Is The Party Over?

Article in The Australian (reprinted from The Times) argues that the good times are over for low cost carriers, at least in Europe:

‘The rampant growth in air traffic is not sustainable and the business model must change. It is not only the incumbent flag-carriers that are threatened but the new low-cost carriers that thrive because of two market miracles – the availability of very cheap fuel and galloping growth in passenger numbers. But these buttresses are crumbling, playing havoc with a business model that has changed the face of aviation over the past decade.

Airports are a mess, airline staff are in rebellion and the cost of jet fuel is soaring. What is less apparent is weakening demand for air travel. IATA, the airline establishment’s lobby organisation, signalled the downturn this week, pointing to weakening load factors and a marked slowing in growth in revenue passenger kilometres, key industry volume statistics.

The load factor, the percentage of seats holding bottoms, fell in every region in February, with the biggest fall in Europe. Passenger kilometres worldwide grew at a rate of 4-5 per cent, which sounds good except that this industry has become accustomed to 7-8 per cent annual volume increases.

For airlines, Europe has become a rotting carcass upon which a swarm of flies is feasting. In January, passenger kilometres increased by only 2.8percent in Europe, which included weak growth of 1.7 per cent on North Atlantic routes and almost no growth on Asian routes.”

If there is truth to the argument that the market in Europe is close to saturation then in my opinion this has more to do with the accessibility of rail and the difficulty in providing airport infastructure for the sheer volume of passengers budget carriers attract than proof that supply is meeting, yet alone, outstripping demand. Increasing fuel prices will slow the growth of budget carriers but the genie is out of the bottle in my opinon – flight has become a commodity.

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