No-frills consolidation is ‘inevitable’ says analyst

Following the news that easyJet is in talks to buy Go, GartnerG2 travel industry analyst Mark Riseley has outlined to TravelMole the reasons why he believes “consolidation in the no-frills sector is inevitable.”

Mr Riseley says that low cost networks will increasingly overlap, and the cost savings related to new market entry, including cheap landing fees at airports, will start to diminish. He points out for example that Stansted currently supports three no-frills airlines – Ryanair, Buzz and Go. While they may not be flying to the same destinations, this is in some ways irrelevant as a leisure customer who wants to travel from the airport is only likely to choose one, and certainly not all, of the destinations on offer for a holiday. This means that yields are being diluted and marketing costs increased as the airlines fight over the same catchment area.

He points out that another challenge is the fact that full service competitors such as British Airways are starting to get their act together and are likely to emerge “stronger and leaner” from their own shake-ups.

He said that it was therefore only a matter of time before the no-frills airlines stopped competing solely on price and started looking for other forms of differentiation – such as branding. He told TravelMole this may be one of the reasons for easyJet’s interest in Go.

According to Mr Riseley it is generally best for no-frills carriers to start their operations from scratch. However he believes the combination of easyJet and Go could prove successful as they “operate the same aircraft and have similar cultures.” He also pointed out that there was not much overlap on the routes the two carriers operate: “Go flies to some Italian and Spanish destinations that are covered by easyJet, but generally it’s quite a good fit. Apart from the London to Scotland routes airlines tend not to go head on in the low cost market because of the impact it has on their profits.”

On Friday GartnerG2 published its latest report on the no-frills sector called ‘Successful Low Cost Airlines keep it Plain and Simple.’ According to the report, which is written by Mr Riseley: “As the low cost air market matures, consolidation and failures are inevitable. Full service competitors are starting to respond to the threat, by cutting costs, strengthening their alliances and launching their own low cost subsidiaries. Effective PR and marketing will increasingly separate winners from losers. But, in the end, only the most efficient, focused low cost players—independent or subsidiary—will survive the increased competition and prolonged price wars that are round the corner.”

GartnerG2 is a research and advisory service from analyst house Gartner. For more details see www.GartnerG2.com

See our previous stories:

06 May 2002: easyJet to buy no-frills rival Go for £400m
20 Apr 2002: bmibaby md dismisses analyst’s criticisms
19 Feb 2002: Report says BA was wrong to sell Go