though, it is primary airports that are seeking to attract budget airlines, for reasons that are discussed later.

Firstly, to put the matter into perspective some statistics are presented below on LCC penetration, worldwide and regionally as measured by seat capacity.

LCCs have changed the world and will continue to forge changes

The ratio of low-cost seats to full service/network seats continues to rise.

The ratio of LCC seats 'to and from regions' has risen from 5.6% in 2009 to 14% in the first two months of 2019. In the category 'between regions' the increase is less dramatic, but from a higher base. In 2009 it was 24.7% and in 2019 Jan-Feb it was 32.3%.

Those increases have been consistent, with the exception of two years (2015/16) in different categories when there was a minuscule reduction and in 2019 Jan-Feb when the 'within regions' ratio has fallen by 0.2 percentage points.

LCCs are clearly here to stay.

LCC seats from 2009 to 2019, by regional operation worldwide

Source: CAPA - Centre for Aviation and OAG

Latin America has the highest overall low-cost penetration

There are, of course, regional variations. The table below sets them out, again segregated by 'to/from and 'within' regions.

Current LCC vs. non-LCC seats, globally and by world region

Region	Percentage of LCC seats to/from region	Percentage of LCC seats within region
Worldwide	14%	32.3%
Europe	10.3%	40.1%
Asia Pacific	8.4%	29.5%
Middle East	14.0%	17.3%
North America	17.2%	32.2%
Latin America	23.3%	36.1%
Africa	17.2%	13%

Source: CAPA - Centre for Aviation.

(There are, of course, further levels of segregation - east/west Europe, Upper/Lower Latin America etc. - but these are not considered pertinent to this report.)

There is no consistency in these results except that LCCs clearly have made, and continue to make, an impact everywhere.

The lowest impact is to/from Asia Pacific (a very large region) and to/from Europe. On the other hand, the 'within' Europe ratio goes as high as 40%. Allowing for Southwest Airlines in the U.S., Europe is where the LCC boom began, so it has a head start.

North America also figures highly at 32% LCC penetration within the continent - a figure that has been boosted by a flurry of ultra low-cost airlines in recent years - and Latin America - not only at a staggering 36% within the continent but also at 23% to and from it.

The 'between' regions results will be determined by differing degrees of travel between continents where LCC activity still remains at a nascent stage.

Having established the ever-growing pre-eminence of the LCCs (of which there are 139 according to CAPA), how are primary airports reacting to their presence?

The ultimate manifestation of the primary airport comes in the form of the global hub. The table below demonstrates LCC penetration as a percentage of all seats in a selection of major hub and/or gateway airports across the world, together with a selection of large airports that do not fall into either category.

Airport	Pax 2018 (millions)	Percentage of LCC seats, w/c 11-Feb-2019
Europe
London Heathrow	80.1	2.4
London Gatwick	46.1	62.2
London Stansted	28.0	96.7
Frankfurt	69.5	5.5
Amsterdam	71.1	22.2
Paris CDG	72.2	13.0
Paris Orly	33.1	34.5
Madrid	57.9	20.6
Copenhagen	30.3	32.9
North America
New York JFK	59.3 *1	26.4
New York Newark	43.4 *1	13.9
Chicago O'Hare	79.8 *1	6.4
Los Angeles LAX	87.5	22.3
Atlanta	107.3	14.8
Miami	45.0	3.5
Fort Lauderdale	36.0	72.9
Toronto	47.1 *1	23.3
Asia Pacific
Singapore	65.6	31.2
Bangkok Suvarnabhumi	63.4	12.4
Hong Kong	74.7	11.9
Kuala Lumpur	60.0	52.5
Tokyo Haneda	87.1	1.2
Delhi	69.9	45.8
Shanghai Pudong	70.0 *1	10.7
Sydney	44.4	19.6
Latin America
Mexico City	47.7	45.5
São Paulo Guarulhos	42.8	29.5
Buenos Aires Ezeiza	9.8	13.3
Bogota	32.7	2.1
Panama City Tocumen	15.6 *1	1.0
Middle East
Dubai International	89.1	18.0
Doha	35.2 *1	3.7
Abu Dhabi	24.5 *1	5.0
Riyadh	22.5 *2	24.6
Kuwait	11.8 *3	13.8
Africa
Johannesburg O R Tambo	21.2	26.6
Cairo	16.0 *1	4.2
Addis Ababa	12.0 (est.)	0.3
Nairobi	6.5 *2	12.6

Source: CAPA Profiles; ^*1 2017; ^*2 2015; ^*3 2016

LCC penetration at major airports varies from 1% to 97%

It is clear from these tables that there is a wide discrepancy between these airports in terms of their ratios of low-cost seat capacity.

