Air Scoop Article: Seat Pitch Regulation: What Impact on LCCs?

The following article, concerning the potential regulation of seat pitch on European low-cost carriers, was recently published in the European low-cost airline newsletter, Air Scoop. Enjoy!

Seat Pitch Regulation: What Impact on LCCs?

As LCCs, and charter carriers in particular, have expanded across Europe, they have engaged in prolonged battles to profitably reduce fares. To do so, LCCs have had to trim costs, and one way to generate additional efficiencies is to pack more seats into an aircraft, cutting the seat pitch (the distance between any point on a seat and that same point on the seat in front).

The Civil Aviation Authority (CAA) in the UK mandates that carriers provide a minimum of 26 inches of seat pitch, and most charter carriers, including Thomas Cook, First Choice, and Monarch, offer the bare minimum or just above it. Short-haul LCCs such as easyJet and Ryanair offer slightly more, their seat pitches are around 28 inches, while legacy carriers such as British Airways and Bmi offer a minimum of around 30 inches. While a reduction in seat pitch to near the regulatory minimums has meant that LCCs can offer lower fares, some critics are raising questions that these reductions might be at the expense of passengers’ health and comfort.

The House of Lords Science and Technology Committee recently issued a report calling for the minimum seat pitch to be increased from 26 inches to 28.2 inches. The committee argues that this change will allow passengers to more easily adopt the brace position in an emergency, reduce the risk of passengers developing health problems as a result of sitting in cramped conditions, and improve their comfort. Many LCCs, and especially charter carriers that offer the legal minimum seat pitch, oppose the proposed regulations. I suggest a wiser course should be that LCCs fight for revised regulations, which take into account several aspects of passenger comfort while maintaining low fares.

One of the primary concerns of legislators is that a narrow seat pitch will cause health problems, such as deep vein thrombosis (DVT). While valid, this is a much bigger concern on long-haul flights, where customers sit in their seats for hours. On these flights, where seat pitches can be extremely tight on charter carriers in economy class, passengers are much more vulnerable to developing DVT. On short-haul flights, less than 6 hours or so, passengers run a lower risk of developing DVT, and carriers could argue that on short-haul flights, the current regulations should be kept. However, on flights over six hours, airlines should concede to the recommendations. This would affect virtually no flights from short-haul LCCs like Ryanair and easyJet, which don’t operate flights over six hours in length, but would affect charter carriers that operate long haul flights to Asia, Africa, or the States.

If regulations where seat pitch varied on flight time were contemplated, there would be several details to negotiate. The first is how flight time would be measured, as scheduled flight time is often not the same as actual flight time, and passengers’ time on the ground stuck in their seats could contribute to developing DVT. The second would be what penalties airlines would face if they were to violate the flight time requirements, since the severity of penalties can greatly affect how willing airlines are to violate the rules.

Additionally, the LCCs would have to determine how to subdivide their fleets into aircraft configured with long-haul seat pitches and short-haul seat pitches. LCCs hate subdividing their fleets, because it reduces flexibility and operating efficiencies. Although some aircraft, such as the 757 or 767, are versatile, and could be used for higher-density short-haul flights, or lower-density long-haul flights, seat pitch regulations, and the desire by airlines to pack as many seats as possible into aircraft, could encumber airlines and make it difficult for them to use those aircraft efficiently.

Another regulation that carriers should lobby for, because it is not very intrusive and could prevent regulators from imposing more burdensome requirements, would simply require cabin crew to discuss DVT and the dangers of staying in one’s seat too long in the pre-flight safety demonstration. Moreover, airlines should be required to put some sort of notice about DVT in onboard safety cards, with suggestions about how to prevent its effects during the flight. A brief announcement advising passengers to get up and walk around the cabin to avoid DVT would remind passengers of their role in maintaining their health. Granted, this would not address the safety issue of passengers being able to adopt the brace position, which regulators are also concerned with, but it would make it easier on LCCs to address some of the regulators’ concerns while maintaining the status quo in seat pitch.

If these new requirements are implemented, regulators may decide to eventually target other areas of passenger comfort. For instance, regulators may try to impose greater seat width requirements. With a narrow seat width, passengers often must squeeze into their seats, making the flight very uncomfortable and painful. Moreover, passengers can be squeezed further if a passenger of size sits next to them (though admittedly, this is a larger problem in the States, where I live). While this is an issue that cannot be rectified immediately, since it is difficult for carriers to add width to seats to existing aircraft without narrowing the aisle (a health and safety hazard), it will likely be taken under consideration by regulators in the future when Airbus and Boeing are designing new generations of aircraft. 

