Low-cost airlines are likely to emerge from the pandemic, stronger than ever

Rising living costs and increased airfares will lead to passengers, who may traditionally prefer to stay loyal to national flag carriers, booking with low-cost airlines. Ryanair’s plans to increase its capacity to above pre-pandemic levels shows that the low-cost airlines segment will emerge from the pandemic stronger than ever, found GlobalData, a leading data and analytics company.

Craig Bradley, Associate Travel & Tourism Analyst at GlobalData, comments: “With the rising fuel costs, air fares are increasing to cover operational overheads. Whilst the low-cost sector is as much affected by these as full-service carriers (FSCs), the typically young age of their aircraft means that many are more fuel efficient, helping to reduce fuel expenses. The low-cost business model is also designed to reduce other operational overheads meaning that fares can stay relatively low despite the current climate.”

According to GlobalData’s Q3 2021 Global Consumer Survey, 58% of respondents said affordability was the main factor in deciding where to go on holiday. This sentiment is now being echoed across the travel industry as it ascends to recovery in 2022. Key players in the budget airline sector such as Wizz Air, easyJet and Ryanair have all projected that July 2022 capacity levels will be higher than 2019.

While passengers should expect to see fare increases across all airlines over the next 12–24 months, operationally, the budget sector is better equipped to deal with the current crisis.

Bradley adds: “With passengers potentially booking more flights with low-cost airlines, this is likely to impact multiple sectors, especially business travel, where corporate travel budgets have already been squeezed. In an April 2021 GlobalData poll, 43.2% of respondents expected their business to reduce their corporate travel budgets significantly. Fast-forward to May 2022, this is unlikely to change given the current economic climate many businesses are facing.”

With the inevitable increase in airfares, the full-service sector will be forced to find creative ways to enhance its product. In recent years, there have been elements of the full-service product which have become undistinguishable from low-cost products. This is particularly the case in short-haul economy class, where full-service fares have been unbundled to provide customers more choice such as baggage, meals, and seat selection.

Bradley concludes: “We should expect to see a response from the FSCs over the coming months, especially around loyalty programs. Many will look to add value to their current frequent flyer initiatives in order to retain their core customer base. Nevertheless, current market sentiment says that cost is by far the most important motivator for travelers. Therefore, low-cost airlines are likely to come out of the pandemic stronger than other airlines.”

SOURCE: GLOBALDATA

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