Airline Insight
John Strickland and Garth Lund break down the latest developments and economic realities of the global airline business.
Airline Insight
Ep 3: European network airlines deliver a strong Q1
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Q1 saw almost across-the-board margin improvement among Europe's network airlines but higher fuel prices have put a damper on expectations for the rest of 2026.
In this episode, John Strickland and Garth Lund look at how the three network airlines groups in Europe performed in Q1 and the lessons for the year ahead.
What we dive into:
- Improved performance at Air France partially closing the gap to IAG
- How Lufthansa Group is taking more aggressive action to address its challenges
- IAG continues to lead in margin performance
- Why the LCC model remains robust despite Spirit Airlines' demise
Welcome to the Airline Insight Podcast Series, taking a look at the airline business with a European slant. I'm John Strickland. I've been around the industry for over 40 years working in different airline business models, and I'm always interested in what's going on today. It's a never-changing picture.
SPEAKER_01And I'm Gotland. I spent the last 14 years or so in the airline industry, mainly on the low-cost side of the business.
SPEAKER_00Okay, in this episode, we're going to round up the European network carrier earnings, which have recently been reported for Q1. Of course, that was the period before the Iran war began, but it does give us perhaps some clues as to how the summer period may shape up for these airlines. And then we'll take a look at what lessons we can learn from the failure of Spirit, one of the US market's large low-cost carriers. Are there any comparisons between the US and Europe? So let's take a look. Starting off with Air France KLM. They improved their results for the first quarter. We still made a loss, but it was a much reduced one, although quite an unbalanced picture, with Air France showing a really strong improvement, KLM really dragging the group down, albeit they did have very bad weather in early January, which caused hundreds of cancellations and a lot of compensation. What was your take on uh their results, Graf?
SPEAKER_01So I think they've uh I mean they've certainly improved. So their operating margin came in at minus 0.4%, which was up from minus 4.6% last year. So they have closed some of their gap between themselves and IAG, for example. They did have some headwinds this quarter with, as you mentioned, the all the disruption in January in um Schiphol. And it's good that Air France itself is or was slightly profitable during the first quarter, but KLM, yes, certainly not doing as well as Air France and Transavia. As was the case in previous years, their first quarter is not a great one with operating margins down towards uh minus 40%, uh reflecting the seasonality of the business. But overall, I think it is good to see the improvement and it at least um sets them up well going into what is probably a more challenging rest of the year.
SPEAKER_00Mm-hmm. And interesting, as you said there, the strong improvement of Air France. And one qualitative point I was thinking of is that I think Ben Smith has now been CEO of a group for round about eight years, and in that time we've seen an incredible change to industrial harmony in Air France. It was an airline that was known for strikes the whole time. And I I can't remember, but last time they did have uh significant uh labour unrest. And I think that's reflected in the ability of the company to move forward.
SPEAKER_01Yes, there are only about 15 or so portfolio airlines across all the three network airline groups. Only four of them were profitable in Q1. Air France was uh one of the four profitable airlines, which I think is positive. And if you contrast, you know, where Air France and the labour relations are today versus previous decades, as you say, there's a big change. And also it's a big difference between Air France KLM and where Lufthansa Group is still working its way through those labour relations issues.
SPEAKER_00Absolutely, and definitely that's a point for us to come back to. And I I I guess tied in with those uh more harmonious uh staff relations with management, which actually I think is a pretty strong achievement in France as a whole. You know, I've worked a lot in France, and uh there is a mentality, I think, uh culturally, to strike first, ask questions, or negotiate later. So to break through that and indeed establish more trust is is no mean feat. And probably also ties in with improvements in the product. They've invested in new fleet, they're investing substantially in premium capacity, and they talked about premium traffic still doing really well. They had a RASC up 3.4% in Q1. But if we contrast it, as you said, with Immigrant Transavi, yes, as you said, seasonally, it's a tough time in the winter, about 40% negative margin. But there's maybe some confusion in uh what uh Transavia's role is. If we think about them, and we'll talk in a few minutes about Lufthansa having large low-cost arms, they just completed taking over all the Air France activity in Orly. So many of those routes are domestic routes, uh, some of them are at French overseas territories. They're not purely driven by the dynamics that normally a low-cost carrier would would look at, are they?