The highest is London Stansted (96.7%), a gateway airport where passengers also self-connect between budget services, and the lowest is Addis Ababa, a gateway and hub dominated by the national and full-service airline, in a continent which has few LCCs.

Perhaps the biggest surprise is that the average percentage ratio for all of the 38 airports assessed here is 22.6%. So, as a sample of the world's primary hubs and gateways - almost a quarter of seat capacity is already taken by LCCs.

Taking each region separately, some other interesting observations may be made.

In Europe, London Heathrow's low-cost seat ratio is the lowest, at 2.4%. Heathrow is fundamentally an alliance-dominated hub airport and does not need LCCs, such is the slot demand from intercontinental carriers.

But London Gatwick, which vied with Heathrow for a government-endorsed additional runway, has almost two-thirds of its capacity on LCCs. Stansted, as mentioned previously, has more than 96%.

Both airports (Stansted and Gatwick) are highly differentiated from Heathrow, applying far more point-to-point flight emphasis. Both engage in self-connection but only Gatwick formally caters for it, by way of 'Gatwick Connects'.

See: https://www.gatwickairport.com/at-the-airport/flying-in/gatwickconnects/

Stansted is a predominantly (one) LCC airport

Stansted does not, but then again almost 78% of its seats are on one carrier: Ryanair.

Ryanair does not officially promote self-connection either but its regular passengers are savvy enough to know what is possible and what is not, allowing for its typical punctuality rate and a single terminal connection.

Several years ago Air New Zealand identified Stansted as a potential alternative European gateway because of the plethora of onward flights throughout Europe which could be taken by its passengers on a self-connect basis without compromising its own services and its attendant responsibilities for delivery and associated costs if it did not.

A similar situation arises at Paris, where there are only two airports in the metropolitan area and where Charles de Gaulle is established as the hub airport, whereas Orly acts more in the way of an O&D airport with relatively little alliance/hub activity (61% of its seats are 'unaligned').

Both CDG and ORY are part of easyJet's 'Worldwide by easyJet' connections platform by which easyJet customers are able to connect to airline partner services and other easyJet flights in a single booking through easyJet's digital booking portal.

Frankfurt Airport is one of the last European hub airports to encourage LCCs and was swiftly added to Ryanair's route map as the carrier continues to seek diversification of its network and to attract more business travellers. While purpose-designed facilities were not at first offered, a new pier (G) is now under construction to handle LCC traffic from 2020.

Amsterdam Schiphol, which has 22% LCC penetration, has taken a different route altogether. While Schiphol debates whether or not to extend the airport towards the sea, Lelystad Airport, which is also owned by the Schiphol Group, will be expanded to relieve Schiphol airport of some of its LCC burden.

Copenhagen is more like Frankfurt in that for several years it has had a low-cost pier, CPH Go, handling most LCC services. Airline costs are lower there. One requirement is that 90% of passengers must check in online, via mobile phone or at the self-service kiosks.

Madrid, meanwhile, made its Terminal 1 available to LCCs when the new Terminal 4 was opened, again with advantageous rates.

In the US, several major gateways support LCC operations

Again, overall, there is a high incidence of LCCs at some of North America's major gateways and hubs, the exceptions being at Chicago and Miami where Chicago Midway and Fort Lauderdale are established as alternative low-cost alternatives (which is also the case at San Francisco/Oakland).

But that is not the case in Los Angeles or in Toronto, where the LCC impact runs close to almost 25% of all seats. One of the reasons at Los Angeles is that one of the nearest alternative airports (Long Beach) has operational restrictions.

Asia has mixed experiences with LCCs

In Asia two cities, Singapore and Kuala Lumpur, sought to attract LCCs in different ways in the period from 2005. Initially, both opened inexpensive (around USD25 million) low-cost terminals. Singapore even named it the 'Budget Terminal'.

Kuala Lumpur's was an astonishing 20 km by road from the main terminal and therefore made self-connection between business modes virtually impossible. It was closed down in favour of a huge new one, built at a cost of close to USD1 billion and labelled a 'Taj Mahal' by airlines. Essentially it was just a new terminal, with few 'hardship' constraints.

Even now there is a continuing dispute between AirAsia and Malaysia Airports over passenger service charges and the level of service at KLIA2.

