The prolonged period of austerity we are currently still going through hasn’t meant doom and gloom for everyone. Low cost airlines – Ryanair and easyjet in particular – have found that their budget offerings have become even more enticing when money is scarce for both holiday goers and businesses.
From the beginning of 2009 to now, Ryanair and easyjet have hit 100% and 400% share growth respectively. Both comfortably beat the growth of the FTSE 100, as well as that of rival companies like Lufthansa and Air France.
Easyjet, in particular, has thrived; largely avoiding the slump felt by other airlines in 2011 and reporting impressive growth. They managed this achievement by choosing to break out of the ‘no frills’ model early by offering allocated seating, flexible fares and other extras favoured by business and more affluent travellers.
It has been a stunningly successful move by the airline, to the extent that it was recently copied by Ryanair with equally positive results. The company recently reported a 32% jump in profits – attributed by the company to a new policy of being ‘nicer’ to their customers.
What this means for flyers in the longer term is that, contrary to the belief of many analysts and airlines in recent years, the end of austerity will probably not mean a return to the pre-2008 status quo of higher-end airlines dominating all but short haul, budget flights. It has already meant that those who favour cheaper flights can now travel with a measure of comfort. Soon, it should also lead to lower costs and better quality across the board.
One company that has noticed this trend early is International Airlines Group (IAG), an aviation giant formed by the merger of British Airways and Iberia back in 2011. Two years ago, the company agreed a deal to buy 100% of Vuelling, a Spanish low cost airline. It has also launched another low cost brand, called Iberia Express.
The new acquisitions and lines have not only allowed the company to compete better with the likes of Ryanair and easyjet in the short term, they’ve also brought profit. IAG recently reported a 30% leap in profits for the last quarter, and was able to increase its prediction for full-year profit by £50-£100 million.
News has not been so positive from other major European players, however. Both Lufthansa and Air France have released profit warnings over the summer, and Lufthansa has cut its profit forecast for the year. Air France recently announced that profit for the last quarter was down 60%. Both blamed increasing competition for their poor performance, from high-end Middle Eastern airlines and budget European ones.
As IG analyst David Madden puts it, ‘there seems to be a feeling of branching out in the aviation sector, with Ryanair making inroads in the business class sector while Air France and Lufthansa both look to steal business from the budget airlines’. That Ryanair, easyjet and IAG are all now in direct competition is becoming ever clearer, and it seems that Air France and Lufthansa will soon be joining the fight too.
That, along with the current low-worth of major international currencies (excluding the dollar) and oil, is good news for travellers. As competition increases – not only on price but customer service, comfort and reach – the options available to all flyers are set to increase just as they get a bit more free cash to spend on holidays. Hopefully, that means a bright 2015 for holiday goers in Britain and beyond.
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