Leeham News and Analysis
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Leeham News and Analysis
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Europe’s airlines: LCC, the winning formula
By Bjorn Fehrm
Nov. 18 2015, ©. Leeham Co: Easyjet revealed record numbers yesterday with pretax profits now at 14.6% of a year turnover of £4,686m. The load-factors for their aircraft are at a record 91.5% on a 12 month basis, with an increase of 1.5% for the period. The return on employed capital has increased to a high 22.2% from 20.5%.
The LCC now transports 69m passenger per year and continues to increase its capacity and efficiency. Airbus yesterday announced that easyJet has signed a firm order for a further 36 A320 Family aircraft, taking its cumulative order for the type to 451. The agreement for six A320ceos and 30 A320neos makes easyJet one of the world’s biggest airline customers for the A320ceo Family with 321 ordered and also for the A320neo, with 130 on order.
Earlier in November Ryanair had announced their record results, further manifesting their investment grade rating. At the same time Europe’s largest airlines, Lufthansa and Air France-KLM, are engaged in difficult negotiations to reduce their personnel costs, a mission riddled with strikes and confrontation. The once reliable Lufthansa is no longer.
What is the reason for this divergence in the market?
Product differentiation
The problem is that the base product, transportation of a passenger from A to B within Europe, is hard to differentiate. For a one-to-three hour flight, the difference in comfort of sitting behind or in front of a business class curtain is minimal. Worse still, the difference between flying with easyJet and Lufthansa in economy is even less (I know, I fly with both on a regular basis).
EasyJet has been smart enough not to configure their aircraft with bad seats or a too narrow pitch. I step off an easyJet two hour flight just as relaxed as a Lufthansa or Air France-KLM economy class flight (the only difference is the coffee and sandwich, easyJet serve an instant coffee and a heated frozen sandwich). EasyJet also flies to the same airports as the legacy carriers, contrary to Ryanair, who flies to cheaper remote airports. Ryanair is very successful with their approach. Their numbers speak their own language (net margin of 27% on turnover while transporting 150m passengers per year).
Ryanair and easyJet goes after slightly different customer types, with easyJet being more successful in attracting business travelers. This will now change, says Ryanair. They are implementing changes to be more attractive to the business public, like changeable tickets and seat allocations. For now, easyJet has the better product, a major difference being the airports they fly to and cabin interiors where they do not use plastic seats without seat pockets.
EasyJet has also been clever in improving their standard economy product for those who are prepared to pay a little extra. For paltry €15 you get the same boarding experience as if you traveled business class with a legacy carrier–you board before the rest of economy class. They also offer best seating options (you can reserve that extra legroom exit row seat), fast track security lanes on certain airports, no fee ticket changes etc.
EasyJet and Ryanair are now competing with each other to invent useful but cheap to implement perks to attract more business passenger. Both now have easy-to-change tickets (free for loyalty card travelers on easyJet from next year) and allocated seats. EasyJet is so far alone with priority boarding and fast lanes.
Legacies options
So what can the legacies do? In economy they will have to come close in price, their products are not well enough differentiated; good coffee is only worth so much. Against the Norwegian LCC, they even lack free in-flight Wi-Fi and the Norwegian coffee and muffin is good. Norwegian, which perhaps has the best LCC seats/cabins (Boeing Sky interior) and coffee, let alone the free Wi-Fi, has only its network coverage against it. It is focused to serve northern Europe.
On the legacies business class product, I feel there must be some change to the present comfort level. It is no longer acceptable to pay an expensive business class ticket for a blocked off middle seat with the same seats and seat pitch as in economy. One gets a free meal and drinks for the extra money but you get that for €20 in economy (if it’s not for free) or at the LCC as well.
On long haul it is easier. A true lie-flat with the premium service that is connected makes for a real difference when one has to kill 8-12 hours. For a one-to-two hours flight in Europe, there will have to be something new invented or the legacy business class will have a shrinking future.
Norwegian reccaro seats are very thin but shockingly comfortable, for a short time anyway.
Agree, flying the 2.5 hour trip from Scandinavia to south of France I feel none of the debated comfort difference between a 737ng and carriers with the A320. The Sky interior makes it agreeable and the seats are good with adequate pitch. Catering offering is good with decent prices, and then the Wi-Fi of course. It’s a good product.
I’m glad to see that you are able to see something “agreeable” in the 737 Bjorn.
