LCCs Will Benefit From Struggling Hub Carriers

In an interview for a World Aviation Festival webinar, CEO of Wizz Air, Jozsef Varadi has commented on fundamental shifts in aviation as a result of both ‘the green agenda’ and fallout from COVID-19. With the reality that some airlines won’t survive this crisis, Varadi sees a “more focused market” post-recession, with low-cost carriers taking a more significant share of the space.

Wizz Air, Ryanair, Easyjet
Low-cost carriers will take advantage of failed airlines. Photo: Getty Images

The environmental factor

One fundamental difference in budget airlines compared to hub carriers is in route network and structure. In Europe, major legacy carriers will operate out of a hub, meaning that connections through this hub are necessary, even the shortest ones. Budget carriers are much more decentralized, with passengers booking direct, point-to-point trips. As Varadi notes, this has profound implications for the environment:

“If you look at it from an environmental perspective and with the green agenda encouraging us to scale up, that would imply basically that people should connect less. Because when they connect, they make a bigger footprint on the environment. So point to point should be a preferred way of traveling.”

Therefore, if environmental awareness continues to gain traction and become a factor in airline choice, low-cost carriers might just come out ahead.

Ryanair, Lufthansa, State Aid
Ryanair’s network is much more point-to-point, whereas Lufthansa’s network routes most flights through its hubs at Munich or Frankfurt. Photo: Getty Images

Lean and mean

Varadi also asserts that there will probably be three categories of airlines post-coronavirus:

  1. Airlines needing government bailouts,
  2. Airlines that will be able to sort themselves out, survive, and move forward,
  3. And airlines “stuck in between,” which will likely go bust.

The Wizz Air CEO believes that his airline is firmly within the second category and is robust enough to come out of this pandemic strong.

Indeed, the low-cost model has proven to be much more resilient in this challenging time. Budget airlines don’t have sizeable high-value loyalty programs to maintain nor lounges to manage. Salaries are also often much lower than those of legacy airlines. At a time when a strong financial position means everything, the lean nature of budget airlines is a gamechanger.

LCCs Will Benefit From Struggling Hub Carriers
The fundamental nature of budget airlines means financial losses are often not as severe. Photo: Getty Images

“I think the whole industry underestimates the financial burden of restarting airlines. It’s one thing to stop an airline and another to restart it. The cash flow burden on restart is going to be huge and you need to have the financial muscles to go through that.”

There will be casualties

Varadi is anticipating casualties during this pandemic. We’ve already seen a few – namely those that were already suffering before the pandemic such as Air India and South African Airways. Avianca and LATAM have also filed for bankruptcy recently.

“If you look at today, I think low cost carriers stand for about 45% of European traffic. Post pandemic there will be up to about 50% in the sector.”

As a result, we can expect to see a cleaner market post-pandemic with fewer carriers in the space. Low-cost carriers, therefore, will be there to fill those gaps. Furthermore, should an economic recession or depression hit, budget airlines might just be the travel-method of choice in an environment where travelers are much more conservative with their spending.

Do you think Wizz Air’s CEO is accurate in his assessment of a post-pandemic marketplace? Let us know in the comments.