European low-cost carriers face a tough winter, mainly because of the drop of passengers demand. Furthermore, recent outlook announcements made by market leaders, Ryanair and easyJet, and market analysts are not really good. Hence, 2010 will still be a difficult year for carriers. And what about in 5 years, what are the main threats to low-cost airlines by that time? As I’ve previously analyzed, I believe the European Union's emissions trading scheme (ETS) will bring new costs to carriers. But, in the medium term, trains network throughout Europe is the biggest threat to low-cost airlines. Let’s take the French market as an example.

Too many airports

In France, there are about 170 airports for 61 million inhabitants, which means 1 airport for 358 000 inhabitants. If we compare with other European countries, we realize that France has almost the most important density of airports. For instance, Germany only has 19 airports for 82.7 million inhabitants (4.3 million inhabitants per airport), Italy has 2.1 million inhabitants per airport, Spain has 1.6 million inhabitants per airport, and the United Kingdom has 1.2 million inhabitants per airport.

Figure 1: number of airports in certain European countries, relative to population

Back to the French market, this density of airports has a real impact on public finances. Rivalry between close airports doesn’t bring anything good to local authorities and their budget. The Region authority of Languedoc wonders the real need of Perpignan-Rivesaltes Airport compared to Girona Airport and its 5 million of passengers per year. Normandy region has the same problem with 5 airports available for only 2 million inhabitants in the area. Three of them (Caen, Deauville and Rouen) are even located within a 50 km circle. And even if local authorities have decided to concentrate their financial efforts on Deauville-Normandie Airport managed by Syndicat Mixte of Deauville Normandy Airport, they face an important lobbying from Caen Airport looking for investments for its slopes.

The increase in the number of airports also raised concerns among residents. Associations of residents take actions against these airports, and therefore against carriers, especially because of the noise of aircrafts. It is the case for Bordeaux-Merignac Airport opposed to the association AEDE (Association Eysinaise de Défense de l’Environnement) of residents living nearby. This pressure won’t stop anytime soon as a new building especially for low-cost carriers, called Billi, will open in May 2010, and therefore will increase the air traffic.

Trains: The Long Tail Threat

According to French financial courts (Cour des Comptes), most of French airports survive thanks to public money. From 2000 to 2006, airports in France have received about 590 million Euros from public money, which represents more than 100 Euros per passenger. These amounts sho uld be even more important in the future because of all investments that must be made in terms of environmental and security norms.

Already in bad shape, the worst is still to come for airports. Indeed, in such financial situation, most airports are not in strong position to negotiate with carriers, nor face competition, coming from other airports, or the train. In 2012, the train route 'TGV Atlantique' will be extended and Western cities of France will be reached in 3-4 hours from Paris. In a recent interview, Jacques Sabourin, director of UCCEGA (Union des Chambres de Commerce Gestionnaires et Exploitantes d’Aéroports), said: "Carriers only win over train on routes longer than 4 hours". According to a study published by FNAUT (Fédération Nationale des Associations d’Usagers de Transports) and the French Ministry of Transport, between 1990 and 2030, the aviation sector will lose about 39 million passengers, preferring to use the train instead. Indeed, most of French main cities could be reached in less than 3 hours and half from Paris.

The best current example comes from the route London-Paris. In 1994, carriers had 98% of the passengers’ traffic while train had only 2%. In 2009, the EuroStar obtained 80% of the traffic, leaving less than 20% to planes. This situation should be generalized to other train routes in France.

France is today the European country the most concerned about train network versus airlines, but it is not an isolated case. Last August, the UK Government announced it will "progressively replace domestic flights with a 250mph train network". Lord Adonis, the transport secretary, declared: "For reasons of carbon reduction and wider environmental benefits, it is manifestly in the public interest that we systematically replace short-haul aviation with high-speed rail". And Spain also invests a lot into high-speed train. For instance, Paris and Madrid just signed a joint-venture deal to create high-speed rail link which will connect Madrid to Paris, via Barcelona and Lyon. Short-haul carriers, and especially low-cost carriers, will have to rethink their strategy to survive.

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Matthias, WhichBudget Airline Market Analyst

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