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tures replaced outdated management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
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