CAA Report Investigates the Impact of No-Frills Airlines

Date: 15 November 2006

A report published today by the Civil Aviation Authority (CAA) examines the impact that no-frills airlines have had on the airline market, on passengers and on society more widely.

‘No-frills carriers: Revolution or Evolution?’ shows that no-frills airlines have revolutionised the short-haul airline market, radically changing the fares on offer, and the choice of airlines, airports and destinations available to passengers. Other airlines now run their businesses differently as a result of the advent of no-frills airlines.

However, contrary to common perceptions, no-frills airlines appear to have had little impact on overall rates of traffic growth, and there is little evidence of any marked change to the income and socio-economic profile of air passengers.

The report contains a range of other findings, including:

· the success of no-frills airlines can be linked directly to the liberalisation of the European aviation market in 1993, which provided new opportunities that no-frills airlines have been able to exploit;
· no-frills airlines now carry nearly half of all UK short-haul passengers;
· inbound traffic is now a more important element of UK no-frills airlines’ business and more passengers are travelling to and from a much wider range of destinations, particularly Eastern European;
· UK airports have changed the way they operate, and there is much more competition for airline business than hitherto; and
· there has been a marked increase in the availability of flights from the UK regions.

The report shows that the average annual rate of growth of short-haul traffic is similar to that before the arrival of no-frills airlines. Most of the no-frills airlines’ growth seems to have been at the expense of other carriers.

The report also finds that there has been little impact on the income or socio-economic profile of passengers. The profile of UK no-frills and full-service leisure passengers is similar, and has changed little over the last decade. Although the number of leisure passengers from all income groups has increased, the majority of this increase has come from those in middle and higher income and socio-economic groups.

There has been a more significant impact on business passengers. They have a lower income profile overall now than ten years ago. The availability of lower fares to and from more destinations (and in particular the removal of fare restrictions) has made trips on a range of airlines more viable for lower income business passengers, particularly from the UK regions. This change seems to be linked directly to the effect no-frills airlines have had on the market.

The report does not attempt to tackle the much wider issue of aviation’s effect on the environment, but the information provided on the impact of no-frills airlines should contribute to a more informed debate on this and other policy questions. The CAA is committed to a sustainable aviation sector, and supports efforts to set the right framework for the industry, so that it meets its full costs, including those related to the environment.

The CAA’s Group Director, Economic Regulation, Dr Harry Bush said:

“No-frills airlines have enormously increased the range of fare, route, destination and departure choices available to the travelling public. The emergence of no-frills airlines and the response of other airlines to this has benefited passengers generally, and has demonstrated the advantages of opening aviation markets to competition.

“However, no-frills airlines do not appear to have significantly altered overall traffic growth. Nor have they substantially changed the profile of those flying: passengers on no-frills airlines resemble those on full-service airlines. Their main effect has been to provide further opportunities to those in middle and higher income groups to fly more often.”

The report is available on the CAA website at www.caa.co.uk/cap770.

For media enquiries, contact the CAA Press Office on 020 7453 6030.

Notes to Editors

Impact of no-frills airlines on traffic growth

Despite the very rapid growth of no-frills airlines in the UK, and the perceptions about the impact they have had on travel habits, there has been little change in long-term aggregate passenger traffic growth rates, as the chart below shows. Since 1996, annual growth rates have averaged around 5 to 6 per cent — strong growth, but not very different to the rates achieved in the previous decade.

See figure 1 UK to EU and UK domestic traffic – combined growth between 1976-2005.

Substitution between airlines

While it is not possible to assess with precision the extent to which no-frills growth is due to traffic generation or to traffic substitution, a significant factor in the growth of no-frills airlines has been their success in taking market share from incumbent airlines. In particular, this traffic has come from charter airlines, perhaps to a much greater extent than has been recognised previously, as the chart below shows.

See figure 2 UK-EU passenger traffic by airline type, 1986 to 2005.

Incomes of UK passengers - over time and between airlines

No-frills airlines have not had a particularly significant effect on the overall socio-economic make-up of UK leisure passengers, as illustrated in figure 3 Income profiles of UK business and leisure passengers (UK - EU), departing from surveyed London airports (Heathrow, Stansted, Gatwick and Luton), in 1996 and 2005.

While the number of passengers from all income groups has increased over time, there has been little change in the relative incomes of leisure passengers, apart from a slight increase within the £23-46,000 income groups. There has, however, been a change in those flying for business purposes, with an increase in the proportion of lower and middle income business passengers.

The figure below shows that there is little difference between leisure passengers using no-frills airlines as compared to full-service airlines.

See figure 4 Household income of UK leisure passengers (UK - EU), all surveyed airports, 2005.

Changing patterns of travel

The expansion of the EU has led to significant flows of people from the new EU Member States to and from the UK. This is reflected in the expansion of the scheduled network in the UK-Poland market. In July 2000, there were only five scheduled services between the UK and Poland: four from London to three Polish cities (Warsaw, Gdansk and Krakow) and one from Manchester to Warsaw. In July 2006 there were 37 scheduled services linking 10 Polish cities and 13 UK airports, covering virtually the whole of the UK.