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Death of the low-cost carrier in Europe?

Over the past decade, low-cost carriers around the world made huge strides in capturing more and more of the domestic and international markets in their respective countries. AirAsia, Ryanair, Southwest Airlines have become some of the most formidable forces against their full-service competitors. Some competitors even responded with low-cost carriers of their own, including Vueling (International Airlines Group), Jetstar (Qantas), and Eurowings (Lufthansa), as an example.

Independent low-cost carriers rose to the top mostly after the financial crisis of 2008, when full-service airlines suffered from their high operating costs and the unexpected rise in fuel prices. Ryanair, for one, managed to increase its yearly passenger traffic from 50.9 million in FY2008 to 66.5 million in FY2010, increasing its fleet from 163 to 232 during the same period. In 2009, Wizz Air grew by 22.4% compared to its result the previous year in terms of weekly capacity. A year later, the Hungary-based low-cost carrier scratched the surface of 10 million passengers, achieving 9.6 million in 2010 – considering that it carried 0.9 million in 2005 and that it had to weather a big financial crisis, the achievement is quite impressive. easyJet was also not lagging behind. From 43.7 million passengers in 2008 to 48.8 million in 2010, the British airline showcased resilience and ability to grow in a stable and profitable manner.

The European Union’s annual analysis of the European Air transport market in 2009 summed up the situation:

“Although the economic crisis happened in 2008, its full impact first reached airlines in 2009. Overall demand – with regard to passenger traffic as well as cargo traffic – decreased and this caused strong turbulences with regard to the financial performance of many European airlines. This applies particularly for the established Full-Service Network Carriers,” stated the report.

Crises provide opportunities

Crises can provide great opportunities to take a step back and to innovate. Or to go out on a limb and try to kick your competitors in the gut while they are down. At the end of May 2020, Wizz Air announced four new bases in Europe, namely in Milan-Malpensa, Italy (MXP), Larnaca International Airport, Cyprus (LCA), Lviv International Airport, Ukraine (LWO) and Tirana International Airport, Albania (TIA). At first glance, this could look like low-cost carriers are attempting to capture more of the market within Europe while their full-service carrier competition is suffering.

No-frills airlines have largely avoided applying for state aid in their respective countries to increase their liquidity, as they met the coronacrisis with some of the strongest balance sheets in the continent. Meanwhile, full-service carriers had to plead their governments to throw out a helping hand in order to get back up on their feet in the short-term. Air France, Alitalia, Finnair, Iberia, Lufthansa Group and Scandinavian Airlines Systems (SAS) are some of the full-service airlines that pleaded and received state aid.

It seemed like the scenario of the late 2000s could once again repeat itself, as the pandemic swept the big boys in Europe off their feet. However, governments of various European states might have other ideas.

Taxes and environmental concerns

The first lawmakers to kick off the domino effect was the Austrian government. As the legislators in the country announced a rescue package worth up to $680 million (€600 million) for Austrian Airlines, they also included measures to incentivize the reduction of the country’s CO2 emissions as well. A new taxation system for flights into and out of Austria is being introduced, including an anti-dumping policy.

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