The Effects of Low Cost Carriers in Europe and their impact on European Aviation Industry By Aaron Aristotle

The Effects of Low Cost Carriers in Europe and their impact on European Aviation Industry

Introduction to Research Skills

Aaron Aristotle Hanafi

16065883@student.hhs.nl

Executive summary

This report is written in order to find, and investigate the impacts of low cost carriers in Europe. There has been a growing concern in the European aviation industry concerning low-cost carriers. The biggest concern was that they were so dominating all over Europe, rendering full-fare airlines or mainline airlines irrelevant at times. As a result, more and more people elected to travel with low-cost airlines because of the low price. This leads to mainline-airlines struggling to cope with the heavy presence of low-cost airlines. A prime example is that, in 2009, Alitalia declared bankruptcy because of low-profits. This report will find how this low-cost airlines affected the mainline airline operators, and also what passengers think of low-cost airlines, this is to find out why they chose to fly low cost carriers.

Table of Contents

Executive Summary…………………………………………………………………..2

Introduction and Methodology…………………………………………………4

Research findings………………………………………………………………………5-6

Analysis-Conclusion……………………………………………………………………6

Annotated Bibliography………………………………………………………………7

 

Introduction

To understand how low-cost airlines affected European aviation industry; we must first define what airline actually is.  An airline is a company that provides air transportation, both passengers and freight utilizing aircrafts. A low cost carrier is an airline that provides air travels with a very low prices, and few onboard comfort. To make up for the low prices that the low-cost airline charge, the low cost airlines usually charges extra-prices for onboard food, baggage.

In Europe, there are four low cost carriers that dominate the airline market. These are the airlines

1.     Ryanair (Dublin-based Irish low cost carrier)

2.     Easyjet  (London based, British low-cost carrier)

3.     Norwegian Air-Shuttle (Oslo-based, Norwegian low-cost carrier)

4.     Wizz Air (Budapest-based, Hungarian low-cost carrier)

In Europe, the low cost concept originates in the United Kingdom and Ireland, with the introduction of Easyjet and Ryanair in 1995. Their success, along with two other European low cost carriers mentioned above in the list, was encouraged by the airline-deregulation act that was in effect in Europe, a legislation aimed at dismantling government regulation of the airline industry. This leads to this report’s main central question “What is the impact of low-cost carriers on European aviation industry”. This is also connected to the sub-questions:

1.     What effects does low cost carriers had that directly affected mainline operators (full-service airlines)

2.     What does the expansion of low cost carriers in Europe have on traditional hub-spoke (home airportsà destination airport) network

3.     What is the passenger perception of low cost carriers?

Methodology

To answer the questions that are mentioned above, an extensive desk research was used, alongside multiple sources that were found in the internet. All four questions are answered using sources that are gathered in the internet. The sources are reports from the IATA (International Air Transport Association), researches that’s been done previously, and a report from the European Union on the growth of European low-cost carriers. This sources is picked due to its un-doubted accuracy and credibility

What is the impact of low-cost carriers on European aviation industry?

The impact of low-cost carriers to the European aviation industry has been tremendous. Firstly, the deep-market penetration of these budget airlines has caused many mainline/full-service airlines to suffer financial problems and low passenger numbers. This report will be discussing more about the effects on the mainline operators on the first sub-question. Low-cost airlines base their operations on constant elimination of non-profitable lines and introduction of new ones (Vidovic, Steiner, & Babic, n.d.). This leads to eliminating on-board comforts, charging unnecessary prices for every baggage checked. The biggest impact however, is that the unfair competition among airlines in Europe, as more travellers choose to travel with budget airline. European aviation law-makers argued that budget airlines dominate the airline market in Europe and resulting in legacy/full-service carriers to suffer the consequences, one example being Alitalia, when in 2009 forced to declare bankruptcy due to low profits from uneven competition from Easyjet and Ryanair on their hubs in Rome (Fiumincino Airport) and Milan (Malpensa, Linate Airports). On the other hand, low cost carriers could help secondary airports gain profit from increasing number of passengers. London-Luton airport, where Easyjet use as their main base, gain a lot of passengers and received a significant improvement in their profits since 1995.  The impact of LCA’s (low cost airlines) is not only negatively, but it could show some positive impacts

Effects on mainline operators

The growth and dominance of low-cost carriers in Europe causes several full-service airlines in Europe to cut flights, close hubs, or even abandon service to some cities ("Low Cost Carriers in the Aviation Industry", 2016). In contrast in the number of flights, and seats that are supplied by LCA’s, the output of mainline airlines has stagnated. Main carriers find themselves in a somewhat less dominant market in their own home market (THE IMPACT OF LOW COST CARRIERS IN EUROPE, 2016). British Airways for instance, have low passenger numbers for flights inside the United Kingdom, where the market is dominated by Easyjet. Thus, British Airways closes its hubs outside London-Heathrow, which is the main airport in London.

