For the past 10 years, we have seen an increase in low cost budget airlines in Europe, that have attempted to undercut the market of the established airlines. Many of these have attempted expand into long haul budget airlines, but many of these have failed. Despite this, their continent-oriented competitors have gone from strength to strength. But does this mean that we will see more of them in the future?
I doubt this very much. It is unlikely that new budget airlines would be able to offer such low prices, as the current semi-established airlines do, and stay solvent at the same time.
Why do I believe that we have seen the end of new budget airlines in Europe?
The short answer is: Money. Currently, the largest European LCCs are: Ryanair, EasyJet and Norwegian. All of these carriers are able to allow passengers to purchase seats at only €20 on average! This is something I can hardly see new carriers with limited funds being able to offer.
This is simply due to their inexperience in the market, and their comparative lack of funding from the banks.
I also see there being an issue surrounding branding for these potential airlines. The current budget airlines have quite good branding that has been complied over years, and thousands of flights. Almost everyone in Europe knows the blue on white with the yellow harp of Ryanair. Not to mention the front half being red, and the back being white for Norwegian. Or the orange and white of Easyjet.
I can hardly believe that potential future airlines would be able to get enough funding and enough time to effectively brand themselves, before they collapsed.
It is also unlikely that a new contender would be able to achieve the same levels of economies of scale as, say, Ryanair would. This would make the aircraft themselves more expensive, fuel more expensive and landing slots more expensive. All of these factors would contribute to the increased ticket prices of these new airlines.
However, this is not true for all airlines. Hungarian startup Wizz Air. Wizz Air’s strategy of staying 100% true to the ‘no-thrills’ theory of air travel, has allowed them to gain an unexpected edge in the market.
I also do not believe that even the current kings of the market can keep their crowns, as many are scaling down their operations. Some are doing this by closing routes others are closing down bases and hubs.
Is this only true for Europe?
Up until now, I have only referred to the European market, you may be wondering why.
Whilst I believe that new budget airlines in Europe are bound to fail, the North American market is ripe for the taking. Currently, the largest North American budget is Southwest airlines. The only major competitor for Southwest is JetBlue, but even then, JetBlue have very little on Southwest in terms of market share and brand loyalty.
Some have even argued that JetBlue isn’t really a true low cost airline as it claims it is.
The only main issue surrounding startups attempting to compete with Southwest would be the level of brand loyalty there is in North America.
In North America, most North Americans have one airline that they fly with regularly, and fly with others when they can’t use their normal airline. This would mean that a new North American startup would have to keep itself solvent for long enough that they can build up good brand loyalty.
Southwest is currently valued at around $30.33 billion. Which means any new competitor could potentially be very lucrative for whomever is in control of it.
Do I believe there will be a Southwest competitor soon?
No, whilst the idea of a Wizz Air-like, Southwest competitor may seem appealing, I doubt it will happen. For established airlines, profit margins are huge, for budget airlines, the profit margins are quite slim. If someone were to try to establish their own airline to compete with Southwest, I believe they’d struggle.
The US is an especially difficult market to gain trust in, so I doubt that there would be a successful competitor that could dethrone Southwest.
However, it is generally agreed budget airlines are good for the aviation industry as a whole, as they force established airlines to lower prices or offer more luxuries, that the LCCs are unable to compete with. We spoke with a Southwest pilot, and asked her what he thought about budget airlines in Europe and a potential Southwest competitor:
I like the idea of low cost carriers in Europe, they really stimulate the market as a whole. Even across the pond [in the US] we benefit from these carriers, we can get cheaper flights with the likes of Air France, KLM and BA, all because of these cheap carriers.
When it comes to a Southwest competitor, I highly doubt that this will come to pass. Whilst I would love to see one, I just do’t believe that they will have the funding or capacity to compete, America is a big place after all. It would take them probably 20 years to get to the point that they can compete with Southwest. By then, who knows what will happen.
Like them or not, budget carriers are here to stay, both in Europe and in America.
Do you believe that we will see any more budget airlines enter the market in the future? If yes, do you believe that they can/will dethrone the likes of Ryanair and Southwest? Tell me in the comments!