SPEAKER_01Now the Orley operation has been consolidated under Transavia instead of Air France mixing between Charles de Gaulle and Orly. France has increased some of its own services from Charles de Gaulle, but the bulk of those domestic operations have now been taken over by Transavia. We know that in general domestic markets in Europe are weaker than they were pre-COVID. There's less business travel, there's less same-day travel, and France does have a very well-developed high-speed rail network. So these probably aren't the strongest routes necessarily in the um in the portfolio. But I suppose the hope is that with the lower cost structure from Transavia, that can improve the performance of some of those domestic trunk routes. But um it does feel like Transavia tends to get maybe some of the weaker markets that don't work with the higher cost structure of Air France. Uh, but that does mean that it is incumbent on Transavia to try and make those weaker markets work.
SPEAKER_00Yeah, I think that's a good point. There's a little bit of uh dictation in terms of what they do. And of course they face a lot of competition in Orley from uh, if you like, uh true low cost as well, with uh significant activity from EasyJet, who's at CDG as well, and of course Welling, both having bases uh in Paris. If we look slightly forward in what they said, of course the the Iran war was just uh taking hold in the the last month of that uh reported quarter. They didn't see so much uh impact, but they already started to reallocate uh capacity which had been focused towards the uh Gulf region uh and upgrading services, particularly to Asia markets, so taking some windfall gains from there. And I think on the KLM side, running into April, they've cancelled as fuel prices have risen some weak uh predominantly short haul flights as well. That's true.
SPEAKER_01They have overall across the group reduced the capacity growth expectations going forward for the rest of the year. So I believe they've cut their growth rate by about 2% compared to previous expectations, still planning to grow, which is positive, but probably trimming some of the more marginal capacity.
SPEAKER_00And of course they face a challenge, as we mentioned, of uh increased fuel prices. They've indicated they expect around about$2.4 billion of increased fuel costs for this new financial year. And unless it eluded me, I don't think they really said a lot about how or if they expect to recover much of that Garth.
SPEAKER_01Yeah, I haven't seen the same detail on recapture it or um other measures as we've seen from some other results released recently.
SPEAKER_00Yeah, so a mixed showing, but uh you know, probably in the right direction. And uh uh I think bookings as well, just uh as a last point, uh bookings were looking quite healthy, uh similar percentages of capacity sold for the coming quarters as they had last year. Let's take a look at Lufthansa. I mean, Lufthansa as Air France KLM, it was in loss, a substantial loss, uh hefty loss. It was reduced to give them credit compared to the previous year, but uh not a not a good looking result. And then Lufthansa German Airlines itself really dragging the group down. It was a predominant reason for that loss.
SPEAKER_01Yes, the group uh operating margin came in at minus 7% for the first quarter, which was a slight improvement versus minus 8.9% for the same quarter last year. But clearly that is quite some way off the results of Air France KLM and particularly IAG. So the group is still the weakest of the three European network airline groups. Uh Swiss was the only airline within the Lufthansa group portfolio to turn a profit. The rest of the airlines were all negative. Um, and as you say, Lufthansa, which makes up the you know, the lion's share of the group's capacity, was uh also heavily negative itself.
SPEAKER_00Absolutely. And uh as with uh FNS KLM, that they have a large low-cost group uh with uh led by Eurowings, and that turned in a 44% negative EBIT margin for the quarter. And uh, as we said, I mean it's a difficult time of year, but uh you have to wonder uh in some ways what the low-cost arms of these network carriers are doing for them. They have a big turnaround program. They talked about this in the results, a big turnaround program for EuroWings, and one of their extremely well-regarded uh executives, Max Karnatsky, who recently headed up Sun Express, has just taken the helm uh in Eurowings. So I guess uh that will be his focus in the months ahead.
SPEAKER_01I think what's interesting is that Eurowings was partially, let's say, um, set up or developed to mitigate some of the labour issues at the mainline airline, obviously also for competing more effectively with the likes of EasyJet or Ryanair, but there was at least partially a sense of creating a lower cost operating platform with kind of more efficient uh crewing structures and salaries. But uh in the recent strike action, which we've seen in April at the Lufthansa Group, Eurowings Germany was also part of that. So it feels like the what was once part of the solution to some of the mainline carriers' labor challenges is now also um a challenge itself.
