FlyBMI, a regional UK low-cost carrier, has collapsed. Not a surprise according to market onlookers. It faced the double whammy of higher costs — eg fuel, green taxes — and the lower income which comes together with significant growth in air capacity which puts downward pressure on fares and rates. Throw in the sprinkle of uncertainty called 'Brexit' and the result is inevitable.
Perhaps. This is not the first low-cost carrier to face challenges. You can add Air Berlin, Alitalia and, more recently given their well-documented financial challenges, Wizz Air, Flybe, Norwegian and even the grand-daddy of them all, Ryanair.
Higher costs, greater capacity and more competition is affecting the entire low-cost market.
Does this have any effect on other carriers on which corporate travellers might be flying?
Undoubtedly.
Traditional network carriers — the AF KLMs, Lufthansas, British Airways — have historically been more immune to market pressures. They have the financial clout to employ hedging to mitigate the effects of oil price spikes and the long history which means they are well-understood brands with long-standing customer relationships.
They won't collapse but they do face the same market conditions and the overcapacity which transformed Norwegian from aviation industry darling to pariah affects all carriers. Quite simply, no matter whether a leisure-focused low-cost point-to-point airline or an international network carrier, airlines need bums on seats to make profits. Air travel is a perishable commodity and an empty seat represents revenue that is lost for ever — you cannot sell twice as many seats the next day to compensate.
Not unless you sell them at twice the price and buyers have too many alternatives to make that a likely scenario.
Growth in capacity is not just an airline issue. Capacity growth is the holy grail for business hotels as well. On Tuesday InterContinental announced its preliminary results for 2018 which made a virtue of the fastest growth in a decade (17% - 56,000 more rooms). Growth may be a sign of a company's strength but it also means more capacity in the market and more competition to fill rooms. And hotel rooms too are a perishable commodity.
The Business Travel Show's annual survey of European travel buyers found that only 33% of respondents say they will have bigger travel budgets in 2019. Only one-third of respondents saying more spend means two-thirds believe there will either be no change or an even lower spend.
Fewer business travellers at a time of surplus capacity may add to suppliers' woes but market conditions which enable travel managers to meet their budget targets might very well be on the way.