MIAMI – In Europe, legacy airlines fighting the seemingly endless onslaught of low-cost carriers (LCCs) appear to be coming to the conclusion that ‘if you can’t beat them, join them.’

Increasingly, full-service carriers are deciding to ditch the frills on their short-haul services in an attempt to cut costs and ticket prices.

Alitalia is the latest, with its new business plan that effectively transforms its short-haul services into a low-cost format with payments for everything from checked baggage to seat selection and priority boarding. Its long-haul services will continue to be the full-service model. (To cut costs, it has just announced plans to cut ‘up to 2,000’ of its 12,500 staff. Whether that is agreed by Italy’s powerful trade unions remains to be seen.)

But can it succeed? According to Saj Ahmad, lead researcher at the UK’s Strategic Aero Research, it’s inherently difficult for a legacy airline with a legacy fleet to cut overheads. Alitalia, for example, “has one of the oldest narrowbody fleets in Europe, with some Airbus A320s that are 25 years old. That means they’re gas guzzlers – at least 7% worse compared to modern A320ceos – and cost more to maintain.

“The easiest thing they could have done was partner with an LCC and work on a codeshare. That eliminates direct competition and gives greater connectivity for passengers, plus a better price than Alitalia could offer on its own.”

Formerly state-owned Alitalia is also still saddled with legacy contracts imposed by the Italian government, although it is trying to renegotiate these.

Alitalia’s move might have been expected, given the strength of LCCs on the continent: Ryanair, EasyJet, Wizz Air, Norwegian Air Shuttle, and Vueling are well on the way to becoming the only short-haul game in town.

Ryanair has the largest market share not only in its native Ireland but also in Spain, Italy, Poland and Belgium; EasyJet (and Ryanair) have pushed British Airways down to number three in the UK and the other LCCs mentioned above take second and third places in terms of market share in at least 10 European nations.

The only major nation to have resisted this trend so far is Germany, where Lufthansa Group is still on top; however, Ryanair is rapidly expanding its presence there, even moving into the German flag carrier’s headquarters hub in Frankfurt.

Only in the relative aviation backwaters of Portugal and Greece do national carriers – TAP and Aegean Airlines respectively – take the top spots in terms of passengers carried.

Alitalia has joined most of the major European mainline carriers in going down the low-cost route on services within the continent.

A few examples:

  • British Airways is increasingly losing any differentiation with LCCs, cutting seat pitch by ramming extra seat rows into its Airbus A320-family jets and charging for onboard food and drink. It justifies the seat ‘densification’ program as allowing the British flag carrier to charge lower fares by spreading the cost of flights over more passengers.
  • Lufthansa is increasingly giving up its domestic and short-haul routes to its low-cost subsidiary Eurowings, whose unit costs are 30% lower than hub carriers and are budgeted to drop by a further 20%. In 2015, the German flag-carrier planned to give its loss-making point-to-point services to Eurowings’ predecessor, Germanwings, while retaining all services at its two main hubs, Frankfurt and Munich.

However, with its lower cost structure, Eurowings has helped haul Lufthansa Group’s short-haul services into profit and this month sees the start of Eurowings services from Munich, previously off-limits to the LCC.

Lufthansa Group’s management sees Eurowings as its tool for airline consolidation in Europe. With this in mind, it plans to fold Belgium’s Brussels Airlines into the Eurowings brand in 2018 and may also follow suit with another subsidiary, the German-Turkish SunExpress. Those two moves would take the Eurowings fleet to close to 200 aircraft.

Ironically, despite the high regard in which Eurowings is held by Lufthansa Group management, the former made an adjusted EBIT loss of $93 million in 2016, when mainline Lufthansa’s EBIT profit figure was $1.2 billion. However, much of the loss was due to start-up and other non-recurring costs.

  • Air France-KLM is expanding its Transavia low-cost arm – although its plans to become a pan-European LCC were stymied by an Air France pilot strike in 2014, it has now embarked on a more moderate growth path, gradually expanding from its French and Dutch hubs.
  • Scandinavian Airlines (SAS), meanwhile, has taken a different approach to cutting costs, by employing several smaller carriers as capacity providers on thinner routes, and using smaller aircraft than the SAS mainline fleet, such as Bombardier CRJ regional jets and ATR 42 turboprops.

Until recently, the mainline carriers thought that adopting an LCC approach to short-haul services could be offset by more profitable long-haul services.

However, even this approach is now being challenged by the growing number of low-cost, long-haul airlines springing up, such as Iceland’s WOW Air and Paris-based French Blue.

Norwegian is rapidly building up its transatlantic route map from both Scandinavia and London Gatwick. Willie Walsh, CEO of International Airline Group, a parent company of British Airways, Iberia, and Aer Lingus, is known to admire Norwegian CEO Bjørn Kjos’s operation, but must also have been increasingly concerned by Norwegian’s expansion, especially its plans to start long-haul services from Barcelona this year.

Perhaps it’s not a coincidence, then, that IAG’s new low-cost, long-haul operation, Level, will begin its operational life from Barcelona, although Ahmad is puzzled at the use of Airbus A330s – and just two of them initially – compared to the more efficient Boeing 787s, some of which could have been transferred from British Airways’ fleet.

Ahmad also queries how Eurowings will be able to digest the 34 A320s that are being wet-leased to it from Airberlin as part of the latter’s struggle to escape persistently heavy losses.

“Eurowings in itself is doing OK. The real challenge they will have is all this extra capacity.” He suspects it will go on a mix of new routes plus increased frequencies on existing ones. However, it could be difficult to find enough additional slots, particularly at popular airports such as Berlin and London Heathrow.

Neither is switching that capacity eastwards as a viable option: “If you look at Ryanair and Wizz, they are pummelling Central and Eastern Europe with capacity.” The last thing Eurowings will want is to find itself flying an A320 or Budapest or Bucharest with just one-third of the seats on a 174-seat A320 filled.

Whether the mainline carriers can alter their commercial DNA sufficiently to make an LCC work efficiently remains to be seen.