Agree with most of this, but should point out that until the 737 max 200 comes online, Ryanair has an inch or so greater seat pitch. At 6’3″ /191cm tall I can’t actually fit into Easyjet’s A320 seats aft of the emergency exit on the starboard side. The new and comfortable slimline Recaro seats are very welcome and the situation should be further improved when they move the rear lavatory out of the cabin area with Spaceflex.
Truly every half inch counts in economy travel
I have the same problem but opposite, my problem is width, I have to empty my pockets to have some degree of comfort on a 737ng, but I only realize that I didn’t take anything out of my pockets after, in any A320 I flew… Everyone sees things from his own point of view 😉
Meaning…
Cheers
JD
“At the same time Europe’s largest airlines, Lufthansa and Air France-KLM, are engaged in difficult negotiations to reduce their personnel costs, a mission riddled with strikes and confrontation”
The last strike cockpit crew at KLM did was about 15 years ago. The internal damage / loss of credibility that did to that group and their union was so large they’ll think twice before doing it again.
Netherlands is un-hierarchic, KLM very loyal. Grounds crew, cabin crews and everybody asked each of them directly what the f.ck they’re thinking with their 200k salaries, sportscars and villa’s, hurting the passenger & company. I think the strike lasted 1.5 days.
Before they merged with the notoriously feisty French
I traced the full 140 pages Annual Report looking for confirmation that EZY has a thrifty scheduled line payfreight operation weighing in with extra (non-seat) revenues … I found an annual 60 M GBP but allegedly (Audit report) those were commissions from sales of travel insurance, ie nothing to do with payfreight ? So it looks like EZY (with A320, but possibly not featuring CLS capability ?) are doing no better than RYR (with bulk-loaded 738) on the payfreight front ? I find this hard to understand, unless both LCC are treating airfreight as a Crazy Uncle … or is there a trick the way the Annual Report is presenting “seat” revenue ? E.g. questionably, “ancillaries” (whereof checked-in luggage ?) are not being singled out in the revenues, nor are “no-shows” and cancellations.
I have to disagree with this. I just flew Ryanair from Stanstead to Palermo, and EasyJet from Catania to Luton, and found Ryanair to have the superior product.
Ryanair offers a premium economy section at the front of the plane with more legroom. As for the much talked about wider seat on the A320, I didn’t feel it. SeatGuru says these seats are 18 inches wide. I wonder if this is correct as, I was bumping shoulders and elbows with the woman in the middle seat, and EasyJet’s 29 inch pitch is very uncomfortable. Ryanair gives you 30 in standard coach, and 32-34 in premium.
The aisle on the Easyjet Airbus is noticeably wider; passengers could turn sideways and slide by the service cart. I wonder if EasyJet allocated all the extra width of the A320 to the aisle, because I noticed no extra seat width on Easyjet over Ryanair.
Thanks, I haven’t tried the Ryanair premium product, what is the seat material? Is it the same seat without seatpocket, recline and with plastic cover but with more pitch?
I believe they were leather, no seat pocket and no recline. Ads everywhere.
I fully agree with the euro-business comment, especially the new ‘same seat/pitch/middle-blocked’ product.
‘I’ would replace this 2×2 configuration with a 5 across configuration and add 2/3 fixed rows of premium economy seats… Raid the ‘trolley’ (for free) etc.
Most negative reviews of connections tend to be about the shorthaul transfer product.. After hours in a bed… You get squashed into an economy seat… Almost a tightly configured as a US ULCC.
A few rows of dedicated 5 premium across seating is my way ahead… Frugal but differentiated.
Fortunate enough to live within twenty minutes of LHR I rarely have need for LCC. Having said that if I was living three hours of LHR & taking a short haul flight I would make that drive to LHR to avoid the low cost airports like Bristol, Luton or Stansted.
The diversity of locations served by LCC have forced me to fly with both Easyjet & Ryanair my experiences with the latter bring to mind the saying, “Once Bitten Twice Shy’ I avoid them like the plague, the significant benefit flying Easyjet is the quieter cabin the 320 offers.
I noticed no discernible difference in cabin noise difference between the 737 and A320, except for that horrible buzzing noise the A320 makes on takeoff.
I agree there is a annoying degree of engine resonance on take off, once cruise is achieved the 320 cabin is acknowledged to be quieter than Boeings offering.
Pingback: » Daily Aviation Brief – 19/11/2015
Similar article here, a little more concerned with legacies attracting price conscious customers with a little extra cash.
http://aero-dynamics.tumblr.com/post/117619769962/caught-up-in-the-middle-a-budget-ethos-in-europe
All well and good, try doing a 4.15 hour flight from BRS to TFS on Fr or ezy and then comment on who has the comfiest product!