LCCs that already offer the proposed minimum seat pitch standard should have no problems in the future. However, charter carriers that currently offer the bare minimum will likely need to remove seats, leading to higher fares and fewer opportunities to offer loss-leading extra-low fares in order to lure customers to their planes. The regulations will also diminish the opportunities for carriers to utilize one potential revenue-generating tool, premium seating. Most charter carriers offer some form of “premium economy” seating, with similar seat widths, but slightly more legroom than regular economy. Many taller passengers who cannot comfortably sit in regular economy seats often purchase these premium economy seats, and if more legroom is given to economy passengers, fewer passengers will have a need to do this. Charter carriers could be forced to rethink the sizes of their premium economy seating sections and the potential revenue that they might generate as a result.

The House of Lords proposed regulations will, however, make charter carriers more attractive to fly on for passengers, and if these companies can keep fares substantially lower than legacy carriers, then they may be able to make the improved legroom a selling point. Many passengers currently avoid charter carriers because of uncomfortable seats, and instead fly with legacy carriers. Some of these passengers could be converted back to charter carriers if they were given more legroom. As a result, British Airways and other legacy carriers could be forced to offer more amenities to retain economy passengers. However, the regulations will change little in the short-haul market, as most LCCs already exceed the minimum seat pitch. But it will still be an important battle that LCCs and charter carriers will fight in the new year, as it affects their ability to operate economically. But whether the outcome will be successful for LCCs will depend on how much airlines fight the proposed requirements, and how much they choose to concede.

Ryanair Announces Plans to Launch New Transatlantic LCC

Ryanair CEO Michael O'Leary made a surprise announcement recently, which made clear the company's plans for a new transatlantic LCC. O'Leary says Ryanair plans to use either Boeing 787s or Airbus A350s to fly transatlantic routes between secondary airports on either side of the Atlantic, such as London Stansted and Baltimore (for service to Washington DC) with fares as low as $12 each way. But as with any announcement regarding LCC expansion, the usual players were out misleading the public and criticizing the announcement. Before I elaborate on the viability of the proposal, I want to dispel two myths which seem to surround this announcement.

The first is that Ryanair is launching this airline to integrate it with its current shot-haul operations. O'Leary says explicitly that this new enterprise will not be part of Ryanair, and will have a separate management team and board. Moreover, he says Ryanair has no plans to introduce code-sharing or baggage transfers between the two airlines, even though they will be under the same corporate banner. While this new transatlantic LCC will look much like Ryanair, it will be separate, which is something the media has a hard time grasping. Unfortunately, many articles in have implied that the two airlines will be closely linked, which is simply untrue.

But the second myth is that this new carrier, just like any new LCC, will be bad for the environment and should be stopped. If this airline is allowed to fly, then people lured by cheap fares will be able to fly day trips to New York with little financial consequence. Any new air travel will hurt the environment, low-cost or legacy, but environmental campaigners fail to keep certain points in perspective. Ryanair's new long-haul LCC will likely be far more environmentally friendly than British Airways, American Airlines, or any other major transatlantic carrier. Unlike British Airways, which offers more space to customers in three premium classes, Ryanair's new airline plans to only have a business class cabin in addition to a tightly packed economy class cabin. And, Ryanair's new long-haul LCC plans to use a new fuel-efficient long-haul model type, which should deliver fuel savings of 15-20% and will reduce emissions by similar levels. As a result, this new airline is bound to be far more fuel-efficient and environmentally friendly per passenger than current operators. If other airlines have to compete with Ryanair's new long-haul LCC, they will need to lower their costs. Many carriers have been hesitant to order the new 787 or A350 because of their high acquisition costs and softening fuel prices. So if Ryanair's new long-haul LCC adopts this technology, then other airlines will see an additional reason to rapidly adopt new fuel-efficient and environmentally friendly planes. As a result the entry of Ryanair's new long-haul LCC could bring environmental benefits that stretch beyond the carrier itself.

If environmental campaigners want the most effective solution to the problem of aviation emissions, the first step is to find the inefficient operators and deal with them. Just because less efficient carriers are established historically on a route doesn't mean that they should be immune from having to change. New players shouldn't be the only ones scrutinized. It is a fair point that Ryanair's new airline could drive up traffic on certain routes and encourage people to travel when they otherwise wouldn't, but then that problem should be attacked appropriately. Environmentalists should be focusing their efforts on encouraging governments to change their aviation tax structure so passenger taxes cover the true carbon cost of one's journey. That would create a real financial burden for people to travel long distances, and it would minimize the kind of quick overseas trips that environmentalists fear would be spurred by this new airline. Growth in aviation can be controlled, and it must be controlled, but hounding every new entrant is ineffective; all players must be dealt with. What we too often forget is that with a challenge like climate change, it's easy to blame certain players or certain industries like aviation that are perceived as easy targets. But we cannot get caught up in anti-new airline hysteria to forget about finding the most effective solution to the problem of climate change.

