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Geplaatst op maandag 07 juni 2004 @ 18:32 , 69 keer bekeken

Europe's crowded skies may become a little less congested in the coming months as low-cost airlines find they are squeezed by a price-war and the ever-rising cost of aviation fuel.

Back in March Ryanair chief executive Michael O'Leary predicted a "bloodbath" this year, with smaller airlines going to the wall in the "mother and father of all fare wars".

Discounts that would normally only be found in February or November are now being offered in the peak summer months.

Budget carriers are also under pressure to avoid adding a fuel levy to their ticket prices, such as that added recently by British Airways and other airlines.

Back in March Ryanair chief executive Michael O'Leary predicted a "bloodbath" this year, with smaller airlines going to the wall in the "mother and father of all fare wars".

Discounts that would normally only be found in February or November are now being offered in the peak summer months.

Budget carriers are also under pressure to avoid adding a fuel levy to their ticket prices, such as that added recently by British Airways and other airlines.

On Monday, Easyjet - one of the main low-cost carriers - saw its share price plunge by 15%, after it warned rising fuel prices could cut into its profits.

As a market leader with a healthy balance sheet, it, like its main rival Ryanair, will survive the squeeze, but it is smaller airlines, operating a handful of routes, which could go to the wall.


Crucial time

Those small low-cost carriers, perhaps planning on making a profit some time next year, may now not get the chance to do so.

Already some have gone bust, with one of them, JetGreen - flying from Dublin to Rome, Nice, Alicante, Faro, and Malaga - suspending its operations last month after just one week of trading.

The airline, whose slogan was "Fly the Difference!", aimed to be "the finest, most stylish low-fare, low-cost and high-service tour operator", offering more leg room than its competitors, in-flight entertainment and complimentary food



"There has to be more fall-out, the bigger guys are saying 'join us at your peril'", says transport analyst Chris Avery of JP Morgan Chase.

"One would expect other airlines to exit the market shortly after Christmas, that is usually a crucial time."

In the winter months some of the smaller low-cost carriers could struggle to find enough cash coming in to keep going.

Mr Avery says Easyjet and Ryanair will use the strength of their balance sheets "to make life difficult for low-fares wannabes".

He predicts many smaller players will leave the budget market over the next year or so, leaving it dominated by a few big groups.

"Easyjet and Ryanair are sacrificing short term shareholder value for longer term benefits," he says.

Getting off the ground

In the past couple of years more than 20 budget airlines in Europe have gone out of business or failed to even take off, but it appears there is still a clamour to provide low-cost niche operations.

"There are still people wanting to take the place of those that go bust. But there are probably too many low-cost airlines in Europe at the moment," says Tim Coombs, managing director of London-based analysts Aviation Economics.

"They have been encouraged by the success of Ryanair and Easyjet, and there has been capital, staff, and aircraft available for start-ups.

"But they are in a doubly-difficult position at present, being caught between rising fuel costs, and a price war - including low-cost moves by the major carriers."

With fuel supplies hedged through to the end of November, Ryanair is better prepared than the smaller newcomers to deal with external problems like the rising price of oil.

'More cautious'

Mr Coombs says there are currently upwards of 50 airlines in Europe who charge low fares, rather than necessarily being considered low-cost.

"One of the dynamics putting the low-cost operators under pressure is major carriers have been able to respond quite well.

"For example, Aer Lingus has been able to reduce its cost base and prices.

"And British Airways is potentially going to break even on European routes this year. Basically, between offering a low cost and a quality product, they are still getting a high yield."

Air France and Lufthansa have also lowered prices to try and attract casual travellers.

"There will certainly be more failures, but not the big low-cost players like Ryanair or Easyjet, they have the balance sheets to cope with the present circumstances," Mr Coombs says.

"The rate of new start-ups will also slow down, as the private equity houses get more cautious, and rightly so."

Bron: www.bbc.co.uk

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