The Disadvantages of “Low-Cost” in Europe are Revealed

November 17, 2017

 

In recent years, budget airlines have developed rapidly due to the obvious price advantages. The traditional airlines have been shunted successfully, and the low-cost airlines have gained an increasingly important position in European civil aviation. Low-cost airlines are different to the traditional airlines who offer cheap flight tickets and usually operates short-haul routes. In order to generate additional revenue, the airlines charge extra money for the food and drinks provided during the flight. In addition, they also offer services such as speed boarding and seat selection prior to boarding of the flight, which is also chargeable.  The main reason for European budget airlines to implement a cost-compression strategy is the sharp increase in the number of low cost airlines and the increased business competition. If the business model does not develop and reflect the real market demand, the airline’s performance will be affected in the following years.

 

A series of low-cost airline businesses showed the disadvantages of using a low-price strategy to participate in this competitive market this year, which triggered thought-provoking discussion about the low-cost model and its current bottleneck.

 

The rise of low-cost airlines has benefitted from the habits of European people going overseas for holiday. From 2010 to 2015, a large number of people set the Middle East as a holiday destination which further promoted the rapid development of low-cost airlines flying to the region. However, since then, the spread of terrorist activities in the Middle East led to a growing number of European tourists abandoning their Middle East holiday arrangements, hence the decline in demand for the number of budget airline flights. Meanwhile, Europeans are now more keen on Southern European countries such as Spain and Portugal. As many low-cost airlines switched flights from the Middle East to Portugal and Spain, the industry’s competition intensity increased.

 

The failure of Monarch Airlines was largely influenced by these factors. One of the company’s main routes was to travel to Egypt and other the Middle East and African countries. Following the 2015 terrorist attack in Egypt, the British government issued a series of travel warnings. So Monarch’s revenue stream was limited to a few routes. Monarch faced fierce competition against other major low-cost airlines in Southern Europe. In order to attract new customers, Monarch had to benchmark its price against its competitors. As a result, its profit margin was massively reduced. The company made a loss of 291 million pounds for 2015-2016 financial years.

 

Nowadays, low-cost tickets are not enough to attract enough customers and generate a profitable business for these airlines. They need to engage their customers through social media and focus on customer centricity to add value. This is an efficient, economic and effective way to communicate with the customer. As the market demand changes, all airlines need to change their market strategy in a timely manner or suffer the consequences.

 

As Air Berlin has suspended in Germany, the low-cost airline industry in Europe reshuffles. Finding more effective and innovative business models and knowing the real market needs would be the budget airlines’ priorities, which enable them to survive in this competitive industry. 

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