I'll admit, I didn't predict this announcement to occur. In fact, I said quite explicitly in my recent Air Scoop article (R)evolution of Ryanair's Business Model (Part 1), that Ryanair wouldn't enter this business. And I made that statement because many analysts who predicted that Ryanair would enter this business believed that Ryanair's entry into the market would come in one of two ways. It would either come through an acquisition of Aer Lingus, which still appears unlikely, or through a new aircraft type addition to Ryanair's fleet and the integration of the short-haul and long-haul businesses. I said neither would occur because in both of those scenarios, costs are increased. Ryanair would have to deal with different aircraft types and route structures at Aer Lingus and it would have to facilitate baggage transfers, connecting passengers, and potentially differing amenity systems if the long-haul and short-haul operations were interlinked. Neither occurred. Instead, Ryanair's new long-haul LCC will have few ties with its short-haul partner, which will minimize costs. This makes much more sense for Ryanair as a whole company and it will enable the company to maximize profits from both airlines.

Now, presuming Ryanair's new long-haul airline takes off, it will find itself in an advantageous competitive situation. While open skies will force established carriers to lower fares, few airlines have announced plans to fill a low-fare vacuum across the Atlantic. Already there is plenty of low-cost charter service from Europe, and especially the UK, to Florida and the Caribbean which attracts droves of leisure passengers, but there is little in the way of service linking major business centers. Low-cost carrier Zoom UK recently announced a new route between London Gatwick and New York starting June 21, but aside from that, little low-cost, long-haul activity is taking place. If Ryanair's new carrier is able to lower fares as much as they advertise, then the new carrier will certainly attract customers. However, much of the new carrier's success will depend on five factors.

First is passenger comfort. While many customers are willing to endure Ryanair's less-than-comfortable aircraft for flights up to three or four hours, many would be less than enthusiastic about enduring a long-haul airline with comfort levels similar to Ryanair's for seven or eight hours. As a result, if Ryanair's new long-haul low-cost carrier cannot increase comfort levels for passengers in the economy cabin to levels most customers would consider tolerable (at least 31 inches of seat pitch), then this new airline will have difficulty attracting customers, regardless of how low the fares may be. Also, while many extras such as meals and entertainment will be charged for, if the rates aren't reasonable then many passengers who choose not to pay extra will be uncomfortable and agitated during the flight. If these customers choose not to pay for in-flight extras, they will be less likely to fly again, so the new carrier must be reasonable with what it charges customers for these extras.

Second, many customers don't use Ryanair's short-haul services because they often fly from secondary airports farther away from city centers. If customers cannot cheaply and easily access these secondary airports, then many may choose to use larger airports closer to city centers. Ryanair's new long-haul LCC must be careful about where it launches flights, because some alternate airports (such as Stansted) are relatively easy to access while others (such as Frankfurt Hahn) are far more difficult to get to. Although Ryanair organizes shuttle buses to operate between many of its alternate airports and the nearby city centers, those don't give customers very much flexibility about when or how they access the airport. Also, Ryanair must select airports in the United States which have sufficient transport options. Baltimore is one that does, but Islip on Long Island is one that doesn't. If passengers have to spend more time and money to access secondary airports, it will hurt the usefulness of the new airline for many customers. This is especially true with business travelers who typically value their time more than other types of travelers. If Ryanair's new long-haul LCC plants on courting business travelers, it must be careful about where it launches flights for this reason.

Third, the proposed EU Emission Trading Scheme and the new pushes for carbon taxes on air travelers could have a very damaging effect on Ryanair's long-haul LCC. Even though the new airline will be more efficient per passenger than most of its competitors, it could have difficulty succeeding if new taxes are added to air travel. Since this airline's customers are likely to be more price sensitive, on average, than customers at other transatlantic airlines (since it's likely that a greater proportion of the passengers flying on Ryanair's long-haul LCC will fly for discretionary purposes than on other carriers), any new taxes will decrease the number of discretionary trips taken. If taxes are increased significantly, then there will be a decrease in non-essential transatlantic travel, and low-fare carriers of any nature will suffer. But ultra-low fare carriers where leisure travelers make up the vast majority of their customers, like Ryanair's proposed LCC as well as charter carriers like First Choice, will suffer much more than other airlines.

