OAG FACTS April Western European Domestic Air Markets

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1 OAG FACTS April 2014 This month carriers will add 16.1 million seats to their networks compared to April 2013, an increase in seat capacity of 5%. Average aircraft size continues to grow as frequencies will increase by 2% compared to a year earlier. The strongest growth continues to be within the Middle East with seats up by 16%, and to/from the Middle East with seats up by 14%. This outstrips growth to/from Asia/Pacific, which will see seat capacity 10% higher than in April last year, and within Asia/Pacific, where seat capacity has risen by 8%. The regions where growth continues to be faltering are within Africa, where seats capacity remains at the same level as a year ago, and within North America, which has seen a decline in seat capacity of 1% and an even bigger decline in frequencies of 3%. Airline capacity to/from Europe and Within Europe continues to grow at a steady rate, with 6% and 4% growth in seats in April 2014 vs April 2013, respectively. In contrast, capacity growth within Central & South America is sluggish, increasing by just 1% in April 2014, while seat capacity to/from Central and South America is moving ahead faster, at 7%. Western European Domestic Air Markets This month we take a look at some of Western Europe s key domestic routes. Specifically we consider the impact that low cost carriers (LCCs) are having on these routes and whether the full service carriers (FSCs), what we used to call national airlines or flag carriers, are in retreat or have been able to defend these markets. The top 10 domestic routes by number of seats across Western Europe are outlined in the table below:

2 Rank Country Route Seats Carriers LCC Share Dominant carrier 1 Spain BCN-MAD 335, % Iberia 2 France ORY-TLS 268, % Air France 3 Norway OSL-TRD 228, % Norwegian 4 Norway OSL-BGO 216, % Norwegian 5 France ORY-NCE 211, % Air France 6 Germany TXL-MUC 207, % Lufthansa 7 Norway OSL-SVG 207, % Norwegian 8 Italy FCO-CTA 205, % Alitalia 9 Germany TXL-FRA 200, % Lufthansa 10 Italy LIN-FCO 198, % Alitalia Source: OAG Schedules Analyser Europe s top 10 domestic routes are dominated by FSC s, although Norway is the exception. In our analysis we focus on the five countries with domestic routes which count among the top 10 in terms of seat capacity. These are Spain, France, Norway, Germany and Italy. For each country we review the top five largest domestic routes. On average the top five routes in each of these countries account for just under a third of the country s domestic market. The largest domestic route by far is Barcelona to Madrid which has over 335,000 seats (both ways) in April 2014, equivalent to over 11,000 daily seats. France s Orly Toulouse is the next biggest with just over 268,000 seats in April. Unsurprisingly, all of the French top five routes operate to and from Paris (either Orly or Paris CDG) to destinations in the South of France (Toulouse, Nice, Bordeaux and Marseille). German Domestic Capacity Of the five Western European countries examined, Germany s top five domestic routes provide the largest volume of capacity with 938,000 seats in April % of this capacity operates to and from Berlin to other main cities in Germany, namely Munich, Frankfurt and Cologne. All of the top five routes are operated by just two airlines. Germany has very low penetration of its domestic market by foreign carriers. 99% of seats in the total domestic market (not just the five top routes) are operated by German carriers. Lufthansa (including subsidiary Germanwings) dominates overall, with 71% of the domestic market, while Air Berlin operates most of the remaining domestic seat capacity, with a further 27% of seats.

3 Lufthansa dominates capacity for four of the top five German domestic routes. The exception is Berlin-Cologne where Air Berlin and low cost carrier Germanwings each provide about half of all seats. This is the only route among the top five which has any LCC capacity. National FSC National LCC Foreign LCC Overall, only 16% of Germany s domestic capacity is operated by LCCs this is lower than recent years following the reclassification of Air Berlin from LCC to FSC. Norwegian Domestic Capacity Norway has a similar profile to Germany, with 99% of domestic capacity operated by Norwegian carriers. Although SAS dominates, operating 41% of domestic seats, Norwegian are catching up and now have a 37% share of the domestic market. Wideroe accounts for the rest, with 22% of domestic seats. The success of low cost carrier Norwegian means that Norway now has a higher LCC share of domestic capacity than Germany. Four of Norway s busiest domestic routes operate to and from Oslo, with only Bergen- Stavanger having any capacity provided by carriers other than SAS or Norwegian. Norwegian has the largest market share on three of Norway s top five routes. The largest route is Oslo to Trondheim which has just over 228,000 seats in April 2014.

4 National FSC National LCC Foreign LCC French Domestic Capacity Like Germany, France retains a fairly high proportion of FSC operations in its domestic market. Only 16% of seats in the domestic market is operated by LCCs and the majority of that is operated by EasyJet. Similarly, the majority of capacity is operated by French carriers, although EasyJet is the main exception. Air France, and its subsidiary Hop!, account for 76% of French domestic capacity.

5 The top five French domestic routes are dominated by Air France. Two routes are operated solely by Air France (Orly to Marseille and Bordeaux) whilst they retain at least 70% share on the other three largest routes in terms of seat capacity. With the exception of Lufthansa s 80% share on Berlin to Frankfurt, Air France s dominance in its home market is exceptional. Spanish Domestic Capacity Spain has a similar profile to France in that 81% of domestic capacity is operated by Spanish carriers. Where they differ is that established FSC, Iberia, has a much smaller share of domestic capacity with just 31% of seats. Iberia has the largest market share on only two of the top five domestic routes; these are Madrid to Barcelona, where they have 61% of seats; and Madrid to Gran Canaria, where they operate 47% of seats. Spain s LCC profile is also quite different. More than half of domestic capacity 51% - is operated by LCCs. As mentioned earlier, Madrid to Barcelona is Europe s busiest route with over 335,000 seats in April With three airlines serving this route, one of which is LCC, there is clearly competition, although all three carriers are Spanish. The size of this air market may be surprising given that the route is also served by high speed rail.

6 Each of the remaining top five domestic routes is also served by three carriers, with different combinations of Iberia, Vueling, Ryanair and Air Europa. Unlike Madrid- Barcelona, however, other modes are not possible as each route serves island destinations. Italian Domestic Capacity Like Spain, Italy also has a relatively high penetration of low cost carriers in the domestic market; 52% of all seats are operated by LCCs. In contrast to the other 4 countries in this analysis, Italy is the one country where almost half of all domestic seats are operated by foreign carriers. Alitalia and their subsidiaries account for 42% of domestic capacity, whilst Ryanair is operating 31% of all domestic seats in April 2014, and easyjet provides a further 11% of seats. Italy s largest domestic route also is unusual in that there are 4 carriers competing for market share. Alitalia do still retain the largest share of capacity on the Rome to Catania service, with 45% of seats. Alitalia also still retain the largest share of capacity on the other 4 largest Italian domestic routes. Rome to Milan Linate is their strongest route where they operate 83% of capacity. On two of the five, there is no LCC competition. These routes are Milan Linate to Naples and Catania.

7 Slow progress towards a Single Market? What this analysis shows, perhaps, is that the realisation of a truly single market in aviation takes time. It is now eight years since the European Common Aviation Area came into being and yet national FSC s continue to dominate the main domestic markets in their home country. While LCC s have continued to grow their market share across Western Europe, the business of operating successful domestic services out of their original market is taking time. Spain and France are at the forefront of experiencing the force of foreign LCC s, in the form of Ryanair and EasyJet, but elsewhere this pattern has been slower to take hold. In the meantime, home grown LCC s continue to challenge incumbent airlines. Is it just a matter of time before we see the likes of Air Europa, Norwegian or Blue Panorama begin to penetrate domestic markets outside their home territory?