Can the European low-cost airline boom continue? Implications for regional airports

Dennis, N. 2004. Can the European low-cost airline boom continue? Implications for regional airports. 44th European Congress of the European Regional Science Association. Porto, Portugal 25-29 Aug 2004

TitleCan the European low-cost airline boom continue? Implications for regional airports
AuthorsDennis, N.
TypeConference paper
Abstract

At a time when the traditional major airlines have struggled to remain viable, the low-cost carriers have become the major success story of the European airline industry. This paper looks behind the headlines to show that although low-cost airlines have achieved much, they too have potential weaknesses and face a number of challenges in the years ahead. The secondary and regional airports that have benefited from low-cost carrier expansion are shown to be vulnerable to future changes in airline economics, government policy and patterns of air service.

An analysis of routes from London demonstrates that the low-cost airlines have been more successful in some markets than others. To attractive and historically under-served leisure destinations in Southern Europe they have stimulated dramatic growth and achieved a dominant position. To major hub cities however they typically remain marginal players and to secondary points in Northern Europe their traffic has been largely diverted from existing operators. There is also evidence that the UK market is becoming saturated and new low-cost services are poaching traffic from other low-cost routes. Passenger compensation legislation and possible environmental taxes will hit the low-cost airline industry disproportionately hard. The high elasticities of demand to price in certain markets that these airlines have exploited will operate in reverse.

One of the major elements of the low-cost business model involves the use of smaller uncongested airports. These offer faster turn-arounds and lower airport charges. In many cases, local and regional government has been willing to subsidise expansion of air services to assist with economic development or tourism objectives. However, recent court cases against Ryanair now threaten these financial arrangements. The paper also examines the catchment areas for airports with low-cost service. It is shown that as well as stimulating local demand, much traffic is captured from larger markets nearby through the differential in fare levels. This has implications for surface transport, as access to these regional airports often involves long journeys by private car.

Consideration is then given to the feasibility of low-cost airlines expanding into the long-haul market or to regional operations with small aircraft. Many of the cost advantages are more muted on intercontinental services.

Year2004
Conference44th European Congress of the European Regional Science Association
Publication dates
Published2004
Web address (URL) of conference proceedingshttp://www.ersa.org/ersaconfs/ersa04/PDF/571.pdf

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