Fourth, customer service for Ryanair's new long-haul LCC will be much more important than on Ryanair's short-haul flights. Ryanair can get away with dodging customer service on its short-haul flights, since passengers are less reliant on the check-in staff and flight attendants during their journeys. However, on long-haul flights, customer service becomes more important, because passengers are typically less comfortable and under more stress since they are at the airport and onboard the aircraft longer. If Ryanair's new long-haul LCC forgets that it only takes one bad customer service experience to lose a customer, then the airline will fail. This is especially true since the new airline will target business travelers, who expect higher levels of customer service on long-haul flights. Repeat customers are crucial to an airline's success, and low fares aren't enough to drive an airline's success over the long-term. That's why the most successful low-cost airline is also the one that is perhaps most focused on customer service. The founder of Southwest Airlines, Herb Kelleher, says that Southwest is a company in the customer service business which happens to be an airline. Ryanair has been able to get a sufficient number of repeat customers onboard to be profitable, but with an intensely competitive transatlantic market, Ryanair's new long-haul LCC will need to focus on building customer loyalty.

Fifth, Ryanair's new long-haul LCC needs to ensure it can avoid routes with overcapacity, and target capacity effectively to many different city-pairs. Open skies will lead to capacity increases on transatlantic routes, and Ryanair's new long-haul LCC needs to ensure that it adds capacity carefully and methodically. Overcapacity could benefit Ryanair's new long-haul LCC, since it could lead to lower fares that competitors will be unable to match profitably, but it could also hurt the airline since it will take time for it to build up a base of loyal customers. While the market realigns its capacity with demand, other carriers, such as British Airways, may be able to fill planes with loyal customers while Ryanair's new long-haul LCC may have difficulty filling its planes.

If Ryanair's new long-haul LCC starts operations and navigates the five issues above well, then it should succeed. With open skies, competition will force Ryanair's new long-haul LCC to focus on more than fares. Consequently, if the airline wants to succeed and distinguish itself from the competition, it needs to focus on many of the operational, comfort, and service issues which Ryanair's short-haul operation has ignored.

How Allegiant Must Find New Niches to Grow and Evade Competition

Allegiant Air must find new bases that it can succeed in, in order to effectively expand and evade some of its competitors. Allegiant has been successful at three bases, Las Vegas, Orlando, and St. Petersburg, and they appear to be interested in possibly forming bases in Palm Springs and Reno, which will soon have flights to Bellingham. Since Allegiant has already tapped into demand to the most popular vacation destinations, the airline will need to find ways to market destinations that currently have less demand. Allegiant needs to find ways of developing additional bases quickly. Allegiant must broaden its market and offer a greater variety of destinations to appeal to different kinds of customers. Reno and Palm Springs offer customers the opportunity for more adventure and recreation than Las Vegas. This will be important in enabling Allegiant to expand, since its customers, even the most compulsive gamblers and theme-park lovers, want new and exciting vacation opportunities, and if Allegiant can't provide those to them, then another airline will. It's unclear whether the Palm Springs and Reno bases will be successful, although it appears that like many airlines serving Palm Springs, Allegiant will make some of its flights seasonal to that city. Since Allegiant hasn't even started flights to Reno, it's too early to tell whether those flights will be successful either.

However, Allegiant also must consider forming new bases East of the Mississippi. Allegiant will likely develop another base in Florida, likely in the West Palm Beach-Fort Lauderdale-Miami area so that Allegiant will serve West, Central, and East Florida. However, Allegiant should also consider different bases in the East, most notably in Myrtle Beach, a popular vacation spot with seasonally fluctuating demand. Gulfport/Biloxi, Mississippi is also a potential base, although Allegiant recently made the city an origin spot for flights to Las Vegas and Orlando. With its popular Casinos, Biloxi could be marketed as a good vacation spot, although demand for travel to the area is much more limited than travel to Orlando. The important point is that Allegiant must create new choices for customers; without choices, customers will have few reasons to fly Allegiant repeatedly, unless they want to visit Orlando for the fourth time to witness the sights and sounds of a bunch of out-of-control, noisy children (my idea of a great time).

