Continental barriers to LCC expansion January 2003

There are two basic interpretations of this capacity share analysis of intra–European schedules carried out by Gert Zonneveld of WestLB Panmure.

First, low–cost carrier (LCC) penetration in the UK and Ireland (about one third of total capacity) will inevitably be replicated in continental European markets as the LCCs develop their continental bases. Second, an alternative view is that there are fundamental differences that mean that the LCCs will not achieve the same success as they have in the UK and Ireland. (LCCs are defined as Ryanair, easyJet, Buzz and bmibaby.)

At London, Luton, Stansted and Gatwick airports are workable alternatives at London for business travellers as well as leisure/VFR passengers. EasyJet, operating from all three to major domestic points like Glasgow, Edinburgh and Belfast has in effect forced BA and bmi to downsize or abandon their domestic trunk routes to/from London Heathrow.

This strategy should work in France if easyJet is allowed to expand at Paris Orly, currently occupied by Air Lib, which is in administrative bankruptcy. Air Lib’s future depends on French government and EC acceptance of its restructuring plan (The French decision is due in mid–January). From Air France’s perspective, the failure of Air Lib would open Orly to easyJet and potentially worrying competition for its shuttle operations to that airport (though it would benefit on African routes where Air Lib competes). Andrew Lobbenberg of JP Morgan points out that Air France has recently been arguing that easyJet might be a less disruptive competitor than Air Lib.

Germany poses a different sort of problems for the LCCs There are almost no alternative airports close to major population centres. EasyJet will be taking on Lufthansa directly at Munich if or when it decides to complete its purchase of DBA, and it will need a rapid frequency and route build–up to establish a credible alternative to Lufthansa hub operation. Other issues include the competitive train service, a residual reluctance about online credit card bookings and unavoidable social costs.