On 24 October Norwegian Air Shuttle announced that it is ceasing services from Birmingham Airport to three Spanish destinations, Barcelona, Malaga and Tenerife, as part of a review of its UK network at the end of the summer season. “A natural part of our UK development will see some reductions in routes with lower passenger demand, allowing us to focus instead on providing affordable flights on strong performing routes,” a Norwegian spokesperson is quoted as saying.
Norwegian’s announcement did not come as a surprise at Aviation Analytics, where we are constantly observing route performance across low cost carrier networks. Our data was telling us that Norwegian’s BHX routes were unsustainable and that alarm bells should have been ringing in the West Midlands. It also suggests why Norwegian struggled at BHX. In this short blog we identify two factors that contributed to Norwegian’s disappointing summer – both of which will be familiar trends to readers following our airline analysis in recent months – and ask “where next?”.
Where does our data come from?
All data is taken from Aviation Analytics’ Network Grandstand platform, which provides estimates of seat profitability based on our accurate accounts-derived airline seat costs and average fares from our in-house Low Cost Fares Database. Integral to Network Grandstand’s benchmarking capability is the AAIndex – a measure of route performance using an A to E index as follows:
Previous research has shown that 71% of route legs discontinued by another major LCC at the end of a recent season had an AAIndex rating of D or E.
To find out more about how we collect and use data at Aviation Analytics click here.
Why did Norwegian struggle at BHX?
TREND 1: Competition and overcapacity
This summer Norwegian was one of at least four and up to one of six airlines flying each of its routes out of BHX. The others were Ryanair, UK holiday operator Jet2, Spanish LCC and IAG family member Vueling Airlines, Lufthansa subsidiary Eurowings and the now defunct Monarch Airlines. All six airlines are, in name at least, low cost carriers.
Cancelled BHX routes average fares and profit per seat (€)
- No more than two carriers were profitable on any one route.
- Norwegian ranks behind defunct carrier Monarch on profitability on all three routes.
TREND 2: Ryanair’s low costs allow it to undercut the competition
Time and time again we have shown how Ryanair’s ultra-low cost base makes it the most profitable carrier, despite offering the lowest headline fares. In the tables above we have ranked all airlines on both fares and profitability, underlining the fact that Ryanair is consistently first on fares and consistently profitable.
The following charts show the yield curve for all carriers on the three routes and demonstrate how Ryanair undercuts its competitors. With its lower cost base Ryanair is able to price more aggressively to secure early bookings, thus achieving good load factors whilst taking full advantage of any late booking premiums that may be on offer.
Cancelled BHX routes yield curves (€)
- Ryanair has the lowest fare 60 advance purchase days on all three routes and (with one exception) the lowest fare at all points up to 30 advance purchase days on all routes.
- However, thereafter Ryanair has the steepest yield curve and at the point of departure is amongst the highest fares on all three routes.
To any observer armed with this data, it can come as no surprise that Norwegian moved to cancel its unprofitable routes. With Norwegian and Monarch both now out of the market, it remains to be seen if other carriers will now be profitable or even if there will be new entrants at BHX for summer 2018.
Who else is in danger?
BHX was not the only airport showing symptoms of overcapacity this summer. At Aviation Analytics we had noticed the same issues at other UK regional airports. Lo and behold, less than a day after its announcement about BHX, Norwegian also cancelled Spanish services at its northern rival Manchester Airport and also from Edinburgh Airport.
A quick look shows the cancelled routes at MAN have an almost identical profile to those from BHX.
Cancelled MAN routes average fares and profit per seat (€)
- Again, Norwegian is the worst performing of a minimum of five carriers on each route.
- If anything, the presence of EasyJet at MAN puts Norwegian under even more pressure.
Jet2 – a star performer?
Jet2 is a carrier we haven’t had chance to cover much in our recent analysis. Across the six routes discussed in this article, Jet2 looks a picture of health, with high average fares corresponding to profitability on a par with that of Ryanair. However, looking at Jet2 in the round is deceptive, because many seats on its aircraft are sold as part of package holidays. While Jet2’s holiday seats command a massive premium, any remaining seats tend to be dumped on the market at rock bottom prices prior to departure (see the chart below comparing fares from seven carriers on routes to Tenerife – both Jet2 and Thomson exhibit this behaviour). Two passengers on a Jet2 flight can unwittingly be paying vastly different prices – but unlike late bookers on LCCs, package holiday customers paying the top dollar can be in the majority on a Jet2 flight. The overall effect is to inflate Jet2’s average fares and profitability. Which isn’t to say that the Leeds Bradford based carrier didn’t have a great summer (after all, look what happened to fellow holiday operator Monarch).
TFS routes yield curves (€)
Is there more to come?
We think so. Spain may be something of a special case – as we have remarked on previous occasions, the addition of seats into the Spanish market in the last two years has been almost unprecedented – but our data suggests that airline competition also bit deep on other routes, with weaker fares shrinking the window of profitability for carriers. We therefore anticipate some tough conversations as airline and airport directors sit down to review the summer season in the coming weeks.
Know where you stand. For average fares, seat costs and route performance for all Norwegian Air Shuttle (and other LCC) routes, contact Jon Soars on +44 (0) 207 856 0159 or at email@example.com
 Vueling also flies all three routes from BHX. At the time of writing we are recalibrating our Vueling costs data and for this reason we have excluded the Spanish LCC from the following analysis.
 We should here again note that our Monarch analysis carries a larger than usual margin of error and should be viewed as an indication of performance rather than an absolute statement. This is because the company had not recently published detailed annual accounts and gaining a fully accurate picture of seat costs is therefore difficult.
 Vueling also flies from MAN to AGP and BCN.