Summary
- profit warnings from European LCCs leaders (Ryanair, Easyjet, Air Berlin) evidence increasing difficulties in shareholders' value generation in the cluster of the airline industry; - on the other hand, smaller players, like Vueling, are expanding their losses; - consolidation looks as reasonable to offset overcapacity, stop a downward pressure over yield and to rejuvinate economies of scale;
Analysis
Recent profit warnings coming from Ryanair, Easyjet and Air Berlin, the three European low.cost carriers, show to investors that this cluster of offer is turning towards increasing complexity in the revenue and profit generation and shareholders' value creation.
Although LCC penetration in Europe is still far from the one achieved in the US, downward yield pressure due to the number of European LCCs and their continued capacity increase risks to reduce chances for financial upgrades of carriers, with great players suffering reduced gains and smaller ones improving their deficit and turning towards financial distress.
Once again, strong rumours indicating short-term chances of consolidation seem to make sense in this picture.
Most definitely, LCCs have to be careful about cost-saving measures implemented by greatest legacy carriers, with the latter closing the cost-gap from the former. This trend has already become reality in the more evolved US environment.
