04 March 2010

IATA finally acknowledges LCC market

Acknowledging that that there is actually a low cost airline model - IATA has (begrudgingly) started to include LCC statistics in its reporting. Don't believe me? I quote directly from IATA's stats:

"As IATA member airlines carry 93% of international traffic measured by RPKs, this change does not make a large difference in the statistics" IATA Jan 2009 Report. I think I bed to differ. The LCC model has a profound effect on airline statistics.

Interestingly IATA seems to only capture those pure LCC airlines. They so far admit that there is only 7% of total traffic being LCC. And this is where there is a pretty fundamental failure of the IATA statistical model. It measures that notional value RPK (RPMs). IE Revenue Passenger Miles. If for no other reason than everyone else uses passengers as a measure of total traffic it is high time that IATA woke up and started publishing some real data on passenger numbers.

IATA claims that LCC traffic is only "7%" of total traffic. Given that the vast majority of LCC passengers are short haul and only a smattering of long haul traffic this is starting to distort the figures. Let me illustrate this.

The total traffic worldwide (using ACI data) is estimated at 4.5 billion passengers these are actual landings and take offs. This number tends to be inflated as it includes and counts each passenger twice. One take off and one landing. So in my opinion there are actually around 2.2 billion actual worldwide passengers. (PSJs - for Passenger Segment Journeys). If we look at just one group - the ELFAA - European Low Fares Airlines Association which comprises: Vueling | easyJet | flybe | Jet2.com | Norwegian | Ryanair | Sky Europe | Sterling | Sverige Flyg | transavia.com | Wizz Air

They carried 162 million pax last year. And this is not all (but it is most) EU carriers. If we were to add back in MENA, Africa, Asia Pac, USA and Latam carriers the numbers would swell by at least double. (WN alone is now more than 100 million pax). So you can see the share of market pax worldwide by true LCCs is higher than the 7% shown using the RPK model.

Interestingly if we look at an apple to orange comparison - according to IATA's numbers total traffic (in RPKs) was down nearly 11% for Europe in 2009. But for ELFAA airlines (passengers flown) it was up 8.7%. Interestingly IATA claims that the impact of LCCs mitigated the annual fall in traffic by one full percentage point. IE LCC growth saved the world from a full percentage drop of 1 %.

For the long term - you have to make the assumption there is a move towards hybrid value carriers - where airlines move away from pure legacy full network service carriers and pure LCC models to hybrids of all types. An apple to apple comparison of say United Airlines revenue models looks remarkably similar to say Easyjet these days.

Now I am sure that some people may pick at my numbers but - the analysis is sound I believe.


1 comment:

Mark L said...

PSJ and RPKs are just measures of market share and not particularly good ones (as you note) - though hard to come up with better ones that are still objective.
If you were to measure airlines the way you measure any other business from widget manufacturer to marketing company, you'd use measures like revenue, margin, profit, growth, share price, etc. In those regards airline industry as a whole is not a pretty picture, but the LCCs are an exception.