But, since some of these proposed bases have demand patterns which fluctuate seasonally, Allegiant needs to find a way to efficiently utilize its planes during both the winter (typically the more popular season to warm vacation destinations) and during the summer. As a result, it will take a bit more effort for Allegiant to develop popular summer bases, and if Allegiant wants to succeed in those markets, the carrier will need to work closely with local tourism authorities to market the destination. As a result, new destinations will need to be marketed to people who might not have heard of them. Colorado Springs is an example of a successful Allegiant origin market, which could be made a destination market in the summer months. The same is true for Bellingham, which is a gateway to recreation opportunities in the North Cascades in Washington State, as well as the plethora of recreation opportunities the Vancouver-Whistler, British Colombia area offers. However, this strategy is very risky and unlikely, but a possibility if Allegiant is very interested in increasing aircraft utilization.

Allegiant could take another strategy, and market flights from its small origin cities to big cities (through nearby alternate airports) popular with tourists during the summer, such as San Francisco, New York, and Washington DC. These are only ideas of how Allegiant can potentially increase aircraft utilization during the summer months, however, given the difficulty involved in making these destinations, particularly smaller markets like Bellingham and Colorado Springs, attractive, these markets probably won't be Allegiant's top-performing bases. Fortunately for Allegiant, since the company doesn't have expensive leases on new aircraft, they don't feel as pressured to increase aircraft utilization, and as a result, the company has been willing to park aircraft for extended periods of low demand. If Allegiant simply cannot find good places for these aircraft during the summer, it makes little sense for the airline to take unorthodox risks with its capital. Conversely, if Allegiant can't find new destinations for its customers to travel to, the airline will have few repeat customers.

Allegiant will also need to expand the number of origin markets it serves in order to diversify itself from the competition. Already Allegiant is encountering competition in some of its more established markets. AirTran recently announced new nonstop service between Bloomington, Moline, and Milwaukee to Las Vegas. The Milwaukee service is aimed primarily at offering competition to Midwest Airlines and demonstrating AirTran's commitment to increasing air service for the residents of Milwaukee. But that's not the case with the Bloomington and Moline service. Bloomington and Moline can probably support AirTran's new flights with the potential customers in the immediate area of those two markets. However, the Bloomington and Moline service directly targets several of Allegiant's markets in the region. Moline is a perfect destination because it's close enough to three Allegiant markets, Cedar Rapids, Rockford, and Peoria, so that AirTran can attract a wide range of Allegiant customers in the area who might prefer AirTran because Moline is closer by to their home, and because they prefer AirTran's amenities, such as satellite radio, which Allegiant doesn't offer. AirTran would not attract many customers from the cities Allegiant operates in, since they are all at least a 90 minute drive from Moline, but AirTran could attract customers from the outlying areas of those cities who are closer to Moline. AirTran's new Bloomington service offers similar benefits for the airline, since it too has the potential to siphon customers away from Allegiant's Peoria operations. Since AirTran has some of the lowest costs in the industry, they are ready to fight Allegiant, and Allegiant must fight back hard if the airline wants to retain its market share in the region.

As a result, Allegiant must both diversify and protect its origin markets. The company has already received permission to begin service to Canada, and may announce service from new Canadian origin markets soon. Since service between Canada and the US is typically through hubs, Allegiant has the ability to offer attractive point-to-point flights for customers in smaller markets who might be forced to connect in Vancouver, Calgary, or Toronto for most of their travel, which would save Allegiant's customers time and money. Moreover, customers in Canada are more accustomed to the lower-frequency vacation package business model that Allegiant uses, since Canada has several charter airlines, such as Air Transat, which sell vacation packages to popular leisure destinations and fly to them from major Canadian cities. The Allegiant model would take that one step further by offering service from smaller markets. Other Canadian cities which could see Allegiant service include Windsor, London, Hamilton, and Kitchner/Waterloo (all in Ontario), Abbotsford, Kelowna, and Comox (all in British Colombia), and Fort McMurray in Alberta.

That being said, there are still untapped markets in the United States. The biggest hole in the Allegiant network right now is in the South. Allegiant serves no destinations in New Mexico, Oklahoma, and Arkansas, and only serves two in Texas. Allegiant has tried offering service from several markets in Oklahoma and Texas (including Oklahoma City, Tulsa, Wichita Falls, and Killeen), but all these have failed. There are many smaller markets in Texas that have the potential for Allegiant service; the big factor holding Allegiant up is Southwest. Since Southwest already serves Las Vegas from many small Texas markets, Allegiant would have a challenge in many markets, even in ones where they aren't competing directly with Southwest, since Southwest serves airports relatively close to many potential Allegiant markets. As a result, that area of the country may be hard for Allegiant to build up, though Allegiant may want to give it another shot, since Allegiant does have a competitive cost base with Southwest. Moreover, Allegiant is also underrepresented in the Northeastern United States, in part due to the brutal competition among low-fare airlines in the Northeast-Florida market. However, Allegiant could still add service to three to five cities in Pennsylvania before the market in that state is saturated (Allegiant currently only serves one, Allentown, in the state). Similarly in New York State, there are several potential Allegiant markets, such as Ithaca and Utica.

