Europe Shows Us Real Airline Competition

A market split into many smallish shares is truly competitive.
A market split into many smallish shares is truly competitive.

There was a time when critics lambasted Europe for having inefficient airlines and expensive airfares, while praising the United States and its more open competitive market.  There was also a time when television featured only a few channels, limited hours each day, in black and white, and when milk was delivered in bottles to your doorstep.

Deregulation in 1979 was supposed to make the US airline industry even more efficient and competitive, and the sneers from this side of the Atlantic, (mis)directed at the ‘over-regulated’ airlines on the other side of the Atlantic, were and have been palpable for decades.

But these days, in an unexpected outcome, the US laws designed to protect consumers and encourage airline competition have resulted in the opposite outcome, while the European laws designed to protect national airlines and to interfere with airline competition have also had an opposite result.

This is most vividly shown in the two charts, below.  The largest European carrier has only 13% of the market, and the top four airlines have 39% of the market.  But in the US, the largest carrier – newly merged AA/US – has a 25% market share, and the top four airlines have taken 83% of the market.

Another clue to the vibrancy of the two regions is that in the EU, after the top nine airlines share 64% of the market, that still leaves a huge 36% chunk for all the many other carriers.  But in the US, the top nine airlines leave only 3.4% for the few remaining US airlines.  Indeed, the very idea of ‘top nine’ airlines in the US is sadly a rather ridiculous concept.  As you can see in the chart, by the time you start to get past the top six, the remaining airlines are struggling to get as much as 2% market shares.

Something else, not obvious from these charts, but important to us as passengers, is that in the EU, they have true low-cost airlines.  Indeed, the second largest airline, Ryanair, has airfares that are often no more than half the prevailing ‘normal’ fares on comparable routes.  Easyjet and Norwegian Air Shuttle, also in the top nine airlines, and Air Berlin, the tenth largest, are also low fare airlines.

But now look at the US carriers.  While Southwest has a reputation for being a low-cost carrier, the reality is that it averages more cents per passenger mile in revenue than many of the traditional dinosaur type ‘high fare’ carriers.  Which of the US airlines in this list offer fares that are noticeably different from any of the other airlines?  One might suggest Spirit as the closest thing to a low-cost carrier, but their 2.2% market share hardly makes them an influencing factor (unlike Ryanair and its 9.9% in Europe).

These two charts were sourced from OAG information in January 2015, as reported in this NY Times article.

How to Restore Competition in the US

The vice-like grip of the four major airlines in the US – and the regular alarming speculation about the fifth and sixth largest airlines (Alaska and JetBlue) being bought out is not only obvious, but is confirmed when one looks at the struggle of well-funded well-operated Virgin America to gain traction in the market.  With barely a 1% market share after 7.5 years of operation, and no profit for almost all that time, the ability of new entrants to establish a viable foothold in the US is clearly very limited.

But, at the same time, there are credible potential competitors that we refuse to allow to operate.  Why not have a true ‘open skies’ marketplace, and allow foreign carriers to fly within the US.  What possible harm could there be in doing that?  Our US carriers ‘compete’ successfully on international routes with international airlines.  Why should they be protected from competition within the US?

Think about this the next time you’re wedged into a too-narrow middle seat on an expensive full flight operated by a US domestic airline that is simultaneously reporting record quarterly profits, higher than at any previous time in the history of commercial aviation.

The very same legislation and the controlling agencies designed to protect and enhance airline competition in the US (the Departments of Transportation and Justice) have hindered rather than helped.  The solution is less legislation and less control, rather than more.  Sure, we can and should insist that foreign owned airlines observe all US safety standards and requirements, and perhaps we should even require them to hire some US workers as well, although some people might suggest that increased competition for flight attendant jobs might see a welcome lift in on-board passenger service standards.

But airlines with 15% – 25% market shares no longer need and definitely don’t deserve protection.  It is us, the passengers, who now need to be protected.

6 thoughts on “Europe Shows Us Real Airline Competition”

  1. Fares are just part of overall cost. You say Southwest has higher cost per mile, but don’t they fly more short runs which by nature cost more per mile?

