Originally Posted by
FD1971
What did they actually take away from Swiss at Geneva or AF at Lyon or LH at DUS?
A lot of thin routes that did not turn a profit anyway and that were only operated, because of slot related issues or the inability to lay off staff.
On the other hand however, it woke up the BA’s and LH’s of this world, so they managed to cut costs fast (speed is certainly always a relative term at a legacy carrier with 110+k employees)
... And given lower costs and existing demand on these routes, AF and LH and BA could in theory tap into these growth pools now, except that some newcomers have already established themselves in the meantime. So to make those pools for future growth accessible to them, the legacies have to push out the newcomers. The kind of thing LX tries in GVA and AF has done with the Bases de Province. We have seen the results of the latter, and I'd be curious how much money LX is bleeding in GVA to win some of the traffic now transported by U2.
This is not a matter of having lost passengers that they could profitably carry in the past. This is a matter of having strong competition for growth pools that now could be served profitably. Which in turn means that growth has to come from fewer other pools. Not impossible, but more challenging. In that sense the LCC have made life much more difficult for legacy carriers.
But then again, they are still growing, so actual passenger migration, let alone the migration of profitable customers to low cost carriers is difficult to prove, probably because it never really happened.
That is probably right. But only if you stick to a perspective of what kind of customers were profitable in the past, not if you also consider what kind of customers could be profitable today but are served by newcomers.
We saw migration from expensive low cost carriers to less expensive ones, however migration of profitable accounts from LH to Ryanair is a myth, at least I am not aware of any study.
There are some studies that show this phenomenon does exist for migration from BA to easyjet in some of the U.K. O&D markets.
So we saw encroachment, however that disruption woke up the legacy carriers, AF needed a few more rings by the alarm clock, so arguably they are better prepared than ever before, again AF being the exception.
It is debatable whether AF didn't hear the alarm clock, or whether after hearing the alarm AF managers were too inept to make change happen, or whether French labour law constrained them too much.
As pointed out before, my sources within KL are not as good as they used to be, the ones within AF are even worse, but I can definitely tell you that they talked to two major law firms (one from the US) about ‘strategic bankruptcy’ , the infamous strategy used for the first 30 years ago in the US for an airline.
The scenarios that were looked at are VERY different from how the US airlines did it. And be it only for the fact that US bankruptcy law and the possibilities of Chapter 11 do not exist in either French or Dutch law.
If you take an educated look at the financial situation at LH or BA, if you take a look at the profits for 2015, I really wonder how relevant the encroachment really was.
Depends what you mean by "relevant". Relevant as in "killed their profitability in the long run" - apparently not. Relevant as in "bringing about change without which they wouldn't have survived" - hell yes!
Again, the ME3 are not turning profits and the only routes which might be profitable are trunk routes from Europe to Asia, routes on which they simply benefit from the fact that the EU3 are packed already giving the ME3 the opportunity to charge solid fares as alternative carriers with an inferior product (time is still the factor when it comes to profitable customers...)
We've been through this before but I question your applying the same logic and coming to the same conclusion to all of the three GCC-based carriers. I would put EK in a very different bucket. And the European legacies being "packed" - as we do see quite a bit of capacity reduction on routes to Asia (let alone to GCC destinations) I am not so certain this is really the case. Especially as we also see RASKs going down on Asia routes if I remember correctly (I caveat that statement strongly as I did not check these numbers recently).
Disruption is nice, I love to see it happening, but do not underestimate the incumbents, who know how to play the game.
Again, generalist statement to a segment that is actually quite heterogeneous. Many incumbents don't know how to play the game and disappear (JK mainly because of VY success), are clinically dead (I know that you agree that AB is one such example), or survive only after rescue by another airline (Iberia for instance). And for the bigger EU airline groups - IAG, AFKL, LH Group - the "do not under-estimate" is true for their ability to change, but certainly not to the strength of their traditional business and operating model, which should not be over-estimated. It is quite clear that the way they played the game in the past did not or will not survive the competition from several strong LCCs or ME4s.