Allegiant needs to take many steps simultaneously to ensure the company meets its ambitious growth targets and protects its market share. Allegiant must defend its turf vigorously in places like Peoria, even if it means engaging in a price war with AirTran, because if AirTran wins that battle, then it will motivate the company to enter other Allegiant markets, which could have a potentially devastating effect on Allegiant. Moreover, Allegiant must expand into new origin markets, especially in Canada, where two big Canadian airlines have created niches to be filled. And finally, Allegiant must find new bases to operate in order to offer more choices to customers. The best bases are ones that can attract enough traffic to support year-round service, such as Fort Lauderdale, but as Allegiant expands, they must be creative about new bases if they want to retain their niche as a vacation provider to people in small markets.

(R)evolution of Ryanair's Business Model (Part 1)

The following text is an article I wrote for Air Scoop, a European low-cost airline newsletter. It concerns the future growth plans of Ryanair, and how its business model must evolve to fit the new market realities in Europe and was published in their April newsletter. The second part of the article will be published in the May issue of Air Scoop, and when it is, I will post it on Airline Bulletin. Enjoy!

Ryanair has projected ambitious growth targets for the next five years. By 2012, the airline plans to carry 85 million passengers a year, up from 42.5 million in 2006. However, in order to meet this target, Ryanair will have to change its business model to meet the needs of more travelers. Some have speculated that Ryanair will offer long-haul flights, possibly in conjunction with its Aer Lingus bid, as well as flights to larger airports closer to city centers. While Ryanair will probably not fly transatlantic flights, it will need to target longer routes, as well as flights to larger airports closer to city centers if it wants to meet those growth targets.

Many observers believe that Ryanair’s bid for Aer Lingus is a maneuver to get the company into the long-haul aviation market. However, Ryanair CEO Michael O’Leary recently said in the German newspaper Sueddeutsche Zeitung that the bid is “rather unlikely” to succeed. Ryanair is unlikely to deviate from its no-frills business model in the coming years, because that enables the carrier to maintain the lowest costs of any airline in Europe. Expansion into long-haul markets complicates Ryanair’s simple business model, and it would almost certainly increase costs. Ryanair’s available seat mile costs would increase because it would have to add a new aircraft type to its fleet, it would likely have to increase seat pitch on long-haul planes, it might have to facilitate connections at bases such as London Stansted, and it would run into more competition, particularly if it opened routes already operated by charter carriers such as Monarch or First Choice.

But if Ryanair chose not to operate long-haul flights, and instead focus on medium-haul flights, between 4 and 6 hours in length, the airline could operate them with its 737-800 aircraft. While longer flights deviates from Ryanair’s established business model to operate quick 1-3 hour flights, operating medium-haul flights could allow Ryanair to increase its aircraft utilization. This could be accomplished if Ryanair operates many of the flights as red-eyes, provided the airline leaves enough time in the schedule to make up for any delays or maintenance. This model opens up many opportunities for Ryanair to serve markets that badly need competition. Ryanair succeeded beautifully in Poland where the airline significantly lowed fares and expanded service to many smaller markets that lacked nonstop service to Western Europe. If Ryanair expanded service in Western Russia, it would likely have a similar effect on many smaller airports in the country. Ryanair has already adopted some medium-haul routes. For example, Ryanair started service to Morocco last year, where it committed to serving up to 20 routes within five years. While flights between Marseille and Morocco weren’t successful, flights between the UK and Morocco have been. Ryanair also has medium-haul opportunities in North and West Africa, the Middle East, including Israel, and other former Russian non-EU states, such as Ukraine or Georgia.

But, while medium-haul flights would give Ryanair many opportunities to expand its services, it could also lead to problems. If Ryanair’s planes were flying fewer passengers per day, then ancillary revenues may decrease. On a ten-and-a-half-hour round-trip (approximately five hours each way with 25-30 minutes turnaround time), Ryanair only has a potential market of 378 customers for its ancillary products (up to 189 passengers each way), while Ryanair could fly more than two two-hour round-trips in the same amount of time, doubling the number of potential customers who could utilize ancillary revenue products. Consequently, this may decrease Ryanair’s revenues per available seat mile, because although longer segments could generate higher fares, they would decrease the importance one of Ryanair’s most profitable revenue source. Also, if Ryanair flew more medium-haul routes, Ryanair would be flying fewer segments and it would need more planes to increase its passenger loads to 85 million a year, than if it were just to focus on shorter segments. But another lingering difficulty that Ryanair may have in adopting a medium-haul strategy is regulatory issues. Ryanair has been able to expand quickly within EU states because it faces few regulatory hurdles when opening a new route. But Ryanair encountered much greater hurdles when entering Morocco, where it took the airline six months of negotiations to reach an agreement with the Moroccan government. If Ryanair expands further into non-EU states, then it could delay the opening of new routes while terms are negotiated. That could enable competitors to wield their influence with foreign governments to deny Ryanair’s application, or to at least stall Ryanair’s arrival, enabling foreign carriers to adapt to changing passenger needs.

