Ryanair Moves Into Barcelona

Ryanair has announced that its new routes from Barcelona El Prat will consist of daily frequencies to Brussels Charleroi, Dublin, Milan Bergamo, Paris Beauvais and Rome Ciampino. It will also operate flights to Cagliari, Dusseldorf Weeze, Edinburgh, Oslo Rygge and Venice Treviso.

Ryanair will also serve a number of new domestic routes, namely to: Gran Canaria, Ibiza, Lanzarote, Malaga, Palma, Santander, Santiago, Seville, Tenerife and Valencia.

RYANAIR'S POSITION AT GIRONA AND REUS

Ryanair already serves the low-cost airports of Girona and Reus, consisting of 372 and 103 weekly flights respectively to a combined total of 67 destinations.

Its current top 10 destinations from Girona and Reus are:

Source Flightbase 14-20 June 2010

Ryanair currently has a dominant market share at both airports - 95% at Girona and 96% at Reus.

WHY ESTABLISH A BASE AT EL PRAT?

Ryanair's move into El Prat shows an appetite to serve primary airports. The airport costs will be higher but Ryanair will believe that they can offset the costs with the higher yields available. Also increased passenger volumes means that Ryanair can compete for market share as well as stimulate the market. It will be interesting to see if the Catalan market can support so much Ryanair capacity.

The move could suggest that like London there are individual catchment areas for the three airports because the same destinations are being served. It also shows that Barcelona's decision to bring Ryanair into El Prat could be as a result of the satellite airports around Barcelona having a negative impact on Barcelona traffic. Given the new terminal in Barcelona there has been enormous pressure to increase traffic.

Although basing aircraft at Barcelona is unlikely to be the lowest cost option, the lack of strong competition here will be of interest to Ryanair. With no flag carrier hub, as Iberia has firmly shifted its focus on its Madrid Barajas hub, the carrier will compete with Vueling and easyJet in the low-cost sector. Spanair will also be a target on certain routes, though the Star Alliance member is not a low-cost carrier.

The table below illustrates the leading carriers in the Barcelona market:

Source Flightbase 14-20 June 2010

Ryanair's main attack will be centred on Vueling and Spanair, which have started to compete on city pairs with each other and now compete in 17 markets from the Catalan capital. Vueling has a strong brand in Barcelona, and since its merger with Click has significantly lowered unit costs allowing it to compete more efficiently.

Ryanair will rely more on its strong brand from source markets, as it does not have the brand presence in Catalonia that Vueling and Spanair has, but will actively target Vueling's markets, notably, Malaga, Brussels (Charleroi), Rome (Ciampino), Ibiza, Gran Canaria, Milan (Bergamo) Paris, (Beauvais), Palma, Seville and Tenerife.

Although at Brussels, Rome, Milan and Paris, it will serve secondary airports whereas Vueling serves the primary airport, these markets will all contain an element of price sensitivite traffic and Ryanair will be able to take market share.

Ryanair will target Spanair on 10 markets eight of which will be domestic links with two International routes in Edinburgh and Venice, although Spanair serves the primary Marco Polo Airport in Venice.

EasyJet only serves two routes that Ryanair will serve from Barcelona. EasyJet serves 13 routes from Barcelona, all of which are international and only Paris and Milan will see Ryanair competition, though again, not on the same airport pairs as easyJet serves Malpensa and Charles de Gaulle.

HOW WILL ITS COMPETITORS REACT?

Ryanair's entry into the market has seen Vueling CEO, Alex Cruz announce that the low-cost carrier will itself attempt to establish a hub operation in Barcelona, estimating that it will allow the carrier another 1 million passengers in 2011. The new hub function will provide passengers the ability to through check luggage and buy a connecting service on the same ticket, a step away from the traditional low-cost model, which is focused around the simplicity of the point-to-point market and is similar to the Tiger and AirAsia models.

Whilst this will provide Vueling with another option to fight Ryanair in its home market, low cost hub strategies have not always been successful, the complexity of pricing onward flights could hurt Vueling on routes where Ryanair maintains a simple pricing strategy.

Low-cost rival easyJet is the fifth largest operator in Barcelona, however does not have a based presence there. Whilst easyJet has performed well at the major airports in Europe, Paris CDG, Milan MXP, easyJet may well steer clear of the low-cost battle that is set to ensue in Barcelona and focus its Spanish operations around Madrid Barajas, where it has a based presence and serves 22 destinations with over 230 weekly flights.

Spanair however, will be able to leverage its membership in Star Alliance to add connectivity and attract business class passengers. It will be unable to compete on cost with Ryanair on short sectors however it is seeking to grow its international presence from 12% to 50% of its traffic and increase connecting flows from 21% to 35% and can attract passenger looking for onward connections from Barcelona.

The result for Barcelona will mean that the airport will become a far greater connecting airport for low-cost traffic. Offline connecting traffic will grow, connecting natural flows from Northern Europe to the Iberian Peninsula to Africa and potentially Latin America. By adopting this strategy the airport is likely to get more long-haul services plugging into this low-cost traffic.