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Do low cost carriers hold the key to future aviation growth?

Analysis from leading marketing intelligence analysts Counter Intelligence Retail (CiR) examines the growth and opportunity for low cost carriers as they continue to demonstrate consistent growth in an unpredictable market place.

December 2016 | by Simon Best, CiR Business Lounge Director

At the recent MEADFA conference a downbeat introduction to the opening address covered the falling retail sales in both Middle East and Africa regions, but this news was countered with the positive growth in aviation in both regions. As highlighted, investment in aviation in Africa is a positive note, and coupled with a rise in low cost carriers’ networks and flight duration in the Middle East, there were was cause for optimism.

The current growth in the global international aviation market, +8.2%* in the twelve months to September 2016, has been driven by a number of factors such as growth in GDP, the increase in population figures and the growth in the ‘Middle Class’ in a number of Asian countries.

With the economic downturn at the beginning of the decade came a shift in attitude towards how much money people were willing to spend both in the domestic market but also on luxury items such as holidays. Low Cost Carriers (LCC’s) were able to benefit from this shift in attitude. With growth of +13% YoY outstripping that of the regular scheduled airlines (+7%), this market now accounts for 1-in-4 international passengers.

Europe dominates LCC market

Europe dominates the global LCC market with over 60% of LCC international traffic departing from the region. The region hosts the world’s two largest LCC’s, Ryanair and easyjet who combined account for 35% of global scheduled LCC traffic.

Home to many of Europe’s major holiday destinations, Southern Europe (EU) in particular has seen significant growth in LCC’s (+10.5%) with both Spain & Italy recording growth of circa +10% YoY.

Turkish LCC market falls

In contrast to other Southern European countries, Turkey, due to a number of recent geo-political factors, has seen a significant fall in traffic (-12%) on LCC’s.

Holiday destinations have been worst hit by these recent events with Dalaman and Antalya recording falls of -33% and -53% respectively. This situation has not been helped by the fall in traffic from Russia, one of Turkey’s key tourist markets, following a political incident in late November 2015 which saw a complete ban imposed by the Russian government on charter airlines flying into the country.

However, in a move to restore relations between the two countries, in July 2016 Russia lifted the ban. This has led to a restored confidence from airlines and in the period July-September 2016, traffic flying into Turkey on LCC’s, which is showing tentative signs of improvement.  

Asian LCC traffic booms

With a booming international passenger market looking for new, more varied destinations, Asia shows real growth in LCC’s with passenger numbers growing +22% in the past twelve months, at twice as fast as regular scheduled airlines in the region.

Almost 70 LCC airlines now operate in the region and passenger numbers flying with these airlines have grown by +15% YoY and now account for 19% of international passenger traffic departing the region.

AirAsia, the largest LCC in Asia handling 16% of passengers, carried over 11m scheduled passengers in the past twelve months, double that of its nearest rival. Departing out of over 40 airports regionally, AirAsia has added four new routes to its portfolio in the past twelve months alone.

In a sign that growth within the LCC market in Asia looks set to continue, AirAsia has indicated that the company has investigated the opportunity for LLC solus airports in the region, to remove congestion from the region’s busiest airports.

International LCC traffic on the rise in the Americas

The LCC market in the Americas is driven primarily by domestic traffic, accounting for over 90% of all passenger journeys. International LCC travel has shown impressive growth of +10% in the past twelve months, over three times that of the domestic market (+3%).

A key driver has been the growth of traffic from Central America (up almost a third YoY) and in particular Mexico. Hosting the top three airports in this sub-region, LCC traffic has grown by 30% with airlines handling a total of 5m passengers. A key holiday destination for American passengers, over 75% of LCC traffic from Mexico is destined for the USA and growth shows no signs of slowing.

The ‘Big 3’ dominate in MEA

Emirates, Qatar Airways and Etihad dominate the region’s scheduled international passenger market with all three recording double digit YoY growth, and accounting for over a third of traffic.

LCC’s currently only handle a small share of international passenger traffic (13%) compared to the much larger Asian and European markets, yet the growth of LCC’s is faster than regular carriers at +23% versus +10%.

Already the largest LCC in the region, Flydubai recorded a 9% YoY rise. With the news that the airline is to move all operations into Dubai’s new World Central airport in late 2017 it seems there are big plans in place for the airline with airport CEO Paul Griffiths stating “By the end of next year the airport will see tremendous growth as it becomes the home for Flydubai.”

What does the future hold?

Whilst short-haul, intra-regional routes will remain key to growth for many LCC’s, the rise of low-cost, long-haul flights by airlines such as Norwegian Air Shuttle may well change the way in which passengers travel going forward. In a sign that airports themselves are starting to realise the growth in this sector, many are now constructing purpose built terminals specifically to house LCC’s, such as Osaka Kansai, who have announced that the new Terminal 2 building will be used exclusively for international LCC’s.

With the growth in passenger traffic set to grow consistently over the next ten years and the demand for cheaper, no frills flying to a wider choice of locations, the future for LCC’s looks bright and set to play an ever more important role in the aviation industry.