Low cost airlines - is the honeymoon over?

This week Ryanair gave a grim forecast of difficult times ahead. Load factors are down (2% last month) and profit forecasts are at best showing zero growth. As a result the airline's share price has taken a sharp downturn. Ryanair's boss, Michael O'Leary blames higher taxes and airport charges, rising interest rates and passenger frustration with security delays. Easyjet reckons concern over the climate change issue is also a factor.

I have another theory. Whilst it has never been cheaper to jet off around Europe, the novelty of low cost air travel has started to wear thin. Water-cooler chat used to revolve around how cheap you had managed to buy a ticket to Dublin or Barcelona - with a feeling of competitive one-upmanship about it. Today, with so much capacity and consistently low fares the issue is no longer about how cheap it is to fly somewhere, but how much it costs when you get there.
This was brought home to me a few weeks ago when I took the family to London for the weekend. The flights cost a ridiculously low £120.00 return for 4 of us. Indeed the low cost of the flights was the motivator to travel. But as soon as we arrived in Luton, the meter started running. Train fares to London, hotel, restaurants, theatre tickets, taxis & shopping left us with little change out of £500. Not a cheap weekend by any means.
So as the novelty of jumping on a plane for next to nothing wears off, consumers start to count the cost of the complete trip & realise that the bank balance won't take it.

What does this mean for Jersey's tourism industry? We have plenty of low cost routes now, helped by Jersey Airport's aggressive approach to route development incentives. Airlines such as Thomsonfly like flying to Jersey because it offers a quick round trip to fill mid-day slots and a low fare entry point for their marketing. But ultimately if the consumer sees beyond the hook of a cheap air fare, it will result in routes disappearing.
And O'Leary's response to the drop in demand? A price war that could last all winter and deliver even lower ticket prices - but will the customer be tempted knowing that when they reach their destination they will have to dig deep into their pockets. Time will tell.


Anonymous said...

The honeymoon probably is over. There is also a realisation that couples, and especially families, don't want to scrum down to try and get a seat together. Also people are fed up landing at airports only to find they are an hours coach ride away. The reality of air travel is that the business class passengers assist the other passengers with their inflated prices. Hence the BA's and BMI's will always survive - the others enjoy booms and busts. Frankly to see the owner/ceo etc blaming everything except his product (like some Jersey hotel owners m'lady!)is comicable as anybody who saw the Despatches documentary on Channel 4 in February might also think there might be other reasons.

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