Is Ryanair right about competition in Germany’s airline market?

Although Ryanair and its chief executive Michael O’Leary have a long history of criticising Lufthansa’s market dominance, the Irish carrier’s latest complaints regarding German airport fees highlight some noteworthy market dynamics in the country at this stage of the Covid-19 recovery.

Ryanair’s recent comments relate to a German government proposal to increase aviation security charges from January 2024. That move would have "disastrous effects on the German economy as consumers will pay the highest air fares in Europe”, Ryanair suggests, when those charges are added to the existing tax and landing fee burdens.

The relatively high cost of operating from the country’s airports had already prompted Ryanair to withdraw from Germany’s biggest hub, Frankfurt, early last year.

Whatever the rights and wrongs of Ryanair’s argument this time around, three things are undeniable: Germany’s airline market is lagging the other big European countries in the Covid-19 recovery; Lufthansa’s slower capacity return versus European peers is a big factor; and, unusually compared with wider activity in the region, Europe’s biggest low-cost carriers are now offering German capacity significantly below 2019 levels (from a low starting point in terms of market penetration).

Reflecting this narrative, Eurocontrol data for mid-August shows that in the week of 9-15 August, flight movements at German airports were down 14% versus the equivalent period in 2019. That compares unfavourably with every other country in the top 10. The UK was the next worst performer at -8%, followed by three countries on -5%: France, the Netherlands and Norway. Spain was at -1% and Italy at -3%, while Turkey, Greece and Portugal were already ahead of pre-Covid levels by 8%, 9% and 8% respectively.

Furthermore, Cirium schedules data shows that in August this year, available seat kilometres (ASKs) on flights from German airports (including domestic services) are down 12% versus 2019. In the other big European airline markets, UK capacity is 4% lower versus August 2019, Italian ASKs are 2% down, French capacity is 6% lower, and Spanish ASKs are down 3%.

ASKs on intra-European flights (including domestic services) that touch a German airport are down 11% in August versus the same month in 2019, while ASKs on flights between German airports and destinations outside Europe are down 13% on the same basis.

Germany’s domestic airline market has been particularly slow to recover, although its impact on overall capacity figures is small. In August, ASKs on German domestic flights are down 47% from August 2019, Cirium data shows, but those ASKs only account for about 1% of the total operated on flights that touch Germany.

LOW-COST LAG

FlightGlobal analysis of Cirium data also shows that low-cost airline penetration on intra-European services (including domestic) has fallen in Germany between August 2019 and the same month of this year – both in terms of the proportion of capacity offered by low-cost carriers and the outright capacity flown by such operators.

That means Germany’s low-cost carrier penetration continues to lag that seen Europe’s other large airline markets – by quite some distance in several cases. 

In ASK terms, for example, budget carriers account for 35% of intra-European capacity from Germany in August this year, versus 63% in both the UK and Spain, 51% in Italy, 47% in the Netherlands and 39% in France.   

