Low-cost carriers have made their advance in Europe largely by finding new markets or competing with legacy rivals rather than taking each other on directly.
While there has been some high-profile overlap activity of late, bringing fresh competition among Europe's leading network carriers, it's still the case that there is relatively little direct overlap in terms of their overall networks.
Data from Flightglobal's schedules specialist Innovata for April shows that the five biggest European low-cost carriers – EasyJet, Norwegian, Ryanair, Vueling and Wizz Air – compete against at least one of the others on just shy of 200 routes. That, though, accounts for a relatively small amount – less than 10% – of the more than 2,500 routes the five carriers operate between them, excluding Norwegian's long-haul services.
Unsurprisingly, much of the overlap occurs on the more mature routes and bigger airports, so direct competition between the five low-cost carriers forms a bigger proportion of capacity as measured by flights. Of the almost 139,000 flights the five carriers are scheduled to operate in April, more than 27,000 flights are deployed on routes in competition with one of their rivals. That accounts for almost a fifth of their capacity. Innovata data for overlapping flights from April 2015 – covering the same carriers excluding Wizz Air – showed overlap on 18% of its network.
Most of the competition is between two of these low-cost rivals. But there are 15 routes where three low-cost operators overlap. Nine of these are at Barcelona. While these involve a combination of all five carriers, they mostly involve Norwegian, Ryanair and Vueling.
RECENT OVERLAPS
This summer has already brought several new head-to-head battles. Vueling, for example, has just added Manchester-Tenerife for the summer; it will compete with, among others, EasyJet and Ryanair. The Spanish carrier has also this summer begun flights from Barcelona to London Luton and Newcastle in competition with EasyJet, which in turn put itself up against Vueling by launching flights from its Naples base to Barcelona. Norwegian, meanwhile, in March began basing a pair of Boeing 737s at Rome Fiumicino – a key base for Ryanair and Vueling – though it is still to detail its route plans from the Italian airport.
But chiefs of the airlines themselves see relatively little change in momentum in terms of low-cost carrier overlap. "We don't have that much competition with EasyJet and Ryanair; it's much less than 10% of our portfolio," says Norwegian's chief executive Bjorn Kjos.
"I would much rather work with them than against them, especially on feeder operations. As an example, Ryanair, I think, have 18 routes into Cork, so why should I put up a feeder operation into Cork? I would much rather rely on Ryanair."
Likewise, EasyJet chief executive Carolyn McCall does not see increased overlap among the big low-cost operators. "We are definitely not actually [seeing more overlap]," she says. "We don't overlap with Wizz at all, really; I mean, it's really minute. And with Ryanair, it's always been around 5-6% of our routes. Route-to-route overlap is very small.
"I think what's happened is that there's been a lot of noise about Ryanair's change of strategy. Clearly, they have a strategy and a model and a lot of it is secondary airports, and that's not going to change. That's the bulk of what they do, but they are shifting assets into some more important airports. But it's not something that's surprising because it's not massively different."
While for his part Ryanair chief Michael O'Leary says he considers these rivals as "high-fares carriers", he points out there is plenty of room to grow without overlapping with their rivals. "There is more than sufficient room for everybody to grow in Europe over the next number of years, except for the legacy carriers. In places like Germany, Air Berlin is cutting is capacity by 6-7-8% per annum," he says.
That said, he cannot resist some point-scoring where the carriers do butt up against each other. "Our experience is that as we show up or expand at airports where those carriers are present, most passengers transfer to our services," he says. "EasyJet, when we opened a base in Edinburgh, in Glasgow and shortly now in Belfast, we see their load factor declines. Their market share declines as we take traffic and market share away from them."
McCall, though, says the issue is not loads but the impact on pricing that any competition has. "We would never not have a high load factor because a competitor was on our route. What we will do is, we will fight the routes we know we need to keep.
"EasyJet has had the highest load factors in the industry for many, many years, so it's not a question of load. What will always happen if you've got any competitor – and it's not just Ryanair – if you have competition on a route, your pricing's going to go down. It's just called competition. We will do it to other people, and other people will do it to us.
