Low-cost airlines threatened by economic slowdown, say analysts

Analysts suggest a slowdown in consumer spending is hitting demand for air travel after an easyJet announcement triggered a 20% fall in its share price over two days last week.

The carrier reported a year-on-year fall in its load factor – the proportion of seats sold – in December. Its flights were about 79% full over the month, down more than 2% on a year earlier, but still a healthy 83.5% over the 12 months.

The question is less whether there is demand – easyJet carried 38 million passengers in 2007 – but whether demand will keep pace with continuing expansion across the low-cost sector.

One analyst asked: “What industry has ever succeeded in putting increased capacity into a demand slowdown?”

A Civil Aviation Authority report last week revealed the growth in passenger traffic at UK airports fell from an average 6% a year over three decades from the mid-1970s to an annual 2% in the past two years.

That does not mean a crisis for the low-cost carriers, but continuing expansion by easyJet and Ryanair may put every airline under pressure. The pair calculate that others, particularly the charter airlines, will be more cautious. Europe’s biggest tourism group, TUI Travel, has already announced a 25% cut in flying capacity this year.

The no-frills giants anticipated saturation of the UK market some time ago and now base most of their expansion in Continental Europe. EasyJet deploys one-third of its capacity outside the UK and Milan Malpensa will be its third-biggest base by the end of this year.

The carriers also make increasing amounts of revenue from additional charges, such as that for hold baggage.

Ryanair offered two million seats in a buy-one-get-one-free sale at £10 apiece over three days last week, in what has become a weekly giveaway. It also made Bournemouth and Birmingham its 24th and 25th bases, claiming it would undercut Flybe services from the Midlands and Southampton.

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