Singapore also closed its original low-cost Terminal, in favour of incorporating many budget flights into the new Terminal 4 (2016), which is built on the spot it occupied.

Bangkok took another direction entirely; Airports of Thailand closed Don Mueang Airport down again in the mid-2000s when Suvarnabhumi Airport opened yet then reopened it as an LCC-specific facility out of necessity when the new airport quickly reached capacity. Don Mueang currently handles 98.2% of low-cost capacity against 12.4% at Suvarnabhumi and has been the faster-growing airport of the two in recent years.

A number of other airports around Asia, notably in Japan, have opted to build low-cost terminals. Initially, the take-up of 'low cost' there was slow, but the airports, many of which are being privatised, are catering to an increase arising out of deregulation there.

LCCs have mixed impacts in Latin American and Middle East/Africa airports

The impact of low-cost is not consistent throughout Latin America. For example, it is very low in the hub airport of Panama City Tocumen but high at Mexico City, in a country where travellers are slowly but surely exchanging the bus for the budget airline. It is believed that dedicated low-cost facilities had been planned for the (now cancelled) New Mexico City Airport.

The Middle East is hard to assess. There is a strong presence from LCCs in Saudi Arabia, which is evident in Riyadh's high penetration figure but not so much elsewhere.

In Dubai, it is likely that LCCs will continue to be directed towards the Dubai World Central airport - still very much under development - as the dual runway Dubai International is reserved for connecting international and intercontinental flights. There are a handful of designated low-cost facilities in the region.

In the African sample, apart from South Africa, where there are numerous low-cost carriers plying between Johannesburg, Cape Town and Durban, some of which are subsidiaries to full-service airlines, there are few examples of designated low-cost facilities.

Although Fastjet - which has consistently struggled since its inauguration - has at least established the concept, much of Africa remains oblivious to the benefits and disadvantages of low cost vs. full service. Travel, where it is undertaken, is typically on a 'need to' basis rather than for leisure purposes, and at short notice.

Conclusions

LCCs are increasingly attracted to large hubs

There are huge variations between primary level airports in the number of low-cost airlines operating, and it is the case that a high number of them have large LCC congregations already.

LCCs increasingly want to get into these hubs because historically there are more business travellers in the traffic mix and because of the prospect of self-connection to and from full-service airlines, including intercontinental ones, which can open up new markets to them.

Meanwhile, airports are increasingly working in a highly collaborative fashion with LCCs to win and retain air services because diversification of their services is seen as a good thing and because passengers demand LCC services (the reason being simply that they are "cheap").

There will always be airports that are 'out of bounds' for LCCs. But many have changed as LCCs grew

London Heathrow is an example, but an extreme one, because it is already operating at maximum capacity and there is a queue of intercontinental carriers that would provide much more revenue waiting to get in or to increase frequencies.

However, it is not impossible - as the high volume of LCC activity at London Gatwick Airport proves. Gatwick is an airport that is equally capacity constrained and which has, in fact, the world's busiest single runway. However, there are particular circumstances at Gatwick.

Other airports with a surprisingly high LCC presence include New York JFK, Copenhagen, Delhi, São Paulo Guarulhos, Riyadh, and especially Frankfurt - in view of the fierce resistance to foreign LCCs that has been organised by Lufthansa and other incumbent forces over many years.

The levels of service distinctions have blurred along with gateway choices

Today, there is no great difference between high-level LCC service (advance seat allocation, rebooking and cancellation options on higher fare levels) and low level 'full service' on network airlines, many of which have reduced the frills considerably. The concept of hybridity flourishes.

There is an argument, therefore, that LCCs could be treated equally and that they should once again share terminals, as is happening in Asia. LCCs will pay for the opportunity to get access to higher fare payers; unlike the situation at leisure travel-dominated secondary level airports, where they expect to dictate terms.

One manifestation of this trend is that, increasingly, high-level LCC passengers will expect access to lounges, whether they are provided by airlines, airports or third parties.

Airports are adapting to respond

There is an interesting experiment at Manchester Airport (59% LCC seat capacity) where the UK's first private terminal will open this year. Passengers will be charged from GBP50 to use it and to be ferried to their aircraft by private motor vehicle. The acid test will be how many LCC passengers will want to use it and whether this experimental airport business model will be appropriate to their rapid aircraft turnaround philosophy.

Artist's impression of 'PremiAir' private terminal at Manchester Airport

Source: www.airsideint.com.

Self-connection is becoming more sophisticated

A small number of LCCs (easyJet is an example) are already providing facilities to reserve onward connecting flights through a booking portal. While these are usually to their own services, it can also apply to partners. Attracting such carriers is obviously beneficial to building a comprehensive route network.

