Essay Example on What will happen to Low-Cost Airlines in Europe after the Brexit


Traveling , Politics






The United Kingdom’s airline loss is others gain you may think but not so. These agreements work both ways and other members of the European Common Aviation Area and those with third party agreements lose their privileges to fly into the United Kingdom. Without proper thought, this could prove to be a lose-lose situation for all. A vocal campaigner for Remain in the referendum was Michael O Leary, Chief Executive of RyanAir. He made his views well known during the campaign comparing Brexit to armageddon and stating As the UK’s largest airline RyanAir is absolutely clear that the UK economy and its future growth prospects are stronger as a member of the European Union than they are outside of the EU. And he has continued to make the case since the result urging the United Kingdom to ignore the result and remain in Europe. Ryanair was founded in 1984 and its first flight in 1985 was a 15 seater from Ireland to London Gatwick. It has seen its passenger numbers rise form 5 000 in that first year to 119 977 801 in 2016. It boasts a fleet of 400 aircraft over 1 800 routes and in 2017 88 of its flights arrived on time. Safe to say it is one of the main competitors in the low-cost carrier world in fact last year it flew more international passengers than any of its competitors. Ryanair has seen its adjusted profit after tax rise steadily in the past 5 years as follows Year M Variance from the previous year 2017 1 316 6 2016 1 242 43 2015 866 7 66 2014 522 8 8 2013 569 3 2. It is clear to see that they are still a force to be reckoned with but do have their competition. Michael Porter’s five forces of competition framework show us that there are five forms of competition to consider the existing competition, competition from substitutes threat of entry supplier bargaining power and customer bargaining power.

How things have changed in aviation since the first commercial flight in 1914, when Percival Fansler said: “The airboat line to Tampa will be only a forerunner of great activity along these lines in the near future, what was impossible yesterday is an accomplishment of today, while tomorrow heralds the unbelievable”.  His prediction is probably more accurate than he ever could have imagined. From one passenger in 1914 to an estimated 8 million passengers, a hundred years later quite the accomplishment. Southwest went on to revolutionize the industry in a different way with its concept of low-cost airline and budget flights, a model we are very familiar with today but one that changed the business of aviation. Low ticket prices with reduced services made air travel more accessible and became a serious competition to the full-service carriers. Full-service carriers saw losses of 12 billion between 2000 and 2014 whereas low-cost carriers took 30 of the market. The European industry has perhaps experienced other unsettled times in 1997 and the creation of the Common Market saw the European aviation industry de regularised meaning an increase in consolidated airlines.

Carriers not having a fixed base in a European country means airlines can and do pull out of airports more freely. Add to this that the yield the money a flight makes is being tested due to changes in oil prices increased security people not spending due to squeezed incomes and many of us have developed a conscious over the environmental effects of flying. One of the biggest challenges facing the European aviation industry is Brexit. The historic result in June 2016 will not only affect British airlines but will be far more wide-reaching than that. All European Union states are members of the European Common Aviation Area. As such where an owner of an airline is based in a member state then that carrier can run anywhere within the European Common Aviation Area Without shrewd negotiation the United Kingdom may no longer be a member of the European Common Aviation Area and won’t enjoy the benefits that bring no limitations on frequency for example or the benefits of third party agreements.

Existing competition. A simple but effective formula for low-cost carriers will inevitably create competition. The principles behind the low-cost carriers are simple but sound reduced costs for the carrier and lower airfares for the passenger. The reduction of costs can be achieved in a number of ways including operating just one type of aircraft meaning lower cost in training and maintenance flying to smaller airports resulting in cheaper landing fees, online check-in, limited onboard services and even charges for services, food, and even blankets. It has resulted in a less luxurious mode of transport but nonetheless it has become a more affordable one. With low-cost carriers on the increase there is plenty of competition for Ryanair, Easyjet, Vueling Norwegian, and WizzAir being probably the main competitors in Europe Figurest.

 in August 2016 shown Ryanair was competing directly with Vueling on 55 routes, Easyjet on 42, Norwegian on 23 and WizzAir on 17 routes. Clearly the key to beating the competition for low-cost carriers is the price, since there is little customer loyalty more often than not the lowest price wins Competition from substitutes Whilst other modes of travel, can be considered as a threat of substitute to cheap air travel. Ryanair does still manage to keep the cost of their flights as cheaper than the alternative of bus, train or boat.

Therefore the threat is fairly minimal. The threat of entry. As illustrated earlier there are a number of competitors in the low-cost carrier sector however whilst many have tried, many have also failed. Aviation is an expensive business that obviously requires a lot of capital investment. A high initial investment but keeping costs down to compete with well-established competitors is no easy feat with the added difficulty of trying to get airport slots. Supplier bargaining power. The bargaining power of suppliers plays a key role in the success of Ryanair and any other carrier Boeing and Airbus hold the duopoly of airplane manufacturing and as such can set high prices for their planes. Ryanair fly the Boeing 737 800 and has an important and mutually beneficial relationship with Boeing. Another supplier to airlines is airports. With airport slots at a premium and so many carriers vying for the lucrative slots, larger airports have a good platform for bargaining. However low-cost carriers such as Ryanair are likely to avoid these airports after all cheap airfares do not come as a result of high service charges.

Customer bargaining power poses a real threat to any low-cost carrier since there is little customer loyalty to be had in the industry. Cheap airfares are the driving force in a customer deciding who to fly with and since most of the low-cost carriers offer much of the same switching to another carrier is easy and cost-effective More worryingly for Ryanair is the recent error in pilot rotas which saw thousands of flights canceled and the continuing issues with threatened strike action The pilot rota debacle has seen flights canceled through until March 2018 and it is suggested could have cost Ryanair up to 44m. Whilst Ryanair announced a rise in profits after tax of 11 in the 6 months leading up to the end of September 2017 some warn that the reports coming from Ryanair do not cover the period of turbulence. So whilst Ryanair maintains they are on target for 1 4bn for the year there is probably a case for caution at this time. And whilst Michael O Leary highlights that the management of the situation stopped the situation from being far worse, the problem has not gone away. A quote from the Chief Executive has come back to haunt him. In September he stated I don’t even know how there would be industrial action in Ryanair. There isn’t a union in Ryanair. There has been no demand for new contract. A few months later the announcement came from Ryanair that it would recognize the unions. A survey carried out by a consumer group found Ryanair came last in a poll of consumer poll along with one of its main competitors Vueling.

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