The rise of Low-Cost Carriers, and the Overflow of the European Market


With the 3 major European Airline Groups releasing their 1st Quarter Results for 2019, we can see a major trend: both the Lufthansa Group and the Air France – KLM group have presented losses of over 300 million Euros, while the International Airlines Group has declared a decrease in profit of over 200 million Euros when compared to the first quarter of 2018.


When questioned about the reasons behind these losses, every airline group pointed to two things: the rise in fuel prices and the over-saturation of the European Aviation Market due to the increasingly competitive Low Cost Carriers.

Although the rise of the Low Cost Airline has been a global phenomenon, it has had a huge impact on the European Market, with over 30 Low Cost Carriers currently operating in it. Due to relaxed regulations, the Market has become over-saturated, and this has taken a toll on the big legacy carriers.


In the rise of this new business model, all three major airline groups either bought or created their own Low Cost subsidiary: the Lufthansa Group with Eurowings, the IAG with Vueling and the Air France - KLM Group with Transavia.


However, none of these are comparable in size to the major players in Europe, Ryanair and EasyJet: combined these two airlines have over 800 aircraft flying and over 300 aircraft on order!


Photo by Ryanair

Ryanair currently serves 215 airports with 1,800 routes and over 2,000 daily flights! Being the number one airline in Europe in respect to network coverage, with 83 established bases around the world, the airline employs over 17,000 people but even with such astonishing figures, the airline has also reported losses of almost 20 million Euros for the first quarter of 2019, even if the company saw an increase in revenue of 9% when compared to last year’s results.


While its rival EasyJet only serves around 150 airports with 979 routes covering 33 countries, it is still the second biggest player within the European Low Cost Market. Although the airline has yet to declare its results, the company announced that it expects to make a loss. This comes as the company faces both the increase in fuel prices and the Brexit situation, having to make major efforts in order to be able to maintain itself within the European market even with the uncertainty of a no-deal Brexit.


Photo by easyJet

Having all this in mind does bring up a question: what is happening to this market? What used to be one of the most profitable corners of the aviation history, has seen massive drops in profit, even with growing passenger numbers and ticket revenue. The answer is clear: over-saturation. Just in 2018 we have seen the collapse of Air Berlin, Primera Air, Alitalia (which has now come back), Monarch, and many more…


However, we haven’t only seen airlines collapsing in Europe, but also new Airlines commencing operations, airlines like Level, Joon and Air Italy all started flying in the European market in 2018 and while all of these have backings from other airlines or airline groups, they have had a steady beginning of operations, and have added to the already over saturated market.


So, who stands to make a gain with this over-saturation? Who will emerge victorious after the competition is decimated? Will the Low Cost trend continue? Or will we see a repetition of what happened in the US when the Legacy Carriers attempted to compete with the established Low Cost Carriers?


It is still too early to say, but one thing is clear: the aviation industry in Europe is going through a major struggle, and with the Brexit issues, this may lead to even more airline collapses and resurgences.

Sources:

> https://www.airfranceklm.com/en/finance/publications/results

> https://www.iairgroup.com/en/investors-and-shareholders/results-and-reports

> https://investor-relations.lufthansagroup.com/en/publications/financial-reports.html

> https://investor.ryanair.com/results/

> http://corporate.easyjet.com

> http://mediacentre.britishairways.com/imagelibrary/categories

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