Stimulation or Saturation?

Abstract

The European low-cost carriers have enjoyed dramatic growth in recent years and have substantially altered the network of short-haul air services provided. Demand for low-cost services has proved more volatile than in the United States, however, and there are incipient signs that the carriers’ ability to stimulate traffic is diminishing. Many new entrants have jumped on the bandwagon, and the traditional airlines have started to fight back. An analysis of different routes from London shows that the low-cost carriers have been much more successful in some markets than others. The major airlines remain dominant in sectors involving their principal hub airports whereas thin routes within northern Europe have shown little growth from low-cost carrier entry, some remaining the preserve of regional carriers. The low-cost airlines have performed best on dense routes not involving major airports and leisure routes between northern and southern Europe. Competitive strategies that are examined include the ability of low-cost airlines to attract traffic to secondary and regional airports that were previously underutilized. It is shown that on some routes from major cities, secondary airports are now handling a majority of the local passengers. However, the ability of airports to grow beyond the traffic potential of their own local catchment area diminishes as more locations gain low-cost service. Although some untapped opportunities may remain in countries such as France and for services with smaller aircraft, new routes are tending to dilute existing demand. The focus is therefore likely to turn to more head-to-head competition in the denser markets.