As recently as five years ago, it seemed the battle for supremacy in Europe’s skies was evolving into a contest between two sharply contrasting business models. Stately former national flag carriers such as Air France-KLM, Lufthansa and International Airlines Group, which combines British Airways and Spain’s Iberia, looked set to dominate, while upstart low-cost airlines such as easyJet and Ryanair fought for budget passengers.
Not any more. The differences between these two airline categories are becoming blurred. Former flag carriers now operate subsidiaries, such as Lufthansa’s Germanwings and IAG’s Spain-based Vueling, which provide competition on short-haul European flights. For their part, the low-cost airlines that have shuttled people around Europe since the 1990s are discarding their “no frills” image and upgrading services for passengers.
What is more, new entrant Norwegian Air Shuttle does not fit neatly into any category. It is low-cost, but it is setting its sights on transcontinental markets as well as the short-haul business. Its revolutionary objective is to connect European cities not only with each other but also with US and Asian cities, at prices affordable for millions of travellers.
Norwegian Air Shuttle might have been wiser to focus on conquering its Scandinavian market first. But it laid down an ambitious marker in January 2012 by arranging to buy 222 aircraft from Airbus and Boeing – a deal that it describes as Europe’s largest single aircraft order. If Norwegian proves as successful as easyJet and Ryanair were 20 years ago, there is no saying what Europe’s airline industry may look like five years from now.
Nonetheless, Willie Walsh, chief executive of IAG, is surely right to predict that some airlines will not be dynamic enough to survive the new competitive pressures. It is often easier said than done to close down or merge a European airline, but consolidation is much overdue in a sector crammed with more than 200 carriers.
Christoph Mueller, CEO of Aer Lingus, the Irish carrier, is no less accurate in asserting that the extreme low-cost model, epitomised by Ryanair, has had its day.
Michael O’Leary, Ryanair’s CEO, all but conceded this point in September when he said his airline would – miracle of miracles – set up a team to respond to customers’ emails and would stop its deeply unpopular practice of fining passengers whose hand baggage is inches over the limit.
Amid Ryanair’s profit warnings and falling share price of recent months, it has become fashionable in some quarters to sneer at the combative Mr O’Leary for supposedly getting his comeuppance. But his airline is seeking to reform its culture from a position of strength: it carried almost 81m passengers in the 12 months to October, at a load factor – a measure of seat occupancy – of 82 per cent. Far more people fly around Europe on Ryanair than on any of its competitors.
However, Ryanair has been slower than easyJet to adapt to changing conditions.
The two airlines devised their low-cost model 20 years later than Southwest Airlines, the US pioneer, but early enough to exploit the complacency of many unreconstructed European flag carriers.
Old-style airlines defended their higher prices on short-haul flights by arguing that passengers received a full range of services and the convenience of travel between Europe’s main airports.
By contrast, budget carriers offered flights that were, as easyJet boasted at its birth in 1995, “as cheap as a pair of jeans”. To keep down landing fees and other costs, they tended to fly between small, unglamorous airports located far from big cities. But easyJet always had one eye on building up a portfolio of slots at major airports. In recent times it has stolen a march on Ryanair by appreciating the need to attract more business passengers. One way to pull them in is to operate more flights in and out of big airports, close to business centres, such as Geneva, London Gatwick, Paris-Charles de Gaulle and Rome Fiumicino. EasyJet is now present at 14 of Europe’s main 20 airports.
EasyJet was also quicker off the mark to offer allocated seats, modestly tastier refreshments, flexible fares, mobile phone boarding passes and other services.
Ryanair is following suit, but its brash image is so indelibly associated with leisure travel at rock-bottom prices that it may take time for the airline to win the extra business custom it wants.
That said, Ryanair, like easyJet, is no longer an upstart but a vastly experienced airline. Both have the cost discipline and innovative skills to contain the rising challenge from their newer rivals.
Tony Barber is the Financial Times’ Europe Editor
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