Low-cost penetration on intra-European flights (including domestic) in key European markets
GERMANY
	August 2023			August 2019			Change
	Flights	Seats	ASKs	Flights	Seats	ASKs	Flights	Seats	ASKs
Total	110,511	18,406,418	23,193,404,591	139,725	22,210,224	26,055,510,036	(20.9%)	(17.1%)	(11.0%)
Of which operated by LCC	33,882	6,146,750	8,207,680,756	45,312	7,758,188	9,382,031,403	(25.2%)	(20.8%)	(12.5%)
% operated by LCC	30.7	33.4	35.4	32.4	34.9	36.0
FRANCE
	August 2023			August 2019			Change
	Flights	Seats	ASKs	Flights	Seats	ASKs	Flights	Seats	ASKs
Total	76,314	12,572,540	13,141,797,657	88,546	13,244,177	13,523,195,512	(13.8%)	(5.1%)	(2.8%)
Of which operated by LCC	37,685	6,900,507	7,440,405,376	34,272	5,955,512	6,188,558,550	10.0%	15.9%	20.2%
% operated by LCC	49.4	54.9	56.6	38.7	45.0	45.8
UNITED KINGDOM
	August 2023			August 2019			Change
	Flights	Seats	ASKs	Flights	Seats	ASKs	Flights	Seats	ASKs
Total	141,522	24,112,572	35,224,445,809	157,909	25,148,847	34,899,779,803	(10.4%)	(4.1%)	0.9%
Of which operated by LCC	77,177	14,397,129	22,241,175,038	88,892	14,901,349	20,930,687,608	(13.2%)	(3.4%)	6.3%
% operated by LCC	54.5	59.7	63.1	56.3	59.3	60.0
SPAIN
	August 2023			August 2019			Change
	Flights	Seats	ASKs	Flights	Seats	ASKs	Flights	Seats	ASKs
Total	140,047	24,300,538	34,277,321,754	142,735	24,154,992	35,101,253,470	(1.9%)	0.6%	(2.3%)
Of which operated by LCC	79,101	14,867,196	21,489,117,161	80,506	14,783,039	21,480,939,711	(1.7%)	0.6%	0.0%
% operated by LCC	56.5	61.2	62.7	56.4	61.2	61.2
ITALY
	August 2023			August 2019			Change
	Flights	Seats	ASKs	Flights	Seats	ASKs	Flights	Seats	ASKs
Total	100,046	17,702,787	18,040,799,675	103,752	16,967,940	17,911,245,377	(3.6%)	4.3%	0.7%
Of which operated by LCC	60,901	11,521,797	12,047,694,776	52,791	9,399,261	10,171,700,903	15.4%	22.6%	18.4%
% operated by LCC	60.9	65.1	66.8	50.9	55.4	56.8
NETHERLANDS
	August 2023			August 2019			Change
	Flights	Seats	ASKs	Flights	Seats	ASKs	Flights	Seats	ASKs
Total	38,933	6,066,062	7,183,129,724	40,931	6,232,475	7,009,031,242	(4.9%)	(2.7%)	2.5%
Of which operated by LCC	13,002	2,406,401	3,344,872,416	14,872	2,597,020	3,553,816,091	(12.6%)	(7.3%)	(5.9%)
% operated by LCC	33.4	39.7	46.6	36.3	41.7	50.7
Source: FlightGlobal analysis of Cirium schedules data. Note: Low-cost carrier category does not include leisure carriers

Among individual airlines, EasyJet’s ASKs on flights that touch at least one German airport are down 61% in August this year versus the same month in 2019, while the airline’s overall capacity is some 5% higher on the same basis.

Germany is not the only market that is seeing EasyJet’s capacity lag versus pre-Covid levels. Its capacity touching Austrian airports, for example, is down around 92% in 2023 versus pre-Covid levels, although that country’s market was equivalent to only around 10% of EasyJet’s German capacity in 2019. Amid capacity growth to destinations in Greece and Turkey, EasyJet’s ASKs on flights touching France, Spain and Italy are also all down against 2019 in August this year, but only by single-digit percentages. 

Meanwhile, Ryanair’s ASKs on flights that touch at least one German airport are down 14% in August 2023 versus the same month in 2019 – a significant data point from a carrier whose overall capacity is some 27% higher on the same basis.

Indeed, Ryanair’s capacity touching Europe’s other largest airline markets – including France, Italy and Spain – is much higher in August 2023 versus 2019.

Wizz Air bucks the trend among the pan-European low-cost carriers by offering 22% more ASKs on services touching German airports in August this year versus the same month in 2019, albeit that extra capacity only offsets a small proportion of the lost EasyJet and Ryanair ASKs. 

At the same time, capacity in ASK terms being offered by Lufthansa mainline is down 22% in August versus the same month in 2019.

