In this month’s RDC fare watch we look at the continuing trend of falling fares across Europe and examine the differences between advance and last minute bookings. We also observe how one particular airline has seen a big drop in fares after investing in new aircraft.
As we reported in last month’s fare summary of 2016, fare levels for Low Cost Carriers (LCCs) in Europe have been dropping markedly over the last 12 months. This trend has not stopped as we move into the first month of 2017, with weighted average fares down 9.5% compared to January 2016.
Interestingly, we can see that the vast majority of the fare drops are happening on advance bookings – fares 3 months before travel are down 11% compared to 1 week fares down just 2%. What does this mean? Speaking generally, last minute fares are the preserve of business travellers while leisure travellers snap up the cheap fares several months before the travel date. Logic would therefore say that the business travel market is strong and it is a drop in leisure traffic pulling the market down. However there is insufficient evidence to prove this at present and the airlines may just be being shrewd with their yield management.
Figure 1 – Europe LCC observed fares Jan 2017 vs Jan 2016
Fares and capacity are intrinsically linked. The chart below plots each LCC’s change in capacity and fare from Jan 2016 to Jan 2017 – as can be seen all the airlines fit neatly close to a linear trend line. Only two of the airlines have shown a decrease in capacity (neither more than 5%) and only one airline has managed to increase both its capacity and fares (Monarch). All other airlines have increased their capacity and consequently seen a decrease in average fares.
Figure 2 – Fare and Seat Capacity increase by airline Jan 2017 vs Jan 2016.png
The airline that saw the biggest percentage drop in fares for 2017 was Jet2, with 39%. However in the same period the airline has also increased its seat capacity by 75%. As a charter/hybrid model airline, Jet2 usually sees significant seasonality and grounds a large portion of the fleet in winter. However having recently invested in some shiny new 737-800s, the “cost” of keeping its aircraft grounded is now much higher and the airline appears to be resolving this by flying more winter capacity.
Figure 3 – Jet2 Seat Capacity by aircraft type Jan 2017 vs Jan 2016.png
As can be seen in the chart above – while the airline’s older fleet of 737-300 and 757-200 aircraft have remained comparatively stagnant, Jet2 is flying almost 3x as much capacity with the new 737-800s compared to last year. This equates to an average of 10 more return flights per day, which with just four new aircraft (according to Planespotters.net), means this brand new fleet is being kept impressively busy in what is usually one of the quietest months of the year. However, this does explain the rather large drop in fares.
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