Airline instability and Airport Abandonments by Low-Cost Carriers
By Renato Redondi
One of the few truths arising from the study of the long-term relationship between airports and airlines is that airports are here to stay. That does not hold necessarily for airlines, which suffer a much higher risk of either going bankrupt or being altered beyond recognition by market forces. Besides being inherently less stable in the long-term, airlines have been recently increasing even their short-term instability, that is their tendency to modify and relocate their capacity at a short notice. An extreme form of airline instability is de-hubbing, in which the hub carrier abandons the airport. Previous studies showed that de-hubbing is most likely to be irreversible. The fact that all the main hubs nowadays include in their master plans a worst-case de-hubbing scenario, speaks volumes about the gravity of the perceived risk.
A related form of airline instability is when low-cost carriers abandon or reduce significantly their presence from the airports. A major difference from de-hubbing, in which the relationship between hubs and hub carriers is generally balanced and even symbiotic in some cases, is that the market power is here markedly on the LCC side. One of the reasons is that a growing component of leisure demand can be geographically diverted by low fares. Even a threat of abandonment by LCCs can be a very efficient deterrence against untoward behaviors by airports, as when planning increases in their charges. This issue has been so far covered only with anecdotal evidence.
An ongoing study to be fully presented at the next Air Transport Research Society Conference in Singapore investigates the cases of airport partial and complete abandonments by low-cost carriers in the world from 1997 to 2014. The analysis includes all the 813 LCC-airport pairs in which the carrier reached a yearly offer of at least half a million seats in the period. Preliminary results indentify 109 cases (13.4% of the total number of LCC-airport pairs) in which the LCCs decreased their presence in the airports by at least 50% in terms of offered seats. In 28 cases (3.4%) the LCCs completely abandoned the airports. The highest number of cases happened in the years 2008 and 2009, corresponding with a slow-growth period of the air transport industry, while decreasing significantly in the final year, 2014, which registered only 4 cases of LCC downsizing. Ryanair is the LCC responsible for the highest number of downsizings in the world, 22, 6 of which are cases of complete abandonments, followed by Air Berlin, Southwest, easyJet and BlueJet.
The study also analyzes the cases of downsizing in which at least 5 aircrafts were based at the airport. The hypothesis is that if the airport is also a relevant base, besides being beneficial in terms of its revenues and local employment, then switching costs should increase for the airline. Preliminary findings identify 26 cases in which seat capacity by the LCC decreased by at least 50%, over a total number of 332 LCC-airport pairs with at least 5 aircrafts based, and only one instance of complete abandonment. That is the case of the Belfast City Airport, abandoned by Ryanair in 2011 due to runway limitations, when the planned runway extension was further delayed. The incidence of downsizing is 7.8% in this case, much less that the 13.4% computed for the complete sample.
Is the downsizing by LCCs reversible? The analysis shows that out of the 109 cases of downsizing by LCCs, in 8 instances (7.3%) the same LCCs recovered full capacity at the airports in 2014. Differently from de-hubbing, the abandonments by LCC can be reversed, even if that is not very likely. Out of the 26 cases in which LCCs reduced capacity by at least 50% from relevant base airports, in only one instance (3.8%) the LCC eventually resumed full capacity at the airport. That is the case of Jet2.com which reduced offered seats from the Newcastle Airport by 61% in 2009, compared with its peak in 2007, but later increased again its presence above the initial level. That should spell a cautionary tale for LCC airports. Even if the occurrence of downsizings is significantly reduced for important base airports, if the LCCs decide to abandon them, they leave for good.
The ultimate impact of partial or complete abandonments on airport traffic depends on the degree of dominance exercised by the leaving carriers. Since Ryanair had the highest level of dominance over its downsized airports, offering an average of 54% of their seat capacity, these airports suffered most. To reduce their overall riskiness, LCC airports should avoid to put all their eggs in one basket. Unfortunately, besides being hardly news, that is not a matter of choice for most secondary airports.