SPEAKER_00And there's more complexity as well. I mean, as you said, part of the logic of this development of Eurowings, and indeed uh frequently with Lufthansa to set up new AOCs to get cost savings. We've now got uh Lufthansa's Discover airline, which are kind of emerged out of uh Eurowings. And to be honest, I find a bit confusing. I'm not quite sure exactly what the difference is.
SPEAKER_01Yes, I believe um, I mean, uh certainly if you go to Lufthansa.com and and look to book on certain routes which have now been moved to Discover Airlines, you'll just get the result of Discover Airlines. So um my perspective is it's less of a brand in itself, but more of an operating platform for the mainline airline on uh some of those long-haul and and also short haul leisure markets or perhaps lower yield markets. But it does seem to be one of the growth engines of the group going forward. They recently announced that uh they would accelerate the deployment of the new A350s to Discover over Lufthansa mainline. So I think we will see more from Discover going forward. And it does also look like they are introducing new product improvements to Discover as well as the mainline airline, a new hard product going in for business class. So uh it looks to me like it will be an important part of the group going forward.
SPEAKER_00And as you said, I mean very interesting that some of the newest kit, uh nine or servers A350s going into that airline. And I may be remembering this wrong, but I think they are going to put a uh a CEO in. I don't think it has a CEO currently, but I think it is going to uh have an accountable manager as well. So let's watch out for that in the coming months. Fuel, of course, went up uh in the case of Lufthansa, they project uh 1.7 billion euros increased fuel costs. They talk quite bullishly in their results about expecting to recover 60% of this from pricing. I mean, that's still these 40% not recovered, but all from pricing. I mean, do we think the market's going to be that inelastic or buoyant that they can do that?
SPEAKER_01The 60% recapture rate that they've talked about is, I mean, it's certainly higher than what we're seeing from some other airlines, definitely higher than what we hear from the US airlines on the other side of the Atlantic, where they're talking typically about a 30, 40, maybe 50% recapture rate in the sort of short to medium term. But I think because Lufthansa is 80% hedged on fuel for the year 2026, the amount that they need to recapture through pricing is probably less than some of the other airlines who are more exposed to the higher fuel prices. So if they are only needing to recapture, let's say, a 20% increase in their fuel bill, it probably makes sense that the recapture rate for them is perhaps higher than airlines which have to recapture a doubling, let's say, of their fuel bill.
SPEAKER_00I've seen some debate though about their hedging. And I'm certainly not remotely expert on hedging, and I always say it's an art anyway, rather than a science. But there's been talk about the hedging being far more linked to the price of uh crude oil rather than kerosene, and then this crack spread, the difference between one and the other. Uh so there may be some complications there, I guess we'll see in the coming months. They did rapidly move their limited capacity in the Gulf elsewhere, seemingly quite successfully. They've added a number of flights, particularly to Africa and Asia. Those are going to stay in the summer months. They've talked about good bookings on that so far. And of course, uh, we talked about in our previous podcast that Lufthansa has long had a downer on the uh Gulf carriers as um obstacles to their own success. But of course, uh they have to make difficult choices between whether they fly North Atlantic, South Atlantic, or points east. At the moment, they have this spec capacity and they can do it, but I think there are limits uh to how far they can go on that.
SPEAKER_01There are certainly quite a few positive signals, I think, from their Q1 results. So they did reiterate that they don't expect to make a lower profit uh than was previously the case. And also they mentioned a few figures on their revenue performance, uh, which looks very strong. So March uh revenue per ASK or RASC was up 12%, and they mentioned also a 34% yield increase for intercontinental bookings, comparing before the Iran crisis to afterwards, which I think, as you say, comes from recapturing some of that traffic which would have previously flown through the Gulf. So at least for now, that looks relatively positive, but as you say, it's a complex situation.
SPEAKER_00And we we mentioned in the case of uh Air France KLM and you touched on it in terms of a logic of developing Eurowings, industrial relations challenges. This seems to be the real Achilles heel with Lufthansa. So they acknowledge they had not one but several strikes going on as those results came out, even as they celebrated their 100th anniversary, the same week they had strikes going on, grounding the airlines significantly, uh, both between ground staff uh and pilots. That seems to be, to me, uh as an observer, you know, a question of culture, that's something they need to get a grip on. I saw one online blog commented on the fact that uh as we mentioned, uh Ben Smith in Air France was kind of schooling cast and spore in industrial relations. So now whether that's quite true, maybe it's a point of debate, but they do seem to struggle uh on that side of things. And from some powerful labor groups, uh not least propilars.