Harmony Ends Scheduled Service as Consolidation in Canada Continues

Harmony Airways announced today that it will end its scheduled services, starting with its Vancouver-Toronto flights on March 30, and the remainder of its services by April 9. Harmony has struggled to diversify itself as a Western leisure carrier, as WestJet and Air Canada have expanded service in the region and lowered fares. Harmony mostly flies seasonal flights between the Vancouver-Victoria, BC area to Hawaii. The airline operates flights from Vancouver, Victoria, Kelowna, Calgary, and Edmonton to Hawaii, as well as additional flights from Vancouver to Las Vegas, Palm Springs, and Toronto. At one point, Harmony was also interested in serving the China market, and the airline had hoped that China routes would diversify the company's routes, but due to regulatory issues, the airline was unable to get authority to serve China routes. Unfortunately, Harmony encountered tough competition on Hawaii routes from WestJet, which flies from Vancouver to both Honolulu and Maui on 737 aircraft, as well as the heavyweight Air Canada, which operates multiple daily flights on twin-aisle 767 aircraft to those markets. Now that Air Canada has restructured itself to be leaner and more cost-effective, it is able to compete with low-cost carriers like WestJet and Harmony and can offer even better values to consumers because it operates larger, more cost-effective aircraft on Hawaii routes. Harmony was unable to undercut WestJet and Air Canada's fares in most markets, and the airline had very little else going for them. Unlike Harmony, WestJet is well-liked and well-known in Canada, and passengers like it for many of the same reasons passengers in the States like Southwest. WestJet provides reliable, few-frills service at low fares. Because of this, passengers are much more likely to flock to WestJet, which is a name they can trust, rather than Harmony, which may or may not provide an acceptable experience, particularly since Harmony's fares were often more expensive than WestJet's. Harmony did not do a very good job bundling its flights with hotels and car rentals to create vacation packages, which could have offered customers a better travel value than Air Canada or WestJet. Vacation packages are an excellent mechanism to fill seats, and it's how charter carriers succeed in their businesses. Harmony's inability to effectively bundle vacation packages with flights almost certainly hurt load factors.

The only real surprising thing about Harmony's demise was how soon it came. Harmony's peak season is the winter months, when freezing British Colombians and Albertans head for the sun of the American Southwest or the Hawaiian Islands. Harmony probably could have held out a few more weeks, since there is still substantial Hawaii traffic over the spring break period, since the weather hasn't quite warmed up yet. However, if it didn't come this week, it was bound to come within the next month, because Harmony simply didn't have a coordinated strategy to make it through the off-peak summer months.

It's likely that Harmony will now be able to succeed in leisure markets they currently serve as a scheduled carrier, because the company will create a different strategy. Harmony will probably evolve into a smaller charter operation which will provide air travel to travel companies that sell vacation packages. Harmony could either provide lift for tour operators who need lift, or build their own travel business and sell their own vacation packages. This transition in the long run will benefit the company because a good charter airline or travel company is able to offer consistent profits for its shareholders, albeit at low margins. Harmony will likely serve many of the same routes it does now, but on a less frequent basis. If Harmony were to transform into a charter carrier or a travel company, the vast majority of its passengers would purchase vacation packages, which will help boost load factors and profitability. Harmony could become much like Air Transat, a charter carrier which serves many Florida, Caribbean, and European routes from major Canadian cities. That company has done quite well, and Harmony's best opportunity for transformation is a similar business model on routes to Hawaii and Las Vegas. If Harmony makes the transition between scheduled and charter service with a long-term, but realistic outlook, then it should be able to reshuffle its operations and successfully either market its services to tour operators who need lift or build its own travel business to sell packages. But if Harmony thinks only about short-term gain, then it will be unable to develop many of the long-term relationships necessary to succeed in the charter business, and as a result, it will be forced to end all operations.

