Highlights of the annual Airneth conference (III): "the airline industry is structurally unstable"
The title of this post refers to the words of Rigas Doganis, author of Flying Off Course, possibly the most-read book on the airline industry to date (a revised and updated fourth edition that has just been released!)
Mr.Doganis was one of the speakers at the Airneth conference and there he outlined his vision of the future of the airline industry. A future that passes necessarily through further consolidation, something that will have serious implications for several European hubs.
- The largest network airlines (all 9 largest airlines by capacity all had losses last year!) will focus on long-haul operations at large hubs and contract out the feeder services
- Smaller regional airlines will focus on their niche business-oriented traffic
- Mid-sized traditional network carriers have a bleak future ahead!
- Low cost carriers will increase their dominance of short haul European routes and will see some additional consolidation until only 3 or 4 will be left (Michael O'Leary has also been anticipating such an scenario, although he does not spare any fellow low cost carrier!).
- Charter airlines will have to concentrate on long-haul leisure destinations as the LCCs take more of the short-haul holiday market.
Next, it was the turn of Nigel Dennis, of the University of Westminster Transport Studies Group, that presented a fascinating analysis of the different levels of competition each major airline alliance is facing at its own hub and presented some evidence of how this is affecting pricing on key routes (Easyjet competing on a given route could result in flag-carrier prices up to three times higher!).
When comparing the competitive position of the three main airline alliances, it turned out that Oneworld, and in particular, IAG (that includes both British Airways and Iberia) is under much stronger pressure from low cost carrier at its own hubs (London and Madrid) than its counterparts at Star Alliance and SkyTeam.
This is something that was also noted by Jan Veldhuis, of The Netherlands Institute for Policy Analysis (KiM), in his presentation, as he remarked that, whereas Skyteam has increased its dominance at both CDG and AMS, Oneworld is loosening its grip on LHR.
And low cost carriers have often been mentioned throughout the conference...but, how do you define a low cost carrier?
Richard Klophaus presented a method to evaluate how "low cost" a carrier is, based on a set of 14 criteria, such as fleet homogeneity or use of major airports. Although he admitted the algorithm might need some refinement it provided an objective way to classify different airlines and the results were not always coincident with popular perception or even the airline's own marketing message. for example in a scale of 0 (no low cost) to 1 (pure low cost airline), Ryanair scored 1, whereas airlines traditionally that market themselves as "low cost", such as Vueling or Aer Lingus got 0.53, which means that they are, in reality half-way between a low cost airline and a network carrier.