SPEAKER_01I believe in April they had uh five or six days of consecutive strikes between Lufthansa itself as well as Eurowings, plus other days of strike action. So clearly it's been a challenge. I have to say I was in a way quite impressed with uh the speed at which they have reacted to some of these challenges. It was uh, you know, obviously it's a very painful decision for those employed at Lufthansa City line, but uh, you know, at the speed at which Lufthansa Group normally moves, it seemed like a very um kind of hardline, you know, fast-moving decision to one day to the next decide to shut down that subsidiary or shut it down a year earlier than it was planned to, and also making changes on some of the fleet retirements and accelerated growth at other subsidiary airlines. So it does feel to me like they are um starting to move quicker in dealing with some of those labor challenges and cleaning up the business and putting it onto a stronger and more sustainable footing to ultimately compete better with France KLM or IAG.
SPEAKER_00Yeah, as you said, that came as a bit of a uh shock that uh rapid announcement of uh advancing city land closure and affecting 27 aircraft and uh a substantial number of staff. I think that accounted for some of the 20,000 flights they've cancelled through the summer, which again in context is only about 1% of Lufthansa's total output. It's not uh some historical uh media sources have suggested a giant share. But yes, a fast mover, it does suggest, though, uh in a kind of a quite a hardball negotiating style still. Uh and of course the pilots union at least uh is strong, although I think now that's been uh diluted by different union membership uh in uh parts of the group with the new subsidiaries being set up. You mentioned as well about some of the older aircraft going. This again is a perennial challenge for Lufthansa. So if you look at their fleet mix in their reports, they seem to have, if not one of everything, several of everything. And uh finally it looks like the A340s are going to go at the end of the summer, some more 747400s. Um they acknowledged, of course, they they face a challenge in their fleet renewal. They're getting a stream of 787s coming through now. They still don't know when they will get the uh 777 nines, although I see that Boeing's now flown uh the first Lufthansa aircraft, although it's been uh manufactured some years now. But yet they're still selling a couple of 7478s, which I know we talked about previously to the uh US Air Force.
SPEAKER_01Yeah, I think one of, I mean, I assume the math historically has been that you have okay, you have these older aircraft, the 747400s, the 340s, which are now probably fully depreciated, uh very low ownership cost, but they come with a higher operating cost uh and a higher maintenance cost. So with the you know, with the lower ownership cost, perhaps there was less you know downside to keeping them around a bit longer. But now that we've seen the oil price spike and that will really hit the operating cost on those less efficient aircraft like the 340s, that probably changes the uh the math a bit, and you know, that's contributing to an accelerated retirement program for those old aircraft.
SPEAKER_00Yeah, absolutely. And um a valuable change for them. But uh, I just still wonder about how much uh long-haul capacity they're leaving themselves. I recall really, if we think about BA retiring 50 plus 747400s during the pandemic, it left them pretty short uh of long-haul capacity and still has done right to this day, uh post-pandemic, with new deliveries but of smaller aircraft. And and Lufthansa, again, as a relatively higher cost network airline, is probably uh skewing its operation a bit more towards short haul at the moment through some of these departures. But I agree, you know, it's a very fragmented fleet, and these are certainly gas guzzling aircraft. So uh see how that shapes up in the in the next year. Let's move to IAG now, which was uh atypical of this peer group. It made a profit and its profit was improved year on year. Uh they talked about all their markets being pretty strong in the quarter leading up to and including the beginning of the Iran War, except Europe, which uh, as we commented already, is quite a tough market with a lot of shore capacity available. But uh it was a pretty good result.
SPEAKER_01So IAG delivered an operating margin of 4.9% positive, which was up from 2.8% last year. Clearly the strongest result within the three airline groups, and about a 12-point margin gap between IAG and the Tanza group. So they are clearly and continue to be the strongest of the three network airlines, and uh almost across the board within the group, good results. And uh Iberia came in as the number one uh highest margin airline within IAG, also within all the three airline groups, which I think as we touched on last episode or the previous one, is perhaps not what one would have expected 10 or 15 years ago, but it does seem like Iberia is seeing very strong performance. Equally, BA uh saw its passenger rask up 8.5% year over year, Vuelling up 10.1% year over year. So some very strong revenue results within the group.