Now the low-cost market in Canada has become even smaller, and oddly enough, the routes being targeted by low-cost carriers aren't the traditional short-haul routes, but rather longer routes. Medium- and long-haul flights will become the target of niche carriers in Canada, as Harmony's demise proves that Air Canada and WestJet have the short-haul domestic and US market locked up. Air Transat serves and Harmony will likely serve the important charter market to leisure destinations 4-8 hours away, and Zoom will continue to serve the legions of transatlantic travelers who desire cheap long-haul flights to Europe. Zoom has expanded rapidly in its short history, building its operation by offering cheap, nonstop flights from many Canadian cities to popular destinations in Europe. Zoom is offering much-needed competition to Air Canada, which is forcing Air Canada to be more rational in its international pricing structure. As a consequence of this expansion, Canada seems poised to accept two or three Canadian airlines on most routes, which will likely bring satisfactory, stable competition, and relatively low fares that ensure a reasonable profit for airlines. This new era in Canadian aviation will probably be better for companies than consumers, but it will ensure that many Canadian cities receive adequate service, including nonstop service to many major markets, and that Canadian customers receive reasonable fares. Gone are the days when Air Canada can charge whatever it likes, other airlines, particularly WestJet, will provide real competition. There will still be niche carriers, such as Porter Airlines, the startup out of Toronto which focuses on providing reliable service to business travelers, but they will be less important in the future, now that the two main players, Air Canada and WestJet, have been established for US and Canadian routes and that two or three main players, including Air Transat and Zoom, are firmly established on leisure routes to compete with Air Canada. Now that Harmony has decided to reshape its business plan, Canada's aviation industry should be relatively stable for the time being, but the biggest threat to airlines right now seems to be the economy. If passengers are there to travel, there are a suitable number of airlines to transport them. If passengers hold off on travel, particularly leisure travel, then every Canadian airline will be hurt and more turbulence could follow.

Flying America's Part-Time Charter Airlines

TransMeridian Airlines, a charter carrier operating both scheduled service, as well as charter flights for Vacation Express (which sells vacation packages to leisure destinations), folded late Thursday, as the carrier just ran out of money. They had operated since 1995, carrying over one million passengers. The folding disappoints many, especially those at Orlando Sanford Airport, where the airline operated most of their flights. TransMeridian, like many of these charter airlines, operate some scheduled service from second-tier airports, such as Orlando Sanford and Rockford, IL.

However, TransMeridian wasn't the only carrier operating that flew both charter and scheduled flights on a regular basis. This "second tier" of airlines is more common in Canada, where carriers like AirTransat and Zoom provide both charter and scheduled service, depending on seasonality. In the states, there are other carriers which fly this way. And they could save you a lot of money. Carriers such as Allegiant, Hooters Air, Pan Am, and USA3000 operate some charter flights for vacation companies, and operate some scheduled service as well. Allegiant, which has been profiled earlier, operates to many rural destinations several times weekly from Las Vegas and/or Orlando Sanford. The airline flies MD-80 aircraft, and even charges for sodas. However, they have offered introductory fares as low as $39 each way between Portsmouth, NH and Orlando. Hooters, and yes this is the same Hooters as the restaurants, flies between Myrtle Beach and several destinations, as well as a few point-to-point flights between other cities. There are flight attendants on-board in addition to two "Hooters girls" who work the planes. Hooters Air operates a mix of 737 and 757 aircraft. Pan Am is certainly not the original airline that was once so successful its livery was used on the rocket plane in the film "2001 - A Space Odyssey." They fly an old 727 between Portsmouth, Orlando Sanford, and Puerto Rico. However, they have been cutting some of their scheduled service lately until Thanksgiving, when they expect things to pick up again. USA3000 operates flights on Airbus A320 planes between certain East Coast cities. All these airlines are safe to fly on, and it's unlikely that any of them will go out of business anytime soon (except perhaps Pan Am). These airlines can save you a lot of money, especially if you are tired of driving to a major city to catch a flight. Just beware that they may not always be the most reliable airlines, and that it might be hard to complain if something happens. All in all, however, it's a good deal for many, and that's why this segment of the industry has grown over the years.

USA3000 Makes a Big Leap Forward

USA3000 a charter carrier, which runs "public charter flights" flights that have most seats set aside for buyers of vacation packages, but do have some seats available for the general public, announced today a major expansion of service from Orlando, Nassau in the Bahamas, Fort Lauderdale, and other destinations. Many of the flights run only on certain days of the week, and the seats available to the public are at low prices. This may not do much to compete against Southwest in certain markets, such as between Philadelphia and Orlando, but it does show how there is room for at least a few more flights on the East Coast, at least for now.