For some time there has been a shift between what legacy and low-cost carriers (LCCs) are offering travellers. Initially the traditional, usually national, carriers included amenities such as a meal and allocated seating, where the LCC offered a seat and added on anything else you wanted to pay for. Nowadays some may argue that there's little difference between the two when it comes to the basic product offering. However, the LCCs are scooping up business where others have had to scale back.
At Ryanair's recent trading update Business Travel iQ heard the airline's chief financial officer Neil Sorahan mention several times how it is taking full advantage of the fact national carriers have decreased their point-to-point services in recent years. Where legacy carriers cut routes to save their operation the LCCs have quickly stepped in with smaller aircraft and a willingness to spread capacity across several regional airports within each country. easyJet and Ryanair may be based in UK and Ireland but their activity and impact spreads across European businesses.
At Milan Linate for example easyJet has snapped up route slots dropped by Alitalia as the Italian carrier scrambles back on its wings with help from Etihad Airways. easyJet will launch a base at the airport this year with plans for more aircraft there and Ryanair has been picking up Italian regional traffic in recent months. Alitalia's strategy focuses on its long-haul operation and will even leave the Air France KLM group in 2017, saying it no longer sees the benefit.
Similarly in Germany and France the Lufthansa, Air France and KLM brands focus on long-haul routes with low-cost subsidiaries for short-haul. Air France and KLM have reduced their short- and medium-haul traffic by 12.8% this year while capacity under the new Transavia brand has increased 21% in France and the Netherlands.
Low-cost carriers have an impact across Europe. ©iStock/mashabuba
In Germany Ryanair will open a base in Berlin and increase capacity at Brussels and Cologne, with an aim to increase corporate sales. Sorahan says Ryanair currently has a 4% market share in the country (by passenger numbers) but could get to 15% in the next five years. He explains, "It's an important market. We didn't do much in Germany at first because there was a lot of uncompetitive pricing but as there's been lots of consolidation and route cuts the time is right for us to go in. The airports are very keen".
Even at Schiphol, where KLM has been aggressively adding regional connections, easyJet has recently launched a base. The orange carrier already flies 108 times a week from the airport and a third of passengers on the route are business travellers. In its 2014 trading update International Airlines Group (IAG), owner of British Airways, Iberia and Vueling, shared it was not immune to the impact, saying, "While the domestic and European markets were very competitive our passenger load factors improved in both regions, but remain lower than the European average reported by IATA, influenced by the growing presence of the low-cost carriers."
Norwegian Air Shuttle has had more of an impression in Scandinavia than the UK and Irish counterparts. Ryanair is looking to dent this, starting with eight new routes from Copenhagen this winter. Norwegian is already ahead on the low-cost transatlantic race however, launching flights from London Gatwick to several US airports in 2014. Ryanair has the US on its radar, but remains focused on Europe for the time being.
As a result, this is the market share structure in some of the European countries (based on passenger volume).
Where the LCCs can lose their appeal is the airports they fly into. Ryanair has worked on its business-friendly timings but lacks the convenience factor by flying into smaller non-central airports. This might save them money on airport fees but for corporations it means more spent on ground transport and valuable time getting to city centres. It's where the two largest LCCs differ; Ryanair wants to boast a large number of airports whereas easyJet prefers growth at larger airports. The latter has London Gatwick, Paris CDG, Amsterdam Schiphol and Stockholm Arlanda on its route network, while Ryanair flies to/from London Stansted, Paris Beauvais, Paris Vatry, Stockholm Skavsta and Stockholm Vasteras. That said, sometimes it is the regional airports that could benefit from businesses not based in large cities, or offer a connection to areas that other airlines do not fly to.
This lends the argument that LCCs would be an even bigger threat in the corporate world if they entered codeshare agreements. Legacy airlines use alliance partnerships, joint ventures and codeshares to feed traffic onto long-haul routes, but it's an area European LCCs are not currently heavily involved in. easyJet has one codeshare deal with Transaero for the London Gatwick-Moscow route but CEO Carolyn McCall has ruled out acting as a feeder for legacy carriers, saying it "doesn't make any financial sense". Ryanair has none so far but is warming to the idea.
Route capacity has helped LCCs grab more of the business travel market, along with business travel-specific fares and distribution deals. In 2013-2014 easyJet saw an 8.5% increase in business passenger numbers to a record 12 million. Ryanair says 27% of its passengers are flying on business, totalling around 20 million a year based on its 90.6 million passenger count in 2014. Popular routes all take off or land at London Stansted to/from Dublin, Glasgow, Edinburgh, Brussels and Cologne.
Sorahan says the airline has "worked hard" to promote its services to business travellers, including more primary airports and city pairings alongside tie-ups with American Express GBT and the GDS platforms. The airline's Business Plus fare launched last year with free flight changes on the day of travel, 20kg baggage allowance, fast-track airport security and priority boarding.
Not all those travelling on business are using the fare but Sorahan told Business Travel iQ that "over time we'd like to convert as many of those as possible to the Business Plus offering. We've always had the small and medium sized enterprises booking for themselves but with this fare and partnerships we can now market to the bigger corporates." A more personalised app and updates to its interiors, uniforms and menus will be launched this year to expand the appeal. Further developments related to business travel are under wraps until 2016. The carrier is slightly behind easyJet when it comes to business travel efforts; the Luton-based airline signed its first GDS deal in 2007 and last year ran its first advertising campaign focused on corporates.
Legacy carriers are benefitting from long-standing loyalty programmes, alliances and codeshare agreements that offer better connections. But many have been plagued by strikes in recent years that have been an inconvenience and pushed some travellers to try other carriers. Those frequent flier schemes are also not offering as much as they used to and easyJet could be a larger threat when its own loyalty programme launches. On the other hand, LCCs have moved past just caring about price and made progress in customer service, apps and booking capability that could make some travel managers reconsider their place in the travel policy. Others want to attempt blocking out these shrewd moves and keep their local airline afloat, as shown by Copenhagen's mayor in last week's analysis. Ryanair is talking a lot about business travellers but is it also talking to corporate buyers?