"[And] you plan for that. You know what you can do and for how long, and actually we have a very strong balance sheet, and we will know where we have to keep fighting to win, and you can't do that in every single place you are. That's no different from any other business."
BIGGEST RIVALS
But while direct competition between the low-cost carriers remains relatively limited, there are pockets over overlap.
Vueling has the largest portion of its capacity in direct opposition with its low-cost rivals. On just over a third of its routes it competes with one of the other main low-cost operators. That compares with around a quarter of Norwegian's European routes where it competes directly with one of the other carriers.
Those routes account for almost half the flights the Spanish carrier operates. Vueling has the highest portion of its flights on these competing routes – just over 46% of its overall flights are on routes with direct competition from one of the main low-cost rivals.
Interestingly, EasyJet deploys the second-highest share of its flights – 22% – on routes where at least one of its direct rivals operates. This reflects that on the routes where EasyJet competes with rivals, notably in the case of Norwegian and Vueling, the UK carrier tends to operate higher frequencies on the route.
Vueling has faced competition from low-cost rivals from the outset – the latter-day version of the carrier having been formed following its merger with Barcelona-based rival Clickair – and notably in its home base of Barcelona. Still, Vueling's largest base – accounting for well over a third of its routes – is Barcelona, also a base for Ryanair. EasyJet, too, has long operated from the airport and is the third-biggest operator from Barcelona, even before its formal opening of a base at the airport this summer. Both Norwegian and Wizz also serve the Spanish airport.
Likewise, Vueling's second-biggest base Rome Fiumicino is again popular among low-cost operators. Innovata data shows that Vueling is the third-biggest operator at Fiumicino, sandwiched between Ryanair above it and EasyJet below. And now, Norwegian – which already operates seven routes from Fiumicino, with only the London Gatwick service overlapping with Vueling – has opened its base there this summer. Without giving details of any new routes the airline is planning to operate from the Italian capital, Norwegian chief executive Bjorn Kjos has said the base opening is "only the beginning".
Unsurprisingly, given Ryanair's scale of operation at its two biggest bases, it is Vueling and the Irish carrier that have the greatest overlap. There are 57 routes where both carriers operate on – nearly half of which are out of Barcelona. Many of these are to popular resort destinations.
EasyJet and Ryanair are the carrier pairing with the second-highest numbers of routes and flights with direct competition, with 49 routes where they go head to head.
That includes some high-profile rivalry, perhaps most notably after Ryanair's return to UK domestic routes in 2014 brought it into direct opposition with EasyJet on connections from London Stansted to Edinburgh and Glasgow.
But overlapping routes still represent a relatively small share of the respective networks of Europe's biggest and oldest low-cost carriers. That competition is less concentrated and is spread across a number of airports, but mostly from airports in the UK and Spain.
RYANAIR VERSUS WIZZ
If a couple of years ago Ryanair appeared to be butting up against Vueling with its choice of bases – launching operations at primary airports in Brussels and Rome at the same time as the Spanish carrier – then much of its recent base activity involves it taking on Wizz.
While Ryanair has always had a presence in central and eastern Europe, this appeared to have been put on a back burner in recent years. But, armed with renewed capacity after the hiatus in new aircraft deliveries ended with its follow-up Boeing narrowbody order, it has ventured east with renewed vigour.
Since December 2015, the low-cost carrier has announced two bases in Romania, plus new routes to Sofia, Bratislava and Rzeszow for the summer. New bases in Sofia, Vilnuis and Prague have since been unveiled from this winter.
While these bases are relatively small, they do in many cases bring it into head-to-head competition with Wizz. Innovata schedules show that Ryanair and Wizz now compete on 19 routes. These predominantly cover routes out of Bucharest, Budapest and Vilnius. That figure will further increase when it this winter launches its base in Sofia – where Wizz and Ryanair will compete directly on eight routes.
