Flybe heading for #1 in UK domestic market; overall demand down around 4% in 2008

Image: Flybe & easyJet monsters
Hawks and doves: Unlike some European countries several major airlines compete in the UK domestic market. British Airways, bmi Group (bmi, bmi Regional and bmibaby), easyJet and Flybe all have significant competing shares. Flybe’s acquisition of BA Connect in 2007 made it second biggest after easyJet. Following its new deal with Loganair, it will move very close to the top position and if it ends up acquiring either bmi Regional and/or bmibaby, it will become the leading UK domestic airline by some way.

In 2007 the UK domestic air travel market ranked as the third largest in Europe with 25.5 million passengers, some way behind Spain (44.5 million) and just behind Italy (with 28.0 million). Germany with 23.8 million and France with 23.2 million are not far behind. However, while Spanish domestic traffic grew by 9% last year, and Italian and German domestic passenger numbers were up 8% and 6% respectively, UK domestic air traffic fell by around 2%. A significant factor in this was the increase in February 2007 of the government imposed Air Passenger Duty (APD) from £5 to £10 for short-haul flights.

Chart: UK domestic air traffic 1996-2007 Annual passengers (millions)
Source: UK CAA

Segmenting the UK domestic market into three separate categories reveals some significant patterns. Domestic routes from Heathrow and Gatwick grew slowly between 1996 and 2004 and have since started to decline to the extent that domestic passenger numbers from these airports in 2007 were 10% lower than in 2004. Domestic traffic from London’s secondary airports at Stansted, Luton and London City trebled between 1996 and 2001 thanks to easyJet, Go and Ryanair. Since 2003 domestic traffic across these airports has remained relatively stable.

Regional routes boom from 2002 onwards

Domestic routes in the UK that linked cities and airports other than London had seen traffic grow slowly from five million passengers per annum to six million between 1996 and 2001. However, in the following five years traffic almost doubled from six to 11 million passengers on these ‘regional’ domestic routes as LCCs found numerous routes on which low fares could significantly boost traffic demand which had previously been suppressed due to high fares offered by airlines in a monopoly situation.

London routes share has fallen from 70% to 57%

The share of domestic passengers travelling on routes to and from London has fallen from a peak of 70% in 2001 to 57% in 2007. However, the seven busiest domestic air routes measured on a city-pair (rather than airport-pair) basis all involve London.

Chart: Top UK city-pair air routes Annual passengers in 2007 (millions)
Source: UK CAA
Note: Glasgow includes Glasgow International and Glasgow Prestwick; Belfast includes Belfast International and Belfast City (George Best)

London routes to Glasgow and Edinburgh each generate over three million annual passengers, thus accounting for nearly 30% of all UK domestic air passengers. With no plans to introduce a dedicated high-speed rail link between London and Scotland air demand is likely to remain high for the foreseeable future.

Five of the six non-London routes that make it into the top 13 involve Belfast. This is not too surprising as it is separated from the rest of the United Kingdom by a significant stretch of water.

Flybe challenging easyJet for top honours

Unlike some European countries (ooh, such as France say) there are several major airlines competing in the UK domestic market. British Airways, the airlines of the bmi Group (bmi, bmi Regional and bmibaby), easyJet and Flybe each have significant market shares and compete across many city-pair routes.

Chart: Top 12 UK airlines in UK domestic amrket Annual passengers (millions)
Source: UK CAA

By purchasing British Airways Connect in 2007 Flybe moved within touching distance of the other three with regard to passenger numbers. According to the latest CAA figures for August 2008 Flybe is now in a clear second place behind easyJet and with its new deal with Loganair it will be very close to easyJet. In terms of domestic aircraft movements it is already the clear leader. If it ends up acquiring either bmi Regional and/or bmibaby it will become by some way the leading airline in the UK domestic market.

Apart from UK airlines a number of other carriers operate domestic flights in the UK. The biggest of these is Ryanair which this winter operates 15 domestic routes including four daily flights between London Stansted and Glasgow Prestwick (a route it used to serve back in 2003 with up to 10 daily flights). These routes account for around 8.5% of all UK domestic capacity. Aer Lingus (Heathrow to Belfast International), Air France (two routes from London City operated by its partner CityJet), and VLM (three routes from London City) also provide capacity on key domestic routes. Attempts by Air Berlin back in 2006-07 to start UK domestic routes  from Stansted to Belfast, Glasgow and Manchester proved unsustainable.

APD set to rise 10% next year and again in 2010

So far in 2008 passenger demand on domestic routes in the UK has fallen around 3.5%. Only in February (when there was an extra day, remember) has demand been up on a year-over-year basis. Given that a high proportion of UK domestic traffic is business related it will be interesting to see how traffic develops in November and December, now that the UK economy is suffering with significant job losses and low consumer confidence. New car registrations, another useful indicator of economic prosperity, were down an alarming 23% in October.

The chancellor recently unveiled plans that would see APD on domestic flights increase from £10 to £11 in November 2009 and then increase to £12 a year later. At present APD is not paid on routes operating from airports in the Scottish Highlands & Islands, nor on any flight operated by an aircraft with fewer than 20 seats.


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