LUFTHANSA IMPACT

Indeed, Cirium data shows that Lufthansa mainline remains the biggest drag on the capacity recovery in Germany in absolute terms, with the 14.7 billion ASKs it is offering in August – in a total German market of 49.5 billion, when all international carriers and short- and long-haul flights are included – down 4.1 billion from 2019. Ryanair’s ASKs are down around 390 million at 2.38 billion, while EasyJet’s are around 880 million lower at 557 million. Wizz Air’s ASKs are up 149 million at 814 million. 

The capacity offered by Lufthansa’s low-cost arms Eurowings and Eurowings Discover on services within Europe that touch Germany (including domestic) is up around 21% in ASK terms during August compared with 2019, or by around 640 million ASKs in absolute terms. Their flight numbers and seats offered are down by 19% and 9% respectively, reflecting a focus on European leisure destinations further away from Germany. 

On flights from Germany to locations outside Europe, the low-cost arms are offering 74% more ASKs – or 549 million more – versus 2019.

But even that Lufthansa low-cost unit growth is more than offset by lower capacity elsewhere. So why is the German recovery lagging so much – particularly among pan-European low-cost carriers?

SMALLER CONCERN

When it comes to local capacity, Lufthansa mainline’s deficit is partly explained by its larger exposure than European network-carrier peers to the slower-to-recover Asian markets. 

But its emergence from the Covid crisis has generally been cautious: Lufthansa Group’s ASKs were still some 18% down on 2019 in the second quarter of this year, with Lufthansa mainline’s down 21%. For comparison, Air France-KLM’s ASKs were 8% lower – including Air France’s down by 11% and KLM’s by 13% – while BA and Iberia parent IAG’s were down 6% – including BA’s down 12% and Iberia’s flat with 2019.

It is noteworthy that constrained capacity in a high-demand environment is not necessarily a bad thing for a business that dominates local capacity in the way that Lufthansa Group does in Germany and some neighbouring countries, as was reflected in its recent profitable performance.

Among pan-European operators, EasyJet blames its exodus of German capacity at least partly on high airport fees, like Ryanair. Early in the pandemic, it also cited the German government’s moves to support Lufthansa Group through the crisis, rather than the country’s airline industry as a whole, as a reason for its retrenchment. (In May this year, the European General Court annulled the European Commission’s approval of that state aid to Lufthansa, following complaints from Ryanair and Condor.)

EasyJet significantly cut back operations at its Berlin Brandenburg airport base just months into the Covid-19 crisis, instead deploying the aircraft to places where they can be “more profitable and generate significantly more revenue”. Earlier this year it said the “right-sizing” at Berlin had delivered a £190 million ($242 million) improvement in profitability to the airline, clarifying that it had taken 24 aircraft out of Germany over the past two years.

In a related factor, Air Berlin’s failure might still be having some impact on Germany’s capacity today, given EasyJet’s pre-Covid growth in Germany was partly made possible by the demise of Air Berlin in October 2017.

While a host of carriers quickly stepped in to replace Air Berlin’s capacity, the EasyJet case shows that pan-European carriers are not tied to building or even maintaining that capacity, should the country’s market conditions become unattractive and options open up elsewhere in the region.

But while there are several factors in play, airlines are not the only businesses complaining about the impact fees and taxes are having on the attractiveness of operating in Germany; airports themselves share the concerns.

“In the European competition for new routes, Germany as an airport location is becoming increasingly unattractive for airlines,” said German airports association ADV’s general manager Ralph Beisel in late April. “The site costs resulting from government levies, fees and taxes are also an important factor in the decision to start a new flight route at an airport.

“As a result, Germany is losing connectivity – to the detriment of business and private travellers,” he says, adding: ”This trend must be stopped.”

For now, Ryanair is urging the German government to “scrap any plans to increase already excessive aviation security charges and to protect German passengers and businesses by making Germany competitive with airlines driving traffic recovery and economic growth like Ryanair is doing in other EU countries Markets like Spain, Italy and Poland, where post-Covid traffic, connections and tourism are thriving”.