Low-cost carrier home bases and network behaviour

Airneth Column
October 2009
By Frédéric Dobruszkes

Spectacular growth
The European low-cost airline sector has undergone spectacular growth since Ryanair adopted that model in the mid 1990s. At the beginning of 2008, a quarter of intra-European air service (in number of seats) was operated by low-cost airlines (LCAs)¹. Furthermore, Ryanair became the second largest airline based on the number of intra-European seats, immediately after Air France-KLM. There is no doubt that LCAs constitute a break from the traditional economic model and type of management. But do their networks also represent a new break? To answer this question, let us look at the way the networks are designed and at the airports served by the LCAs.

Networks
LCAs are among the most visible consequences of the liberalisation of European air transport. And yet it must be said from the outset that only one-third of the seats are unconnected to the airline’s country of origin (7th, 8th and 9th air freedoms). Ryanair is a global champion in this regard.
 
Centred initially only on Western Europe, low-cost service has gradually been extended to the new EU Member States, although the latter still represent only 13% of European low-cost seats². Service to the major metropolitan zones (London, Paris, Rome, etc.) represented 35% of the low-cost seats in 2008, or as much as 56% if we add the second-tier cities (Barcelona, Düsseldorf, Geneva, etc.) and the capitals of the former communist countries. In terms of networks, 29% of all seats were on routes connecting major European cities, most often competing directly with the traditional airlines. LCAs thus do not focus solely on secondary airports or niche routes. However, this element ought not to be neglected: with their quest for new markets and secondary airports, certain airlines (in particular Ryanair) have indeed given priority to developing new routes; the low fares create a new demand for destinations that were previously little known or at least not from the perspective of tourism. Post-industrial areas (the Midlands, Wallonia, etc.) and regions with low population density and economic activity, owe the dynamism of their growing air service to a large extent to the LCAs. However, from a quantitative point of view, service to these zones represents a secondary market for the LCAs.

Airports
According to the airlines, strategies as to which airports to serve can vary widely. Ryanair is known to serve only airports specifically devoted to low-cost traffic (e.g. London Stansted or Luton) or secondary airports. Among the latter, we can distinguish former urban airports now abandoned by traditional carriers (Milan Linate), regional airports that can notably serve as a secondary airport for a large city (Charleroi Brussels South, Girona for Barcelona, etc.) and other regional airports often used for niche markets. In each of these cases, the objective is the same: to limit costs, enable quick turnarounds and obtain all sorts of advantages from the airports and/or the local authorities. Since this strategy limits development, Ryanair recently opted for a number of original solutions suggested by airport managers: a terminal specifically devoted to LCAs (Marseilles MP2) or reuse of a former terminal partially abandoned by the traditional airlines (Madrid T1).

The other LCAs pursue more conventional strategies, as may be seen in the case of EasyJet, which essentially serves large cities and tourist destinations. This airline avoids distant secondary airports in favour of the main airports (e.g. serving Barcelona rather than Girona). Certainly if a traditional airport offers a low-cost terminal (such as Terminal 3 at Paris CDG) or if a city has a well-situated low-cost airport (for instance, London Stansted and Luton), the latter will enjoy preference.

--------------------------------------------------------------

1. All the figures shown come from personal calculations based on the OAG 2008 data set. We consider Europe as a liberalised air space (i.e. EU 27, Norway, Switzerland and Iceland).

2. Dobruszkes F. (2009), “New Europe, new low-cost air services”, Journal of Transport Geography 17(6), p. 423-432.

---