THE END OF LOW COST ... OF THIS YEAR

OP-ED PUBLISHED IN THE WRITTEN EDITION OF EXPANSION ON 3rd APRIL

Even though this writer is more of a basketball supporter –nobody is perfect!–, he can see a clear trend on football media commentators about announcing the celebration of matches “of the century” with growing frequency: they all started being very unique events taking place once throughout a long period of time, moving to happening on an annual basis, then monthly, to the point that nowadays we have a match of the century every single week –some weeks there are even two–.

Something similar has happened with the low cost airlines business model, the alleged end of which is now being forecasted more and more frequently. The formula is always the same: some airline that unfortunately collapses, some other facing difficulties, adding a couple of additional factors (fuel, labor issues, …) and so we have the end of low cost … of the year in question. And the current year it is no different, so following the bankruptcies of Primera Air, Germania, and WOW Air, the profit forecast reviews from easyJet and Ryanair, or the base closures of Norwegian, headlines and editorials abound advancing the crisis of the model, predicting its end in the near future.

The truth is that, if you analyze the issue with the needed perspective, reality is quite different. First of all, talking about crisis for airlines that will “only” earn between half to one billion euros this year it is bit of an exaggeration, even more on an industry characterized by very low profitability ratios as the one we are discussing today –many companies would try anything in order to achieve only a fraction of such a profit–.

On the other side, airline bankruptcies and demises are, sadly enough, a reality that happens with relative frequency, independently on the business model –one of the latest, Flybmi, is a regional carrier–. This is a consequence of the highly competitive environment existing out there, to the benefit of millions of consumers that enjoy today air fares completely unthinkable only a few years ago. If we review the recent history of commercial aviation, we can see that, from iconic brands such as Pan Am, TWA or Swissair, to other airlines much less known, a significant number of airlines collapsed –only in Spain there are more than thirty just on the beginning of this century–. 

Because, going back to the football simile, even if a father would wholeheartedly buy Griezmann′s gear to his son, boots included –yes, following with imperfections, this writer supports Atleti–, this alone will not turn the boy into a football star, unless he has the needed talent, on which case he will shine anyway even using flip flops. Similarly, the adoption of a business model that have proven very successful, such as low cost, does not guarantee success just by itself, in the absence of a sound strategy, impeccable execution and a sustainable competitive advantage. Following this, no airline is immunized against the market′s verdict, whatever business model it follows.

Finally, the recent trend towards a hybrid model, at least in short and medium haul, makes it extremely difficult to define what we exactly mean when speaking about low cost airlines, as the differences between business models are blurring. easyJet was one of the pioneers on this convergence, when more than twenty years ago started flying to primary airports (Amsterdam, Barcelona and Nice were the first three), breaking one of the sacred cows of the model. This evolution, founded on the believe that consumers would be willing to pay a bit more for the convenience of flying from an airport closer to their origin or destination, was soon followed by other changes centered around offering low fares, a broad network of direct destinations, a good though not luxurious service, and freedom of election to consumers, so they could choose the things they would like to pay for and the ones they would not.

After more than twenty years, most airlines have evolved their models on a similar way, which makes it very hard to ascertain what it is that would allegedly be about to disappear. Nevertheless, after having written a bit more than a year ago on these same pages on the subject (“The end of low cost, really?” https://www.dhirubhai.net/pulse/end-low-cost-really-javier-gandara/), I am afraid that we will have no choice other than returning to it on a few months from now, to remind everyone that there is still low cost model for a while, even though we will be witnessing again its end … of next year.

Javier Gándara Martínez / Country Director easyJet