The German domestic market and Lufthansa thought the LCCs would never be interested!

Image: air-berlingNot so many years ago, the bosses of Lufthansa confidently predicted that the phenomenon of low-cost carriers (LCCs) would not catch on in Germany, especially in the domestic market. At the time, Lufthansa and its partners had a monopoly on many domestic regional routes and on the major trunk routes there existed a fairly cosy duopoly with Deutsche BA, a consistently loss-making subsidiary of British Airways. Slots were scarce at major airports like Frankfurt and Düsseldorf.

2002 – The year things changed

Logo: DBAUnwilling to absorb on-going losses, in early 2002 Deutsche BA kick-started the revolution by re-inventing itself as a low-fare airline. It changed its name to dba (all friendly lower-case letters) and decided to ‘go green’, removing the traditional BA branding in favour of a new lime-green identity. Then in May 2002 easyJet announced it had reached agreement with BA to evaluate the possibility of taking over dba.

This sent shockwaves through the German airline market and while easyJet spent nearly a year deciding what it should do with dba other airlines responded quickly. German regional airline Eurowings converted some of its Airbus charter fleet into a new LCC subsidiary Germanwings, based at Cologne/Bonn (CGN). TUI created Hapag-Lloyd Express (hlx), which was also based at CGN, while Air Berlin, a charter airline, created a new brand Air Berlin City Shuttle which was aimed at the seat-only market, initially between Germany and London Stansted, but then to other major European cities as well. Initially, the focus of all these carriers was on international routes, with little attention paid to the domestic market.

Domestic traffic growth modest

Between 1995 and 2000, domestic traffic at German airports had grown by 24% in five years from 35 million passengers to 40 million passengers*.

Chart: Domestic passengers at German Airports
*Being domestic flights each passenger gets counted twice, once on departure and once on arrival, so the actual number of people travelling was 20 million.

The effects of ‘9/11′ and the general economic slowdown meant that passenger numbers fell in 2001 and 2002, but have since recovered gradually. It has, though, taken until 2006 to pass the previous peak in 2000.

As can be seen from the table below, LCCs have been slow to tackle the German domestic market, though when dba took over operations of the Germania Express fleet of Fokker 100s in 2005 this triggered the launch of a number of new routes for the airline, primarily taking on Lufthansa on some of its thinner routes.

New domestic routes started by German LCCs:
dba/Air Berlin germanwings hlx/TUIfly Total
2002 1 2 3
2003 1 2 3
2004 2 3 1 6
2005 9 4 1 14
2006 1 1 3 5
2007 (announced so far) 5 1 2 8
Total 18 12 9 39

Despite a major presence in the German market, neither Ryanair (with bases at Frankfurt Hahn, Bremen and Düsseldorf Weeze) nor easyJet (with bases in Berlin and Dortmund) currently operate any domestic German routes.

Image: rock bottom
LCCs have stimulated the German market.

Business dominates domestic traffic

The German domestic market is dominated by business traffic. This can clearly be seen by examining the seasonality of traffic over the last few years.

August is the least busy month of the year as families go off on continental holidays leaving the domestic market deflated. The odd performance of April 2005 can be explained by the fact that Easter fell in March that year so business traffic was less affected in April without the disruption of Easter.

Have LCCs stimulated the market?

Compared to some of the extraordinary traffic stimulation that carriers in the UK domestic market have achieved, the German domestic market has, on the whole, responded less enthusiastically to LCCs. However, a number of markets have grown by over 50% in a reasonably short space of time.

The graph below shows which LCCs entered the market on each route. Four of the six most stimulated routes involve routes to former East German cities Dresden and Leipzig where Lufthansa (or its partners) had previously had a cosy monopoly. Not surprisingly, eight of the top 10 routes also involved either Cologne/Bonn or Stuttgart, major regional airports where German LCCs could operate without major capacity constraints.

Chart: Most stimulated German domestic routes 2001-06

Lufthansa is gradually losing market share

Analysis of schedule data at the start of the summer season showed that Lufthansa’s share of the domestic market continues to be eroded. It has lost another three percentage points in the last 12 months, though it still has over 50% in terms of both frequency and capacity.

Capacity Share of German Domestic Market
April 2006 April 2007 Change
Lufthansa 59.9% 56.9% -3.0 pts
Dba + Air Berlin 19.7% 22.1% +2.4 pts
Germanwings 7.0% 8.4% +1.4 pts
Hlx/TUIfly 4.2% 5.7% +1.5 pts
All others 9.2% 6.9% -2.3 pts
Source: OAG

The share of capacity provided by LCCs has risen from an estimated 36.2% last summer to 39.8% this summer.

Frequency Share of German Domestic Market
April 2006 April 2007 Change
Lufthansa 57.5% 56.6% -0.9 pts
Dba + Air Berlin 16.8% 18.3% +1.5 pts
Germanwings 5.5% 6.4% +0.9 pts
Hlx/TUIfly 3.2% 4.1% +0.9 pts
All others 17.0% 14.6% -2.4 pts
Source: OAG

Logo: EAE

Other airlines have a higher share of frequencies as there are a number of smaller regional airlines operating smaller aircraft on thin routes. However, life is becoming increasingly difficult for them as two have failed in the last year. Dau Air ceased operating in August 2006 and more recently European Air Express, which is gradually closing its route network during this summer.

The impact of high-speed rail

While Germany’s high-speed rail network is not as extensive as the TGV network in France, it has been expanding in recent years and has a noticeable impact on some domestic routes, especially from Frankfurt (FRA). Traffic between Stuttgart, Düsseldorf, Hannover and Frankfurt has fallen by over 20% in the last five years.

Latest developments in 2007

Map: Germany routesAccording to figures from ADV, the German domestic market has been growing at just under 2% in the first five months of 2007. TUIfly recently launched two new domestic routes from its new base at Memmingen in Bavaria and Germanwings starts daily flights between Dortmund and Munich in October.

Now that Air Berlin has completed its takeover of dba, it is adding some interesting domestic routes. So far in 2007 it has started double-daily flights between Berlin Tegel (TXL) and Munster/Osnabruck (FMO), and between Hamburg (HAM) and Karlsruhe/Baden-Baden (FKB).

Since 2 July, the airline has been operating four flights per weekday on the Düsseldorf (DUS) – Stuttgart (STR) route in competition with Lufthansa, which operates six flights per day using ATR 72 turboprops. For the last few years, the market on this round has been between 200,000 and 235,000 passengers. According to Air Berlin’s own website, the airline is operating this route with an MD83 at present.

Later in the year two more domestic routes will be added linking Saarbrucken (SCN) with first Berlin Tegel (from 3 September) and then Munich (from 1 October). Both new routes will be operated double-daily.


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