30-Apr-2012 10:15 AM

Luxembourg opening to LCC competition with the entry of easyJet

Analysis

The tiny Luxembourg market has been thrust into the spotlight by easyJet's announcement that it plans to launch the first low-cost carrier service into the small European nation. With no domestic market in Luxembourg, national carrier Luxair relies on a short/medium-haul international network serving Europe and Africa. The arrival of LCC competition will place pressure on the flag carrier, which may find it difficult to compete with budget rivals.

Luxair, which is the only Luxembourg-based passenger carrier, currently offers 36,285 seats per week, according to data from Innovata. Western Europe accounts for about 90% of the carrier's total capacity (seats) and all 10 of the carrier's largest routes.

Summary

easyJet plans to launch the first low-cost carrier service into Luxembourg, putting pressure on Luxair, the national carrier.
Luxair currently offers 36,285 seats per week, with Western Europe accounting for 90% of its total capacity.
Luxembourg has a 0% LCC penetration rate, but easyJet's entry is expected to change that.
The London-Luxembourg route is a potential opportunity for easyJet to stimulate demand, as fares have traditionally been high.
Luxair is vulnerable to LCC competition as it relies entirely on its short-haul network to survive, unlike other national carriers with profitable long-haul operations.
LCC expansion at Luxembourg could depend on airport charges and the rate of LCC invasion, which may require Luxair to reevaluate its network and strategy.

North Africa is Luxair's second largest market but accounts for less than 5% of its total capacity (seats). Eastern Europe accounts for 4% of the carrier's capacity and Central Africa accounts for the remaining 1%.

Luxair top 10 international routes (seats per week): 23-Apr-2012 to 29-Apr-2012

The airline is based at Luxembourg-Findel International Airport, the only international airport and the only airport in the country with a paved runway. Luxair operates a fleet of 17 aircraft including three Boeing 737-700s, one 737-800, two Embraer ERJ135s, six ERJ145s and five Bombardier Q400s. It has two more 737-800s and four Q400s on order.

Aside from Luxair, which currently provides 66% of the overall capacity in Luxembourg, the market is highly fragmented. Luxembourg's second largest carrier by capacity, Swiss, accounts for only 7% of overall capacity.

Luxembourg system capacity (seats per week): 23-Apr-2012 to 29-Apr-2012

Luxembourg currently has a 0% LCC penetration rate but this is set to change when easyJet launches four times weekly London Gatwick-Luxembourg service on 29-Oct-2012. Luxair, British Airways (BA) and Air France's London City-based subsidiary CityJet currently operate between London and Luxembourg. BA currently offers two daily flights on the London Heathrow-Luxembourg route while on the London City-Luxembourg route Air France offers three daily flights and Luxair offers four daily flights.

Although London-Luxembourg is a short flight, fares have traditionally been high, providing room for easyJet to potentially stimulate demand. According to ITA Software data, the average roundtrip airfare on the Luxembourg-London Heathrow route is currently USD500 to USD600. Fares at London City are typically even higher as they cater to business traffic travelling to and from London's nearby financial district. London City-Luxembourg is particularly a big business route as Luxembourg is also a financial centre.

LCC competition poses new threat to Luxair

After establishing service on the London-Luxembourg route, it is quite possible easyJet could look to open more links to the nation and exploit its status as the only LCC operating to Luxembourg. When examining the largest routes from Luxembourg, it appears there could be opportunities for LCCs to Germany, Switzerland and France, where easyJet has existing bases (Berlin Schoenefeld, Paris Charles de Gaulle, Paris Orly, Basel and Geneva).

easyJet's recent increased focus on business/corporate traffic would also support any move to increase services to Luxembourg, whose links to the rest of Europe are primarily business rather than leisure routes. easyJet's choice of 20 bases across Europe will give it plenty of potential route pairs to consider.

Luxembourg top 10 routes by capacity (seats per week): 23-Apr-2012 to 29-Apr-2012

Route	Seats per week	Carrier(s) operating
LUX-LCY	5706	Luxair / Air France
LUX-MUC	5258	Luxair / Lufthansa
LUX-ZRH	3686	SWISS
LUX-FRA	3462	Luxair
LUX-AMS	3360	KLM
LUX-LHR	3304	British Airways
LUX-SCN	2186	Luxair
LUX-CDG	2058	Luxair / Air France
LUX-OPO	1894	Luxair / TAP Portugal
LUX-VIE	1844	Luxair

easyJet's entry will be worrying to Luxair as the carrier is particularly vulnerable to LCC competition. Other national carriers in Western Europe such as Brussels Airlines and Iberia are facing immense LCC competition which is causing their short-haul European networks to suffer. However, these carriers often have profitable long-haul operations which are able to support a less competitive short-haul network. Luxair, which does not have a long-haul network, relies entirely upon its short-haul network to survive. As a result, Luxair could be particularly vulnerable to rises in LCC competition in its home market. In this respect it is more similar to the flag carriers of some of the smaller Eastern European countries - such as now defunct Hungarian carrier Malev, which also lacked a long-haul network.

easyJet's move into Luxembourg is not a definitive sign that Luxembourg's aviation market will see a large rise in budget traffic. In recent years LCCs, such as airberlin, have operated into airports nearby including Frankfurt Hahn and Saarbruecken, from where travellers to and from Luxembourg switched to surface transport options. These two airports are approximately 80km from Luxembourg.

Luxembourg, which is nestled between Germany, France and Belgium, is also relatively close to main European centres such as Brussels, Cologne, Frankfurt and Strasbourg, all of which are located approximately 200km away. LCC expansion at Luxembourg could depend on the rate of airport charges at Luxembourg compared to alternative airports nearby. But if easyJet's entry ends up being followed by other LCC moves into Luxembourg, Luxair may need to examine its existing network and design a new strategy which will enable it to be competitive against the potential LCC invasion.

Luxembourg opening to LCC competition with the entry of easyJet

LCC competition poses new threat to Luxair

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