XL Airways Reaches Out To Air France For A Rescue Deal

Embattled low-cost carrier XL Airways has reached out to Air France for a rescue deal. The Paris based airline ceased selling tickets on Thursday, September 19, 2019 and is suspending all flights from today. It reportedly needs USD$38.6 million in financing. And XL Airways says they can bring something to the table too. The airline says it could become the low-cost long haul option for Air France.

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XL Airways needs a USD$38.6 million bail out. Photo: Mark Harkin via Wikimedia Commons.

XL Airways’ woes follow the collapse of Aigle Azur earlier in the month.

A turbulent month at XL Airways

Gus Trumpiz, writing for Reuters says XL Airways wants to discuss a rescue deal with Air France. They had sought a meeting with Air France yesterday, Sunday, September 22, 2019. XL Airways was also expected to speak to French Government officials prior to going into receivership.

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The suspension of XL Airways’ flights caps a turbulent time at the airline. As recently as August 2019, XL Airways was reportedly in talks with two potential buyers to buy the airline. Those talks appear to have come to naught.

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A spokesman for Air France declined to comment on the matter when approached by Simple Flying. Notably, Air France did not make a bid for Aigle Azur despite earlier indications it may do so. 

Air France’s experiment with its own low-cost carrier, Joon, was not a stellar success. The big French carrier may not be keen to rush back into the low-cost carrier business.

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Is the European market saturated with low-cost carriers?

With two carriers putting their flights into hiatus in as many weeks, the question may be asked; is Europe saturated with low-cost carriers? Is supply exceeding demand?

Last year, Anna Aero reported on OAG schedules that said over half a billion seats on low-cost carriers would be available throughout Europe in 2018. This was up 7.4% on the previous year, but a slowdown on the average 9.4% growth rate over the past decade.

OAG notes the low-cost carrier European market share in 2018 was 36% and they expect this to increase to 50% in 2027. But, as Simple Flying asked earlier this year, is this fast-growing market segment at risk of overheating?

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Are there too many low-cost carriers in Europe? Photo: Andrei Dimofte via Wikimedia Commons.

There are many upsides to low-cost carriers and their growth, not just in Europe but around the world. Airline travel has shifted from being a luxury product to a commodity – like a bus ticket. Low-cost carriers have democratized airline travel. They have opened up new routes, pushed down prices, and have made flying accessible to just about anybody.

Barriers to entry have fallen

While the barriers to entering the airline industry remain formidable, an abundance of high quality aircraft on the second hand market, deregulation of the sector in the EU, some generous government tax breaks, cheap finance, and long term growth in passenger numbers have all combined to make the barriers to starting up an airline less costly and onerous than they once were.

With low-cost competitors flooding the market over the years and rarely competing on product differentiation, competing purely on price has meant operating on wafer-thin margins. As variables beyond the airline’s control like fuel prices rise, players like XL Airways face the inevitable capital crunch.

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Wafer-thin margins have given many low-cost carriers little room to move when revenues drop or expenses rise. Photo: Mathieu Marquer via Flickr.

Is there a shakeout in the European low-cost carrier market?

In 2019 alone, Germania, WOW and FlyBMI have also gone under. Unless their owners and shareholders have deep pockets and a willingness to open their wallets, Aigle Azur and XL Airways won’t be the last low-cost carriers to fall into a heap.

With the low-cost carrier market in Europe seemingly undergoing a shakeout and having learned a few valuable lessons from their ‘millennial’ airline, Joon, the odds are Air France will not be sliding a lazy USD$38.6 million across to XL Airways to bail it out. Besides the financial impost, it is one less competitor and more potential passengers for Air France.

Simple Flying contacted XL Airways for comment regarding this story but has received no response prior to publication.

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