    Also Southwest has 2 free bags, no cancellation or change fees, etc. – this gives flexibility for no extra cost. Look at Ryanair fees, handling of canceled flights, etc and you do “pay” for the hassle factor.

    Just sayin, there are other factors.

    1. David Rowell – Seattle, WA, USA – New Zealander now living in the United States.

      You are correct, there are many factors to consider, but the Southwest stage length has lengthened considerably over the years and now is comparable to the other dinosaurs. It is nice that Southwest still allows two bags, and levies no cancel/change fees, although it won’t refund your money if you cancel, merely hold it over to a future booking. On the other hand, when did you last travel with two bags, and how often do you cancel/change your flights?

      Ryanair is famous for its ‘charge for everything’ business model, but my sense is that many people still end up paying a great deal less with Ryanair than they would with a ‘full service’ airline – particularly now that the full service airlines are getting more aggressive at charging for everything, too!

      1. Good points. Ryan is good for some trips. I don’t know much about the European EU markets and systems. But I have flown Ryan Air.

        I usually fly with 1 bag per person, but often major airlines charge for that (although I have Elite so don’t pay). But sometimes I fly with bags to bring things to my son and vice versa. And Ryan does not allow free carry on (unless extra small – and they check).

        As to changes and cancellations. I do it very often. If I am going somewhere, I make reservation right away on SWA as I can change to cheaper fare for no cost (yes $$ to be used within a year) or fly a different date. . I don’t have to try to guess the cheapest time to book. Or I can cancel, again no cost. And better yet, if I use SWA credits, I can change or cancel and all points go back to my account (no time limit). Try that with United or American or worse yet, Ryan Air.

        I have SWA Companion Pass (not hard if you know the ropes). Wife flies free even if I am using credits for my fare. What other airline offers this benefit?

        I guess Ryan does have some routes with many flights, but I have read of cancellations where you have to wait 24 hr for the next flight. I flew from Morroco once and saw the drill. Yes, SWA has similar issues, but usually you can get back within 12-14 hours even if the last flight out is cancelled.

        Enjoy your articles. Makes me think.

  2. Plane Crash Update. Thank you for your no-hype, no BS coverage of the AirAsia crash; most refreshing to read facts and not nonsense.

    First: I continue to be critical of the competence of today’s third world airline pilots. AirBus allows these pilots to exist by building “foolproof” airplanes in which the plane’s computers override the captain (ask Sullenberger or Asseline). With the rote memory training third world pilots receive, nothing can go wrong, until it is something that is not covered in the airline manuals.

    Second: I suspect Indonesia will “investigate,” but only release information not detrimental to their hypothesis. In short, unless outside investigators have more than peripheral observations, we may never learn the truth.

    Retired USA Airline Captain.

  3. David Rowell – Seattle, WA, USA – New Zealander now living in the United States.

    An update on stage lengths, and thanks to Joe Brancatelli for supplying the data. I don’t think it is necessarily material to the discussion, but I did want to correct the record, as it were.

    In 1995, Southwest had an average stage length of 404 miles, and in 2013, that had grown to 703 miles. But what I hadn’t focused in on so much is that the overall industry stage length has increased from 839 to 1201 miles.

    I don’t know much about the MIT Data research that collated these figures, so can’t comment much on them, but there is of course also a difference between stage length and total journey traveled, with ticket prices being based more on total journey traveled than on stage length. Indeed sometimes, airlines will charge less for two short stage length flights than they would for one long stage length flight, because the longer flight is nonstop and avoids the hassle of a connection.

    So, do stage lengths really materially intrude on the fares charged? Is Southwest a low cost or a regular cost carrier? Answer anyway you like, because it doesn’t interfere with the main point I’m making – in the US, four carriers control 83% of the market. In Europe, it takes some unknown number of airlines, greatly in excess of 10, to share the same 83% market share.

  4. I think Europe has many countries, with flag carriers, and therefore would naturally have more airlines. How many carriers from each country? Yes, competition does help price control.

    As to stage length (hadn’t heard that term before, but a good one), if SWA has 40% less stage length, that means the cost per passenger mile must be more since much of the cost is departing and arriving – about the same for a 500 mile flight as a 1,000 mile flight. So getting a few cents more per mile in revenue would be justified.

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