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Aviation: Low-costs under pressure?

The European low-cost airline sector didn't have it all its own way during 2018. The largest, third and forth largest carriers in the sector - Ryanair Norwegian and Wizz Air - all cut forecasts and announced reduced profits. So what's going on in the world of low-cost airlines - why are some of them struggling?

The Aviation Oracle provides regular news and views from the world of commercial aviation, aiming to get behind the headlines and explaining why things happen as they do. If you find this feature interesting and informative, visit The Aviation Oracle's facebook page and then click like to keep up to date with the latest stories.

Background

Over the last three decades budget airlines such as Southwest in the USA, Ryanair and easyJet in Europe, and Air Asia in the Far East, have transformed the way we travel. In doing so they swept away the era of high fares, replacing them with a la carte pricing.

Some low-costs are struggling while others are thriving.

In the early days, low costs took market share from the legacy airlines that continued to include all the extras in ticket prices. More recently however, the budget airlines have moved into new airports and regions that the majors didn't touch. These services were predicated on low fares as much as latent demand. However, the airline business is notoriously challenging and the law of the jungle - the survival of the fittest - usually prevails. The onslaught of low-fares forced the established legacy carriers to adapt by cutting both prices and amenities, as well as forming alliances. For the most part the big players have since become stronger while the smaller and weaker new entrants - especially those lacking a niche market or USP - have perished.

Set backs

Early 2019 signaled two noteworthy developments in Europe. Primera had already gone and WOW Air was on its last legs - at least while awaiting a potential suitor. On January 19 Ryanair issued its second profit warning for the year, revealing that its results were likely to be between €1.0bn and €1.1bn, rather than the previously forecast €1.1bn-€1.2bn. The Irish carrier blamed a need to cut fares by up to 7% to maintain load factors, against its previous expectation that only a 2% drop would be necessary. Just two weeks later it announced its first quarterly loss since 2014.