How low-cost carriers pounce on aviation’s downturns
There is no secret that the world runs in cycles – when there is economic growth, a downturn will follow. Every industry feels the impact of an economic downturn and aviation is no exception to the rule. However, in aviation, some use these downturns to their advantage – not only to attract more passengers on their flights but to also purchase aircraft at exceptionally good prices.
It seems like for an airline like Ryanair, which only operates the 737, now would be the perfect time to purchase more Boeing aircraft. Surely the on-going 737 MAX crisis has significantly reduced the price of the aircraft, as Boeing would be more than interested in selling the aircraft in an obvious economic downturn for the manufacturer?
Yet Michael O’Leary, the Chief Executive Officer of Ryanair, during an event in London on October 1, 2019, said that “there are no pricing opportunities on aircraft”, as he thinks that “we [Ryanair – ed. note] have to wait for the next turn in the cycle”.
Throughout history, low-cost carriers showcased more resilience and flexibility during downturns in the industry. They also managed to do some brilliant pieces of aircraft business.
Some more successful than others
While network airlines struggled to make ends meet, low-cost carriers thrived. Ryanair managed to grow between 2000 and 2003: from 7 million passengers at the beginning of the millennium to over 16 million travelers boarding Ryanair’s aircraft in 2003. The same story repeated itself once again at the end of the previous decade – between ’08 and ’10, the Irish LCC increased its traffic by 16 million passengers.
Ryanair was not the only low-cost carrier that was growing in Europe. EasyJet’s traffic also increased, albeit the growth was more modest. The British airline welcomed 5.1 million more passengers in FY2010 compared to FY2008. Hungary’s Wizz Air, which commenced operations in 2004, managed to welcome 7.5 million passengers in 2009. Considering it was done in just five years – a very impressive feat, bearing in mind the softening demand for air travel in the background of the financial crisis.
But did full-service airlines really drop off in 2008-2009?
Oh boy, they did. The European Commission published a report on January 21, 2010, analyzing the industry’s results in FY2009. Out of the Top 20 airlines in the world, only six managed to increase their passenger numbers: Air China, British Airways (only by 0.2%), China Eastern, China Southern, Emirates and, surprise, surprise, Ryanair.
In Europe, mainline carriers offered 700,000 fewer seats per week in 2009 than in 2008, accounting for a 6.7% drop in weekly capacity. European low-cost carriers reduced their weekly capacity by only 0.4% or 25,000 seats – even so, Ryanair, easyJet and Wizz Air all managed to increase their capacity by 16.4%, 7.4% and 22.4%, respectively.
But why were low-cost carriers able to grow?
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