Where will the LCCs' new aircraft go? March 2005

Ryanair’s new order for 70+70 737–800s for delivery during 2008- 2012 has again raised the stakes in the intra–European market.

The three leading LCCs now have over 300 narrowbodies on firm order, more than ten times the combined backlog of the traditional network carriers (and only BA has any significant narrowbody commitment, with 129 A319s on option). If all the LCCs' options are exercised, they will probably catch up with the Euro–majors in terms of fleet size by the end of this decade.

Could it be that the LCCs have made the traditional airline mistake of over–ordering? It’s a possibility, but there are still structural changes taking place that favour the LCCs, notably the potential collapse of fragile flag–carriers like Alitalia and struggling hybrids like Swiss, the hastening retreat of the charter airlines, and the bloodbath among the smaller start–up LCCs. The expansion of the LCCs implies the (creative) destruction of large segments of the existing industry.

As to where the new aircraft are to go, Ryanair appears to be aiming at about 35 airport bases by 2012, compared to 12 today.

This is an additional 23 bases each averaging 10–11 aircraft, assuming all options are exercised and 100 737–800s are allocated to existing bases. Are there really that many secondary European points with such traffic potential?

easyJet’s expansion is focused more on primary airports, which creates both opportunities and threats. The opportunities for the airports lie in latching on to the fastest growing segment of the industry, boosting traffic numbers and retail income; the threats come from acceding to the inevitable demands for discounts in rack rates, risking undermining the airport’s pricing policy and endangering the incumbent carriers. The unenviable choice for some airports will be to stick with higher airport charges and a weak incumbent or lower the charges and embrace an LCC.