Europe’s low-cost carriers take off for Mena markets

Antoine Boureau/Hans Lucas via Reuters Connect

For many airline CEOs the coming weeks are a time for reflection and planning next year’s networks and deliveries. With this in mind, there has been a lot of discussion about the development of mid-range low-cost carriers (LCC) from Europe to the Mena region.

Airlines are pondering what to do with their new long-range A320s and B737s and it looks like 2024 could be a breakthrough year for those new services as Europe’s LCCs seek new markets and opportunities, in part funded by very willing tourism authorities keen to attract new entrants.

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In the last decade the proportion of LCC capacity between North Africa to Europe has nearly doubled – 40 percent of all seats are now offered by airlines from this segment. In the Middle East, a six-fold increase in capacity means LCCs are responsible for just over one in five of all seats operated to Europe. 

And despite the best attempts of Middle Eastern legacy airlines to fill aircraft manufacturer order books, European carriers such as Ryanair, Wizz Air and Easyjet have enough of their own places to add growing capacity to North Africa and the Middle East.

But the question remains: “Is there enough market for everyone?”.

Domestic markets can be crucial 

They may not be the most attractive routes but having access to a large domestic market can be vital for LCCs when competition against legacy carriers is intense.

There are few significant domestic markets across the Mena region. However, Saudi Arabia leads the charge with some 3 million seats per annum, followed by Iran with 1 million and Egypt with 450,000. 

For Saudi Arabia’s FlyNas and Flyadeal LCCs, the domestic market provides a relatively easy source of revenues compared with operating directly against international low-cost airlines. However, as any airline CEO will tell you, it is hard to be profitable if you only operate a domestic network. 

Airline CEOs now grudgingly say that there is “enough room for everyone”, but is that really true? 

Well, there are currently 1,350 different airport pairs operated by LCCs to and from Mena and Europe. A very small percentage of these have head-to-head competition and, when they do, it tends to be between two European carriers such as Easyjet and Ryanair. 

So, when looking at airport competition there may be enough room, but when looking at market competition – such as London to Marrakech – then there are regular services from three of London’s main airports. Suddenly the market looks more crowded and the competition intensifies.

Encroachment becomes inevitable

Since low-cost airlines need to grow continually to bring unit costs down, it is inevitable that airlines will begin to compete in each other’s markets. FlyNas recently announced a three-times weekly service from Jeddah to Brussels, while Ryanair has announced a $1.4 billion investment in services to Morocco in 2024. 

What is more, Hungary’s Wizz Air has already established operations in Abu Dhabi and operates services to Saudi Arabia from Budapest and Larnaca, while Easyjet operates an extensive network to Tel Aviv. 

Network creep from all these carriers is inevitable as they look for pockets of profitability in the emergent regional travel markets.

The LCCs that succeed will be those that can de-risk their investments as much as possible. This means having a range of bases from which to operate and access to multiple country markets. 

Operating under Europe’s open skies provides Ryanair, Wizz Air and Easyjet with an advantage. However, strong growth in emerging markets and some national loyalty to local companies and their products may help others to build networks. Being part of a larger airline group will help some LCCs ultimately stay afloat. 

Only time will tell if there is enough demand to match the expected capacity growth. Many airline CEOs will be promoting or praying for a “build it and they will come” strategy of market development. 

If this strategy stands true, then Ryanair could win out as it ventures into markets such as Saudi Arabia, the UAE, and perhaps even Egypt, in the next few years. And that will make for some very interesting competition.

John Grant is partner at UK consultancy Midas Aviation