Old airlines flying in thin air
Cut-price rivals are eating away at the market for long-haul travel
The airline industry battle between full-service carriers and discounters looks like an increasingly unfair fight. As British Airways is still digging out of its weekend IT meltdown, Ryanair Holdings reported higher profit and announced plans to accelerate its European expansion. It’s the latest sign that legacy carriers are groping for ways to compete, beyond just offering customers less and less for higher fares.
The looming danger for airlines like British Airways and Lufthansa is that no-frills carriers are putting increasing pressure on the main source of their profits: long-haul travel.
Ryanair, which is also moving into main hubs from secondary airports, has signed deals to feed passengers to Air Europa, Norwegian Air Shuttle and even Aer Lingus, which has the same parent as BA.
If Norwegian can show its ambitious long-haul budget model can work, then the air will indeed become very thin for Europe’s legacy carriers.
“Events like what happened with BA at Heathrow and Gatwick can only be good for our business,” Ryanair chief executive Michael O’Leary said in a Bloomberg TV interview.
“We’re certainly seeing a build-up yesterday and today into June, July, August, of people who are not willing to take the risk that they’ll be stranded by BA at Heathrow.”
For now, British Airways has given frustrated passengers another reason to look elsewhere.
Days after a brief power surge knocked out its communications systems and froze the carrier’s entire London operations, Britain’s flag carrier struggled to explain how a local computer outage could strand thousands of passengers.
“We will make an in-depth investigation to make sure we will get to the bottom of exactly why this happened,” chief executive Alex Cruz said in a YouTube video. “We will react. Absolutely this will not happen again at British Airways.”
That’s too little, too late for the minimum of 75,000 affected passengers, whose horror stories quickly coursed through social media.
The Daily Mail ran a story of a young British woman “in tears” as the chaos forced her to put off her wedding in Greece.
So while BA continues to look for answers, Ryanair is pushing ahead with plans to increase its fleet by 12 per cent by March 2018 and has sent the message to Boeing it will take every additional 737 it can get.
“Ryanair seems to be succeeding
[Ryanair] has sent the message to Boeing that it will take every additional 737 it can get
at squaring the circle,” says Jonathan Wober, a London-based analyst at CAPA Centre for Aviation. As Ryanair expands into primary airports and adds services, “that puts pressure on legacy airlines and incumbents”.
Those aggressive expansion plans contrast with what’s happening at the likes of BA or labour strife-ridden Air France — not to mention insolvent Alitalia.
The fundamental problem for traditional network carriers is air travel isn’t the elite luxury it used to be.
It has become a mass-market commodity, laden with onerous restrictions. It hardly matters who operates the Boeing or Airbus planes as long as travellers get to their destinations and so they gravitate toward the cheapest fares.
That’s an ideal environment for the likes of Ryanair and EasyJet, which can pressure fares to gain market share.
Easyjet, Europe’s second-largest budget airline, also plans to bulk up its fleet by upgrading an order for 30 Airbus narrow-body aircraft to the biggest A321 variant. The Luton-based company will deploy head-to-head with the legacy carriers on the busiest city routes.
“Short-haul air travel in the US, in Europe, is becoming commoditised,” O’Leary says. “The lowest cost wins, and Ryanair is the lowest cost.”
Meanwhile, BA is struggling to clean up its mess.