Wizz Air has focused on central and eastern Europe, where growth is rapid © Bloomberg
This week started with the collapse of Monarch, the UK’s fifth-biggest airline. It ended with a profit upgrade at easyJet. The tempting conclusion is that scale matters in short haul. The reality is more nuanced.
Air Berlin and Alitalia did not flounder for want of size; the former carried 28m passengers a year. Nor is it true that smaller operators are doomed to fail. Look at Wizz Air, which reported strong traffic figures midweek, and whose shares have almost doubled over the past year. Or Jet 2, part of Aim-traded Dart Group. Its profit margin before interest, tax, depreciation and amortisation are only just below those of easyJet — yet it carries a 10th of the passengers.
What is the secret? Picking a viable niche plays a large part. Monarch, with its main base near London, was directly exposed to heavyweight rivals. Jet 2 is more of a regional airline for northern holidaymakers. Until this year, it stayed out of busy and expensive London airports. Wizz has focused on central and eastern Europe, where growth is rapid. At Finnair, flights between Europe and Asia generate two-fifths of sales.
These last three are still tightly run ships. That is what separates them from Flybe. It specialises in routes that lack the density larger carriers need, in fact competing against rail. But excess capacity and high costs have held it back. It has made a full-year profit only once since its IPO in 2010.
Size is a bit like leverage. It can amplify existing advantages, such as a strong position at an airport or in a region. Or it can just cause a weak airline to lose more money quicker.
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