Although that may not appear to be important to a primary level airport, it does have the benefit of offering alternative travel options to cities served by secondary level airports that are not available on alliance networks.

There are benefits in offering a self-connection facility, both physically in terms of a 'desk' in the arrivals area(s), and online by promoting connections to users of the airport's website. An early adopter of online promotion was Cologne-Bonn airport, which introduced such technology 10 years ago.

LCC dedicated terminals are losing their attraction as lines blur

Designated low-cost terminals may be inexpensive to build but while they remain fashionable in Europe (especially in France where low-cost activity was very low when they were first built at airports like Marseille and Bordeaux), they have not become unfashionable in other parts of the world (such as Asia) without good reason, that being the tendency for full-service and low-cost service standards to narrow and merge, as mentioned above. Often a dedicated pier, or even a section of a pier, will suffice for LCCs, depending on the level of demand.

If a pier is designated in this manner it behooves both sides of the equation to seek to minimise labour activity by agreeing on a minimum target for online or self-service check-in.

A prerequisite for many LCCs where there is no dedicated terminal (and sometimes no pier either) is to have access to non-contact aircraft stands where passengers can be boarded from and disembarked to the ramp via stairs to both front and rear doors. Not all LCCs demand this function but those that do, insist on it.

If a dedicated budget terminal is opened, many hybrid or even 'full service' airlines may wish to use the opportunity, which has implications for pricing. Regulations may prevent the application of variable pricing. Where they do not, there is a judgement to be made as to whether to offer lower fees to new (mainly low cost) airlines at the budget terminal, which could penalise long-serving airlines in existing terminals. A potential outcome of that is a legal challenge.

Often what it will boil down to is a demand from each side - airport and airline - that the other should offer a quid-pro-quo to their own.

LCC terminal preferred features consequently vary and adapt

There are differing views on what a low-cost terminal should offer in terms of facilities.

One of the most famous ones is the Marseille terminal, MP2, which in its original guise was the one that attracted the sobriquet of a 'hardship' terminal, with stark concrete walls, few seats and even fewer shops and restaurants. Even in Singapore, passengers at the 'Budget Terminal' (a highly inappropriate name) were forced to board their aircraft from the tarmac in the scorching sun and high humidity, not to mention during tropical downpours.

Times change, however, and even though KLIA2 may be an extreme example of opulence it is ever more the case that a full range of services will now be found in low-cost terminals.

An important reason for this is a consensus that LCC passengers are not only likely to spend as much as full-service passengers in airports, but they may also indeed spend more. After all, the majority of them will be on holiday and in a mood to flash the cash. Moreover, they may have travelled much further than other passengers because of the relative paucity of direct flights to precisely where they want to go (which may mean greater profit potential from the airport's car parking, which might be used as a promotional item for the airline in one way or another).

The provision of such facilities, though, will not always sit easily with airlines, because facilities of this nature will compete with onboard sales, especially where food and beverages are concerned. This is probably the most difficult aspect of airport-airline collaboration to work through. There are no easy answers.

One of the best examples of that is Norway's Avinor, which for many years eschewed low-cost airlines and especially Ryanair, which eschewed the airport too because of a perception of high costs (this issue remains the case in the relationship between Ryanair and Iceland's Keflavik Airport).

Ryanair has been operating at Oslo's Gardermoen Airport since Oct-2016, a move that was forced on it by the closure of one of the two secondary airports that it flew to, south of Olso (Rygge).

Even now Ryanair has only 10,000 seats a week at Gardermoen, a handful of routes and just 1.4% of seat capacity. But it is there, and it is operating at an airport that makes no special provision for LCCs and has been investing heavily in the sort of high-quality terminal extensions that Ryanair's CEO would typically describe as a 'Taj Mahal'.

This operation will again be an acid test of the pros and cons of airports of this stature cooperating with hard-nosed LCCs.

Throughout this evolution, mutual collaboration remains at the heart of the primary airport-LCC relationship because for both parties it can still often be a case of venturing into entirely new territory.

CAPA's LCC and airport management reports

CAPA has published a number of management reports over the years on Global LCCs and on 'Low-Cost Airports and Terminals'. Many of the findings are still valid, although the rapid changes in technology over the last 13 years mean they provide useful milestones in the evolution of LCCs and airport responses to the phenomenon.

They are free to read and may be found here: https://centreforaviation.com/analysis/research-publications