Aviation Week & Space Technology - 3 November 2014

By Pierre Sparaco

Former Paris Bureau Chief

Pierre Sparaco has covered

aviation and aerospace

since the 1960s.

A

re low-cost carriers approaching a critical turning point?

Southwest Airlines’ executives have the answer: Accord-

ing to some airline analysts, the Texas-based leader is no longer

the lowest-cost player in the market, although it remains, by far,

America’s largest domestic carrier. In other words, it may have

reached the extreme limits of its economic model.

competitive era and became more ef-

ficient. Payrolls were cut, lean struc-

tures replaced outdated management

methods based on a distant past—when

the airline industry still was somewhat

elitist—and marketing became much

more efcient. Today majors such as

Delta Air Lines, United Airlines and

American Airlines are considerably bet-

ter of than in the past, certainly thanks

to competition from Southwest and its

disciples.

Other rivals—discount or ultra-bud-

get players—are also showing the way,

including JetBlue, Allegiant and Spirit.

They are being carefully monitored in

Europe and raising questions about

that market’s growth potential, and the

need to adapt to the traveling public’s

changing expectations. But if low fares

remain the holy grail, passengers are

also increasingly reluctant to travel to

airports in the middle of nowhere, after

a 60-minute-plus bus ride. They want to

use main airports and dispute Ryanair’s

revised geography: Brussels South Air-

port should be called Charleroi, its real

location, 60 km (37 mi.) from Brussels.

This is not only an issue in the U.S.;
Southwest has inspired dozens of
low-cost airlines worldwide, including
Europe’s big and influential players
Ryanair and EasyJet. Ryanair Chief
Executive Michael O’Leary has ac-
knowledged on several occasions that
Southwest did not just provide inspira-
tion, since he copied the Texas com-
pany’s cost structure and operational
methods. If Southwest is no longer
the model and gradually evolves into
a more conventional player, imitators
may follow a similar track and, in the
long run, face serious difculties.
What happened? There is noth-
ing wrong with Southwest. It has
been able to maintain a pure-player,
low-cost model despite its impres-
sive growth (it now carries nearly 110
million passengers per year) and its
expanding route system that compris-
es about 100 destinations. The low-cost
“spirit” of founder Herb Kelleher is still
alive and well, and a new generation of
executives is carrying on with it.
But after deregulation, the legacy
carriers gradually adapted to a new

Ryanair understands the market is

rapidly changing. Ofering low prices is

no longer enough; assigned seat alloca-

tion is needed, and bags—checked or

not—should be carried for free. Such

requirements call for a revised econom-

ic model and will soon be unavoidable.

Ryanair recently inaugurated routes to

Brussels Zaventem, the “true” Brussels

airport, in an indication that remote

provincial airports are no longer an

operational necessity to maintain direct

operating costs at their lowest.

Ryanair also is envisioning long-

haul services and could buy as many

as 40 Airbus A330s or Boeing 787s to

launch transatlantic routes. However,

no short-term deliveries could be ar-

ranged, a situation that doesn’t match

O’Leary’s impatience. Similarly, South-

west, for the first time, is beginning

to serve destinations outside the U.S.,

perhaps the only way to grow given a

mature home market.

The aviation world has dramatically

changed in the last few years. It is no

longer purely theoretical to wonder if

low-cost carriers and legacy airlines

will apply a unified economic model.

This seems to be the logical conclusion

of a long-lasting debate, the converging

cost structure of main players confirm-

ing that this is the trend. In the end, it

looks like one model will fit all.

Meanwhile, Europe’s airline industry

has more reasons to be worried. Its

legacy majors, such as Air France-

KLM and the Lufthansa group, have

been too slow in adapting to the new

environment. The Franco-Dutch

group’s short-haul route system is

seriously endangered by the low-cost

carriers’ unrestrained growth, their

rapidly increasing market share and

overall dynamism. EasyJet is now

France’s second-largest domestic

airline and other competitors, such as

Volotea, are harboring big ambitions.

In the end, Air France’s domestic

route system could vanish, and such

a failure would weaken its hub-and-

spoke strategy. And it already may

be too late for the legacy airlines to

launch a successful counterattack. c

EasyJet, Europe’s second-largest

low-cost airline, has taken a large

share of the French domestic market.

One Model May Fit All

Low-cost, legacy carriers move toward same

business model, on both sides of Atlantic

COMMENTARY

Reality Check

22 AVIATION WEEK & SPACE TECHNOLOGY/NOVEMBER 3/10, 2014 AviationWeek.com/awst

EASYJET

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