Don't Take Flight Routes for Granted
See Part 1 of this Article Here.
The consequence has been that thousands of Irish buyers have purchased property on the back of the availability of cheap flights to myriad destinations, predominantly across Europe. This in itself isn’t any great problem, many of those buying on the back of newly launched Ryanair routes made very tidy profits – initially in any case. Indeed the phenomenon of property price rises in regions where new routes were rumoured is legendary. Some property purchasers at one stage actually based their whole investment strategy around being early into the market where such routes were to be launched. Most of these investors were quickly in and quickly out again, taking their profit and moving on to the next location. They were the opportunistic investors and, as long as they were aware of the risks, the best of luck to them. They made their profits for a time and then suffered losses, which they’ll have to suck up – that’s the high risk game they played.
As an example of the effect that new routes can have, they don’t come much better than the Languedoc-Roussillon region of France. This stretch of Mediterranean coastline, located between the Côte d’Azur and the Spanish border, had languished in relative anonymity from an Irish perspective until Ryanair decided to fly to Carcassonne from a variety of airports including Dublin, Shannon, Stansted and Liverpool. Unlike the neighbouring Côte most locals can’t speak English which just shows how isolated from foreign tourists the region has traditionally been. The new flight routes opened the region up to a whole new array of tourists and property buyers. A recent survey of the most popular regions in France with Irish buyers put the Languedoc-Roussillon region firmly in second place after its more famous neighbour and two places ahead of Paris. That is a serious turnaround in a matter of a couple of years.
As we are now aware, we shouldn’t take for granted such success stories, their time has come and gone and will most likely come and go again. The problem is that the law of physics states that what goes up must come down and the same applies to business – however long it takes to complete the cycle. This is particularly the case where an entire business model is based on exponential growth. It simply can’t go on forever. At some stage a levelling out must occur and in a low cost airline the only levelling out that can occur is to cut unprofitable routes. While the Irish economy kept powering along and our level of disposable income continued to be high we were relatively safe. The downturn, however, has seen several airlines, most notably Ryanair, pull flights in Dublin and Shannon. Indeed, in the past week Ryanair has announced that it is to leave Belfast City airport completely. Once again Mr. O’Leary has been quick to blame the authorities in Belfast for the departure but you can be sure if he felt his planes were able to make enough profit there they would remain there – nothing usurps profitability at Ryanair. The plane that did service Belfast will merely be moved to a potentially more profitable route. As we have seen, with the economy in a current spiral, Ireland doesn’t look nearly as attractive a location for planes which are difficult to fill at the best of times, and we can expect that only the most profitable routes will be maintained. We have also seen in the last week just how unprofitable it can be for a small regional airline in Ireland with the Examinership of Aer Arann.
As a case in point Gulf Air Chief Executive Andre Dose said of his airline’s decision to pull its Dublin base several years ago: “At this critical juncture, the airline, which is currently making heavy operational losses, had looked at ways in which the fleet and resources can be used in the most effective way to ensure that customers are served effectively.” In other words, basing our operation in Ireland makes no financial sense. That is from summer 2007 when oil prices were still affordable, can you imagine what is going through airline chief’s heads at this stage? Certainly not expanding routes to airports such as Kerry, Knock, Waterford, Shannon or Cork. Even extra flights for Dublin are unlikely in the current environment.
This article will be continued in the near future – please use the subscribe link if you wish to be informed when the rest is posted.
