News Analysis: Budget Carriers in Identity Crisis

Marketing, August 8, 2007 | Go to article overview

News Analysis: Budget Carriers in Identity Crisis


The glory days of no-frills airlines look numbered as pricing and legal pressures mount. Jemima Bokaie reports.

A few years ago it was possible to book an easyJet flight to Nice for less than a tenner; consumers could even jump on a Ryanair flight to Cork that cost less than the pint of Guinness awaiting them at the other end.

If these flights were delayed, or a bit cramped, passengers knew they were flying 'no frills', so they didn't care; and if the cabin staff weren't quite on a par with the major carriers' crews, it was cheap, so passengers would turn a blind eye.

Having achieved rapid success in the late-90s, low-cost carriers are now facing more testing times. With the rising cost of fuels and airport tax, these flights are substantially more expensive than in recent years, and passengers have started to care about how low-cost carriers treat them. In turn, airlines will be forced to look closely at their operations and consumer perceptions of them to assure their future existence in the rapidly changing aviation arena.

'Low-cost fares are not as competitive as they used to be,' says Colin Shaddick, travel analyst at Continental Research. 'Some are not so different from those offered on the same routes by full-service airlines such as British Airways.' He adds that the no-frills model is also under pressure from market saturation, with other budget airlines muscling in on markets currently dominated by easyJet and Ryanair. This is increasing competition for airport space and slowing aircraft turnaround times.

As well as increases in passenger duty and airport charges, further factors are squeezing the low-cost carriers, such as delays to flights due to ground-staffing issues, over which they have little or no control, and concerns about the industry's contribution to climate change.

Train travel is one threat just starting to have an impact on low-cost flights. Eurostar has already stolen market share on the London-Paris and London-Brussels routes, and Railteam, an alliance of Europe's leading high-speed rail operators, will make inter-city train travel across Europe simpler and cheaper.

Another challenge facing the industry is legislation on the advertising of flight and holiday prices that was brought into effect at the end of last month. The Office of Fair Trading now requires companies to include all fixed, non-optional costs, such as airport fees, in basic advertised prices. The rules will hit both Ryanair and easyJet hard, as both have relied heavily on aggressive advertising promoting rock-bottom fares.

No-frills airlines are responding to weakening demand by slashing prices in quick-fix sales that will inevitably slow annual growth. Despite revealing a 20% rise in first-quarter profits, Ryanair is forecasting full-year profit growth of 5%-10%, compared with 40% last year.

Thomas Burke, head of consulting at creative business consultancy Dave, says the heart of the airlines' branding issues is the problem of 'being only two steps away from cattle transportation' at a time when consumers are paying more attention to quality of service.

'The emotional aspect of the brand isn't there; it's become commoditised,' he says. …

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