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We’ve entered a new phase in the story of low-cost flights – and higher fares could be next
Then, a week later, Monarch Airlines collapses overnight. It is Britain’s biggest airline failure yet, stranding 110,000 passengers abroad, with another 750,000 due to travel in the next few months now left without flights, and some without refunds.
In the meantime the German low-cost operator AirBerlin and the Italian flag-carrier Alitalia – which operate under different financial rules from British airlines – are both in administration. They continue to trade, but are effectively up for sale or further investment.
What is going on in the industry? After years of relentless expansion, of new routes, of ever more competitive fares and technological advances, is the low-cost dream over? Not quite, but we are certainly entering a new phase in the story of no-frills flying, one where fewer airlines are likely to dominate the market and fares may rise.
Despite Ryanair’s problems with pilot rosters, it remains hugely profitable – in fact, it will surely be strengthened by the demise of Monarch, which was a direct a competitor to several destinations. Meanwhile, Norwegian continues to grow aggressively – competing on a few routes with Ryanair and easyJet, but more focused on long haul. This month, for example, it launched a new route from Gatwick to Singapore – a major hub for south-east Asia.
My concern, however, is that fewer airlines means less competition and ultimately higher prices. The one thing that Ryanair has proven, is that it knows how to maximise profits. While it is a master of keeping headline fares low, it knows how to extract extra revenue from passengers via additional charges and supplements. If it becomes too dominant it will be freer to raise fares and extras. We need a strong corpus of rivals to keep the pressure on.
The competition model isn’t yet broken – Jet2, Vueling and Wizz Air continue to fly head-to-head with their bigger rivals – and BA remains focused on trimming its offering in economy class to keep its costs and fares down.
But Monarch is a significant loss and it has also given us a sharp reminder that airlines are fragile constructs and very vulnerable to shifts in the economy and other factors, such as terrorism. They work on thin margins, and sell a perishable product. An empty seat is a fare lost forever, and an empty flight costs as much to operate as a full one. When bookings drop, the weakest operators become very vulnerable, very quickly.
In the end, as Hugh Morris pointed out in a piece last week, Monarch failed because of a combination of reasons. But fundamentally its most profitable markets in Turkey and Egypt were undermined by terror fears. It’s a familiar story. The demise of Monarch was more drawn out, but it echoed the first airline failure I covered, back in 1991 when Air Europe collapsed because bookings slumped after the Gulf War. Then, 25,000 passengers were stranded.
So, are other airlines in danger of failure? The short answer is yes. Not immediately, perhaps. But you can be sure that at some point more will go under, and more passengers will be stranded. During the past 10 years we have seen the collapse of Zoom, XL Airways and Silverjet (all 2008), FlyGlobespan (2009) and Spanair (2012).
In fact since 2007, more than 250 global airlines have failed. Before that came the demise of well-known names such as British Caledonia, Dan Air and Buzz – they didn’t collapse, but all were in dire financial straits and were bought cheaply by competitors. In short, history demonstrates that airlines fail on a regular basis – and if the pound continues to struggle, if there is a major terrorist attack or an economic slump, then there is always a risk of another.
Happily, if you take the right precautions, you can book with confidence. But you do have to be prudent, and make sure your money is properly protected against financial loss.