 Effect on full-service airline operations (hub-spoke network)

Hub and spoke, is the backbone of airline operations all over the world, not just in Europe. Low-cost carriers didn’t employ the system of hub and spoke, but they have bases all over a particular country. Hub and spoke system means that an airline has a home base in their respective country, and they serve their destinations from that base. Low cost airlines didn’t have this kind of system. In Italy, the Irish-carrier Ryanair have bases in Milan, Palermo, Pisa, Trapani (Sicily), Cagliari, Catania, Brindisi, and both Rome Airports (Fiumicino and Ciampino). For a foreign carrier, it’s very rare to have this number of bases outside their home country. This has affected Alitalia (Italy’s flag carrier) greatly. If a person from Palermo wants to fly to Spain, they have to fly to Rome to catch Alitalia flights, but with Ryanair, there’s no need to do that. Ryanair also have the same system in France, Spain, Netherlands, Norway, Sweden and Germany. Alitalia suffered with low passenger numbers, high operating costs, and in the end bankrupts the airline. This happens all over Europe where low cost carriers are dominating.

Passenger perception on low cost airlines

It is clear that passengers travelling with low-cost carrier place the emphasis on the low price when choosing airlines to travel. Travelers are willing to trade no-frills for low-fare flights. This is one of the reasons why low-cost travel dominates the European aviation sector (O'Connell & Williams, 2016)

Analysis

This report has found how low-fare airlines could really have a bad influence on mainline operators in Europe. The way they do this is by giving low-fare tickets to passengers, in which they are interested and fly from secondary airports from countries all over Europe, rendering main airports and mainline operators struggling to compete, which is the biggest effect on the European aviation industry, unfair competition. At the same time, they provide a significant boost of incomes to the secondary airports, and the secondary cities they fly in to.

Conclusion

Low cost airlines in Europe will continue to dominate the aviation market, because they have a business model and has an ability to attract many travelers from flying with mainline airlines to fly with them. Travelling cheap is the way they advertise themselves for travelers. While the effects to the aviation industry in Europe was big, and for the mainline operators it’s a never ending puzzle to solve, they do bring some consolation to the airports they fly into. Since they don’t fly to main airports, they gave a new breath of life to these secondary-often looked airports. Tourism numbers increased, as well as passenger numbers. All of this extra for the local tourism industry came at the cost of the mainline operators, who struggle to cope with the unfair competition. This report has found why low-cost airlines has a bad effect on mainline operators (their hub-spoke system), how they created unfair competition in the European aviation industry, which is their biggest effect, and why passengers still choose to travel with this airlines

Bibliography

Low Cost Carriers in the Aviation Industry. (2016). SIS International Market Research. Retrieved 29 October 2016, from https://www.sisinternational.com/low-cost-carriers-in-the-aviation-industry/

= This source was picked because the company (SIS) was a credible source of global market research

O'Connell, J. & Wiliams, G. (2016). Passengers’ perceptions of low cost airlines and full service carriers - A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines (1st ed.). Retrieved from https://core.ac.uk/download/pdf/140927.pdf

= This source was picked to find out passenger perception on low cost airlines, and with the writer’s conducted the research using interviews from passengers that flew.

THE IMPACT OF LOW COST CARRIERS IN EUROPE. (2016) (1st ed., p. 2). Retrieved from http://www.icao.int/sustainability/CaseStudies/StatesReplies/Europe_LowCost_En.pdf

= ICAO is the International Civil Aviation Organization, and they have governed aviation and create rules of air traffic. It is highly undoubted this is the most accurate source of aviation related articles

Vidovic, A., Steiner, S., & Babic, R. IMPACT OF LOW-COST AIRLINES ON THE EUROPEAN AIR TRANSPORT MARKET (1st ed., p. 4). Retrieved from https://bib.irb.hr/datoteka/260325.ICTS_06_vidovic.pdf

= This article explained how the low-cost carriers impacted the air transport industry in Europe, and it’s a credible source because the writers are university students at a University and Croatia that specializes in transportation and traffic science