On the way up - competition for air passengers getting heavier

With the airline industry permanently under extreme price pressure, offering good value for the lowest possible price is becoming ever more crucial. While the example of Hungary’s national airline Malév, which grounded flights on February 3, showed what short shrift the market gives to suppliers lacking the strategy and/or resources for development, extending networks and improving the quality of service while keeping prices low has become a must for air transporters. 

A poll made by the Budapest Business Journal among airlines with Hungarian flights seems to support the forecast of international experts that just three or four big airlines and a few discount airlines might finally rule the skies in 5-10 year’s time. The Lufthansa Group, (including Austrian Airlines, Brussels Airlines, and SWISS) has seen a little more than 10% more passengers in the first half-year compared to 2011. British Airways has also been enjoying strong and consistent growth in Hungary for the past 18 months, and particularly since June 2011, and has been boosting its Budapest capacity by upgrading aircraft operating its London Heathrow–Budapest service to a bigger Airbus 320 model. At the same time, Hungary’s two main discount carriers, Ryanair of Ireland and Budapest-based Wizz Air, also reported a significant increase in the number of passengers – although as fares and the real prices of services are not always in balance, this increase does not necessarily mean a rise in profits. 

Heavy competition

All airlines polled by the BBJ have reported an increase in passenger numbers. Partly a result of Malév’s collapse, this in itself does not necessarily mean a significant increase in the actual number of air passengers, but there is still a clear positive trend that inbound passengers are getting younger, which may be an indicator for mid- and long-term tourism development. “Young people are more willing to experience new destinations and recommend these or return often,” Wizz Air pointed out. As such, the partly Hungarian-owned discount airline is proud of its service and considers itself as a kind of promotion for the country. “Offering low fares to Hungary is like starting a massive advert campaign: it raises much-needed interest in Hungary as a high-quality tourist destination,” the company told the BBJ. 

In another new trend, even regular airlines have reported that online usage is becoming more widespread. The popularity of online tools such as web- or WAP-based check-in is on the rise due to the timesavings they offer, a feature especially highly appreciated by business travelers. Meanwhile, acceptance of online developments might also increase, as those traveling with low-cost airlines have no choice but to get familiar with online interfaces or pay an extra fee for checking in at the airport.  

The lack of a classical airline ticket, which does not necessarily cause much inconvenience for passengers, is not the only difference between the services of regular and low-cost airlines. Food and beverages are available on discount flights only for an extra charge, but what might be even more painful is the very low number of bags and the weight restrictions that passengers can take without paying extra. Not to mention that those traveling with Ryanair from Budapest’s Ferenc Liszt International Airport have to take a long walk on the airstrip to reach their aircraft, given that Ryanair saves money even on renting the boarding corridors from airport operator Budapest Airport. Even without examining this method from a passenger safety point of view, it is easy to imagine how much fun it is, for example, to take this walk on a rainy morning and then stand and wait beside the aircraft for 20 minutes before boarding.

Thus, it might not be a big surprise that Wizz Air prides itself in its “offer of unbeatable service for everyday low prices”. Wizz Air finds their greatest edge over its competition is its “hassle-free, friendly travel” and also that it does not use low fares as an excuse for a lack of services. The BBJ also asked Ryanair about what it thinks its advantage is over its competitors, but the company had failed to comment before the BBJ went to press. 

Nonetheless, since discount airlines have a growing market share, regular airlines are taking the competition very seriously. Lufthansa, for example, offers one-way tickets for fares starting from €49, which, if booked well in advance, is quite close to the price of low-cost airlines. With this, Lufthansa’s passengers get free food and beverages on board, can check in up to 23 kg of luggage, and also collect frequent-flyer points. Still, Lufthansa’s worldwide network of flights might weigh even more when compared to other airlines. 

“I keep being surprised when guests do book such [discount] carriers without benchmarking against our fares on the same days,” Emil Delibashev, the British Airways commercial manager for the Balkans and Hungary, Europe, and Africa told the BBJ, further supporting the idea that low-cost airlines impose a threat and require a reaction. “The truth is that those carriers are not that cheap anymore, while we are not that expensive anymore.”

Short break 

As regular airlines are obviously all very proud of the quality of their services, new developments to further increase the convenience of passengers might become a major focus of competition in the market in the near future. Lufthansa re-introduced FlyNet, its wireless broadband internet service on its long-haul flights in the fall of 2010. It is currently the only airline to provide internet access on North Atlantic flights, which is said to be an especially challenging proposition from a technical aspect. “We see that this is especially attractive for business travelers and further increases our position as the best choice for corporate travelers,” Lufthansa’s regional director Ofer Kisch said, adding that an increasing number of leisure travelers also appreciate the ability to use their smartphones or tablets on board. 

Delta Airlines is also to launch internet access on more than 150 aircraft of its long-haul flights from 2013, and by the time its $3 billion investment has been completed in 2015, no less than 1,000 Delta flights will be offering Wi-Fi in the sky.

British Airways will shortly introduce its biggest investment to date, valued at nearly £5.5 billion, spent on developments related to the company’s 12 brand new Airbus 380 aircraft and 24 Boeing 787 Dreamliners, though Delibashev is not yet in a position to reveal any further details. 

Discount airlines almost certainly cannot afford to launch new services that require such big investments. However, Wizz Air does not necessarily find this a problem since, as it pointed out to the BBJ, “Passengers even like the short break from emails and text messages when their flight is less than two hours.”