Let’s start with a fact that will blow you away: More than 700,000 bookings have been cancelled between Monarch and Ryanair alone in the last month. Factor in multiple passengers traveling on many of these bookings and the estimate for affected passengers jumps to over 1.5 million. To put that into perspective, the largest stadiums in the world, fitting up to 120,000 people would be sold out for over 10 nights, just handling stranded passengers. Is there turbulence ahead for mid-low cost carriers?
Grabbing Headlines- Good And Bad…
Air travel has never been more competitive, nor headline grabbing. $9.99 one way fares are just too shocking to glance by without investigation. But how does an airline offering these fares make money, and even then- how do they deliver a reliable product? While Ryanair and Norwegian CEO’s have boasted that things could get even cheaper while making money- there are undeniable headwinds, as the price war wages on.
The Play By Play…
Ryanair has been forced to shave 40-50 flights per day off of their schedule to combat a wave of holiday leave (and outside recruitement) from their employees. This move has left more than 470,000 bookings with little choice but to reschedule or cancel for a refund, knowing they’ll pay a greater fare to travel on a competing airline.
Norwegian Airlines is bullishly acquiring state of the art aircraft, which at 100+ million a pop for a 787 Dreamliner is creating substantial debt, a debt which may airline CEO’s have quietly rumored is unsustainable. It’s not hard to calculate that it takes a lot of $200 round trip tickets to Europe to recoup that kind of cash- not including operating expenses.
And the topic on everyone’s minds: Monarch. Today, October 2nd, Monarch- the not quite low cost- but certainly not full service airline shuttered it’s doors, ceasing all operations and trading. The shock move stranded passengers throughout Europe and abroad, leading to the largest and most expensive peace time rescue of passengers stranded abroad, lead by the UK’s Civil Aviation Authority (CAA). Anyone with confirmed bookings due to return within the next two weeks will be brought home to the UK at no charge through ATOL protection.
But Why?
Why the sudden turn? Fuel costs remain low, scheduling efficiencies are on the rise and there are more passengers traveling than ever. But low fares leave low margin for error. Tight aircraft scheduling leaves little opportunity to recover delayed flights. Delayed or cancelled flights create compensation claims, which can often be a multiple of the original fare. Throw in labor union issues, competitive pay from other airlines and growing demands on crew- and you create a hostile working environment for those duking it out at the bottom of the price chain.
With so many airlines experiencing turbulent times at virtually the same time- there’s lots of wonder about the future of low cost carriers. If Ryanair was a leader and Monarch was middle of the pack- what is the future for Wizzair, Volotea, EasyJet, Norwegian, Jet2, AirAsiaX and the countless other players entering the game- bringing air travel to all. AirAsia is expanding at rapid pace, and turned it’s first profit in 2016, after 9 years in the business. Focusing on the busiest routes, with the most efficient planes and the most attractive options for ancillary fees (food worth buying) seems to be the way forward. Flying the plane is just the foray into sales and travel lifestyle acquisitions.
And legacy airlines are fighting back. Though unpopular with many customers, legacy airlines are now competing on price- offering similar a la carte options for checked bags, seating assignment and meals, with the added assurance of delay protection, lucrative points schemes and a network of partners. Legacy airlines, especially on transatlantic and transpacific routes are matching or undercutting low cost carriers while over delivering with their classic amenities, such as checked bags. If you ask this author- this seems to be a bleed them dry approach, knowing that these low cost airlines have limited funds to continue this price war forever.
What It Means For You…
Passengers booking with low cost carriers must realize that they are making a calculated, shrewd decision- but not one without risk. Low cost carriers will NOT rebook you on other airlines in the event of a delay or cancellation. Even passengers receiving refunds will rarely find enough money returned to cover the cost of a last minute ticket on another carrier. Further, for those using low cost carriers to connect onto other flights- there’s no protection for future travel plans. If the low cost carrier delays your arrival for your continuing flight, you’ll be on your own. We’ve had fantastic success on low cost carriers, but there are undeniably turbulent issues coming to the foreground. Does it make sense to fly low cost carriers? When all goes well, sure it does.
The race to the bottom can only go so far. It looks like we have pretty much reached the bottom air fares will have to go up just to cover costs. If interest rates start rise then I can see more airlines going to bust some of them must have so much debt going by the number of sales of new jets to low cost airlines.
Ryanair must run out of staff willing to pay to work for them sometime it is ridiculous that people even have to pay to have a interview for a job with them that should be illegal.
The problem isn’t really with Low-Cost-Carriers – they are DESIGNED to compete on price. It’s legacy carriers like Monarch, airberlin or Alitalia that can’t compete on price and fail. Add in management problems that are linked to rapid growth, like at Ryan Air, and you get scheduling problems, etc.
Have you added up all the cancellations at legacy carriers like Lufthansa, Air France and Alitalia from strikes – I haven’t but would guess it’s a lot more over the last 5 years than at Ryan Air.
And Ryan Air is reimbursing customers for their cancelled flights – more than 100,000 customers of legacy carrier airberlin, including me just lost their long-haul tickets without any recourse!
And how likely is it that United or American will accommodate you on another airline in case of cancelled flights if you don’t have high-tier elite status with them? Not very, most people have to wait for the next flight on their metal.
Warning people about the “risks” of low cost carriers misses the mark. LCCs have revolutionized air travel and allowed millions of lower income people to travel for the first time! In a very competitive market that is going through huge changes, Good airlines will survive and bad ones won’t – and the latter includes legacy carriers as well as low-cost carriers…
I’d recommend that people consider more than price when purchasing their tickets, including the quality of the hard products, service, safety and financial viability of the airline…
Not too sure about the ‘lucrative points schemes’ of the Legacies. Points, yes. But lucrative to whom? The airlines and maybe the credit card companies.
I enjoy the occasional redemption, don’t get me wrong. But the value has been dropping for years.
No doubt it’s dropping, or at least changing- but still lucrative and a very powerful sales tool.
The original LCC such as Easyjet and Ryanair have revolutionised air travel.
Until now, so called legacy carriers were only interested in wealthy people who could afford to pay top prices. Even today many of the best legacy carriers fares inside a Saturday night stay. Another trick of legacy carriers is, if you don’t for whatever reason fly the first leg they automatically cancel the return part which LCC’s certainly do not.
Fares are bound to rise soon for a host of reasons including fuel edging up and cost of replacement metal. Many of the legacy carriers have deferred orders with Boeing and Airbus keeping older aircraft operating to conserve capital.