Market Overview

European Airlines Look For Ways To Grow In A Mature Market

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European Airlines Look For Ways To Grow In A Mature Market

Low-cost airlines Ryanair Holdings plc (ADR) (NASDAQ: RYAAY) and EasyJet (EASYJET ORD GBP0.27285714 (OTC: EJTTF)) have seen exponential growth over the past few years, as the two gained attention for their ultra low fares and a reputation for on-time flights.

Both carriers began by offering passengers a bare-bones seat and requiring them to pay for extras like luggage and food. However, with Europe's market for aviation largely saturated, the two are looking further afield in order to continue growing.

Partnership With British Airways

Flagship carriers like British Airways plc (ADR) (OTC: BAIRY) could offer the discount airlines the perfect solution by teaming up with one or both airlines in order to conduct feeder flights to long-haul hubs like London-Heathrow.

At the moment, a passenger wishing to fly from somewhere in Europe like Valencia to New York has to pay upward of £150 in order to board a British Airways flight and connect through Heathrow. However, should Ryanair or EasyJet begin offering feeder flights, the company could move passengers for a much lower rate.

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Moving In That Direction

At the moment, Ryanair and EasyJet operate the majority of their flights from smaller airports just outside major cities in order to keep costs down. However, in recent years, the two have begun to infiltrate some of the region's largest airports like Paris' Charles de Gaulle and Rome's Fiumicino.

This has helped the two grab market share away from big names like British Airways and Air France KLM SA (ADR) (OTC: AFLYY), whose short-haul operations have taken a hit as a result. In order to cope with this, a partnership with low cost carriers would be beneficial, as it would eliminate some of the flagship carriers' need to operate unprofitable short-haul flights as well as ensuring that their long-haul aircraft were filled.

Still Some Hurdles

While Ryanair's Michael O'Leary has been outspoken about the benefits of partnering with his company for long-haul flights, there are still a lot of details to work out before such an agreement could be made.

For one, the two airlines would have to agree on a profit-sharing model for the long-haul flights, and they would also have to work out how ground crew would effectively transport luggage and passengers to the correct connecting flight. Delays and missed connections can be costly to airlines, and it would be difficult for the two to determine which airline should shoulder those costs.

While it's unlikely that a deal will be made with the largest flagship carriers anytime soon, smaller companies like Norwegian Air Shuttle ASA (OTC: NWARF) that operate long-haul flights may be more willing to negotiate.

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