Driving traffic In his article "Economic drivers revisited" (February page 66), Chris Tarry states that low-cost airlines' "initial advantage is simply to offer lower fares in existing markets, so pulling passengers away from the incumbent carrier". He also states that "beyond a particular point, a reduction in price is unlikely to result in new traffic". And later he states that "it is easy enough to stimulate artificial growth through fares discounting" I think these statements miss the point about how markets respond to price, and the role that lower fares are contributing to traffic growth. Low fares (whether offered by low-cost or legacy airlines) are stimulating new markets for travel, and have been doing so in Europe since the mid-1990s when the concept was first established on the UK-Ireland market. There is a very definite relationship between the frequency with which people travel and the cost of the trip. Many journeys are made solely because the fares are cheap. Traditionally, economic growth has been regarded as the main driver of traffic growth. This was in a business context whereby fares did not change greatly, and there was little or no price competition. The rules have been changed by the emergence of the low-cost concept, and price competition. Low-cost airline projections of traffic potential for routes are determined largely by the fare differential that they expect to offer. They know from experience that the market will respond to the low fares, and have price elasticity norms built into plans. Clearly they are doing more than pulling traffic from incumbents. Air travel markets will respond to both economic growth and to lower fares. The extent of response to economic growth depends on the maturity of the market. US domestic seems to have a low multiplier of about 1.4, while Europe has traditionally had a multiplier of about two. This may change as the European market matures. Fares will continue to have an impact on traffic growth. The low-fare concept is not yet fully embedded in all markets. There are still huge differentials between the cost base of most legacy airlines and many of the new entrants. Competition will force the legacy airlines to follow the low-cost model (at least for short haul within Europe) and this will provide scope for significantly lower fares. This is effectively the model Aer Lingus has pursued since 2001 I do not agree with the term "artificial growth" either. The lower the fares, the more people will travel. But the new markets created are not artificial. As the low-cost airlines tend to be the most profitable, it is clear that their fares are not, on average, artificially low. A critical factor is how revenue management is applied. Many airlines can offer some seats for very low fares on the basis that they are achieving sufficient revenue from other passengers to make the route profitable. This sophisticated use of revenue management also stimulates the numbers travelling, but this is not artificial. It is an integral part of the modern airline business. Bob Laird Laird Aviation (consultants), Skerries, Co Dublin, Ireland
Qatar A380 order clarified In the article on the Airbus A380, "Great expectations" (January 2005, p52) you state in a table that the Qatar Airways A380 order is not yet subject to firm contract. This is incorrect – the purchase agreement for the airline's two firm and two option A380 aircraft was signed in December 2003. For your information, I have been the fleet management adviser to Qatar Airways for the past eight years and was closely involved in the acquisition of the A380s. Stephen L Vella chief executive officer Prime Aviation, Gatwick Airport, UK
Source: Airline Business
