Europe's low-cost carriers have enjoyed a few tremendous years and grown at astonishing rates. But as we predicted in an earlier article,1 some are now faltering. These carriers sparked their meteoric growth by exploiting latent demand for cheap travel, but they can't create profitable markets indefinitely. Major sources of traffic in Northern and Central Europe will soon be saturated. Some already are.
If the low-cost carriers are to go on growing and to fill the planes they have ordered, they must win more passengers from other airlines. That will mean a bruising fight for market share on three fronts. First, as leading low-cost carriers expand and new ones emerge, they will increasingly compete head-to-head in the same source markets. Second, charter airlines, posing a direct threat, sell a growing number of seats independent of tour packages. Finally, several network carriers are fighting back by attacking their cost base and emulating the best features of their low-cost rivals.
How are the low-cost carriers supposed to keep their edge? They have work to do on both sides of their accounts. Surprisingly, they must cut costs to maintain an advantage over their rivals. They also need to develop new and diverse sources...