"For the last two years, we've been underserving central and eastern Europe because we haven't had the aircraft to expand there," O'Leary said earlier this year. But that situation is changing, he says, as Ryanair adds 72 aircraft to its Boeing 737-800 fleet over the next two years.
Romania is a particular draw for the airline because of its competitive landscape and the large Romanian diaspora in Italy, where Ryanair bills itself the largest carrier by seats offered. "Tarom and Wizz have had Romania to themselves," notes Ryanair marketing chief Kenny Jacobs.
But Wizz does not appear immediately concerned by the shift in Ryanair’s strategy and its expansion into central and eastern Europe. "We don't think there’s been a change in the balance," says chief corporate officer Owain Jones, adding that Wizz has always operated in "very competitive markets".
He notes that Ryanair is using 189-seat 737-800s while Wizz is starting to introduce 230-seat Airbus A321s and will configure its A321neos with 239 seats.
"They're parking their – slightly smaller – tanks in our bases," he acknowledges, but insists that legacy carriers, rather than Wizz, will be the companies losing out from the expansion. We see ourselves as winners in the game."
By contrast, Wizz has little direct competition with the other major low-cost carriers. It competes on four routes out of Barcelona with Vueling; only on Naples-Prague with EasyJet; and just on Barcelona-Warsaw with Norwegian.
BARCELONA BATTLE
Barcelona El Prat airport is the airport at the heart of European low-cost carrier competition. The 50 routes that two or more of the low-cost carriers compete on is double the next highest, Gatwick. This is hardly surprising given the presence of low-cost carriers at the airport, as Iberia has focused on Madrid and the gap created by the collapse of Spanair.
Vueling, Ryanair and EasyJet combined account for 60% of the flights in April at Barcelona, which recent ACI figures show ranks as Europe's 10th busiest airport in 2015 with nearly 40 million passengers.
Vueling, the biggest operator at Barcelona, is involved in the direct competition on all but two of these 50 routes – the connections to Vilnius on which Ryanair and Wizz compete, and to Berlin Schonefeld, on which EasyJet, Norwegian and Ryanair all operate. Vueling competes on the most number of routes with Ryanair from Barcelona.
There are nine new routes where direct competition between EasyJet, Norwegian, Ryanair and Wizz has been added over the last 12 months. That includes the Birmingham route – where both Vueling and Norwegian have begun competing against Ryanair. Interestingly, there is no one carrier driving the new competition, with the new entrants on these nine routes spread across all four carriers.
The route with the most competing flights from Barcelona – and indeed any route in which these carriers directly compete – is the 331 flights in April on the Gatwick routing shared between Vueling, EasyJet and Norwegian.
Gatwick is itself the airport with the second most routes on which these carriers compete, predominantly EasyJet battling with Norwegian. The UK carrier, which is by a distance the London airport's biggest carrier, operates around four times the number of flights as Norwegian on the routes they direct compete on.
VOLOTEA ON THE OUTSIDE
One interesting approach has come from another of Europe's emerging low-cost operators, Volotea, which is developing under the radar and so far outside of direct competition with its big low-cost rivals. This is not accidental on the part of the airline.
"We are in a different league, you could call it second division if you want – we don't feel particularly good or bad about it," Volotea chief executive Carlos Munoz told Flightglobal in March. "We are just happy that it's our own league."
Munoz explains that right from its inception in 2012, the Spanish-headquartered budget carrier has sought to avoid competing head-to-head with the likes of Ryanair, Vueling and EasyJet, instead preferring to focus on markets less interesting to those bigger rivals. He applies a paradoxical two-word descriptor to these markets: the "small, big" cities of Europe.
Across 70% of Volotea's available seat-kilometres, there is no competition, says Munoz. Overlap on its routes with other LCCs is "close to nonexistent", Munoz argues. Volotea will operate 186 routes this summer but compete with Ryanair on only three, with EasyJet on seven and with Vueling on six, he estimates.
Additional reporting by Oliver Clark and David Kaminski-Morrow
Source: Cirium Dashboard