SPEAKER_00I think interestingly with Iberia as well, the load factor was in the mid-80s, mid-high 80s. Uh it certainly led the pack uh in all metrics, really. So incredibly strong performance. And I think reflecting uh in the Spanish domestic market seems to be pretty buoyant, and the market to and from Latin America, which of course is their staple hunting ground, uh, also continuing to do really well. And perhaps of all the three network groups, uh IEG talked up again about very strong premium traffic performance, and undoubtedly they helped fair with the strength of the uh the London market. Like the others, uh, they face fuel price increases. They expect about a 2 billion euro hit on additional fuel costs. They're quite well hedged, but even so, that uh large amount of additional expense, they've acknowledged it will hit, not surprisingly, their profit for the year. They expect to recover light luft hands for about 60%, but they're being a bit less bullish. They see that both through uh pricing actions but also cost initiatives.
SPEAKER_01Yeah. So they are also, as you say, expecting about the 60% recapture rate based on the the RASC performance from Q1, if that continues out into the rest of the year. If even more than that, they can recapture some of the traffic that would have been going through the Gulf. That should help as well. So from a revenue perspective, it does look like uh they're in a strong position to uh mitigate at least the majority of the fuel price increase.
SPEAKER_00And they've also reduced their capacity growth plans for the year. They haven't determined it for the following three quarters, but they're down to about one to two percent growth versus roughly three percent growth before. So following the pattern there. And they highlighted that they were probably the least exposed to the Gulf region of all the uh the European groups, or maybe not of all the European groups, but certainly uh factory in Asia as well, their exposure is down to only three percent. Nevertheless, they have taken opportunities to move capacity to India in particular, that that market to and from the UK, and indeed a lot of uh transfer traffic, which can easily go through heat flow to markets like the US and Canada. They've uh upped for exposure to some parts of Asia, some more amazingly transatlantic, considering they're already pretty substantial there as well, and will add some more uh further Asia capacity later in the year.
SPEAKER_01I thought what was perhaps interesting was that Arolingus was kind of bucked the trend, unlike almost all the other airlines, not just within IAG, but the other two groups as well, delivered quite a substantially worse result in Q1 than the same time the previous year. So they had, I think, a 12-point margin drop, which they attributed to more competition inbound from some of the US airlines, who I think have grown capacity into Ireland by about 35% or so compared to the same quarter the last year. So certainly there is more capacity between Ireland and the US, which seems to be putting pressure on yields. Unit revenue was down 7.6% for Erlingus, but I think it was interesting that uh yes, it was kind of the one airline that um that didn't see a substantial improvement in performance this quarter.
SPEAKER_00No, absolutely, and maybe that leads in nicely, uh Gartner. Just touching a couple of comments on you could say some niche or outlier airlines in the transatlantic or the North Atlantic market. Iceland air, very much like uh Erlingus, exploits its hub position in uh Keflavik, in Iceland, as Airlingus does predominantly in Dublin. They lost money in the first quarter. That itself was perhaps uh not unexpected, but I think what is uh a key thing to watch for them, their hedging levels are pretty low, around about 40% for the year ahead. And that model of theirs, they do have some strong point-to-point flows in and out of Keflavic to the US uh markets, but a lot of it is feeder traffic. So it's price sensitive. And the Icelandic home market, uh, while uh known for prolific travel, it's just a small population, there's only so much they can actually do. So those hedging levels uh could give it some pain in the months ahead. They've indicated that the remainder of their trusty Boeing 757 fleet, which has been shrinking a lot in recent years as they've brought in their 737 Max fleet and more recently a 321 Airbus 321 NEOS, they could take out the remainder of those 757s by the end of this year. So that's an interesting one to watch.
SPEAKER_01I believe the 767s are already due to retire end of this year, and the 757s plan to retire end of 2027, but as you say, given the higher operating costs and those 757s are also uh gas guzzlers, it could make sense to bring forward that retirement. Not just improving the mix of fuel burn within the fleet, but also probably helping to trim some capacity that now may be less profitable than previously expected with the higher fuel prices.
SPEAKER_00Absolutely. And uh even before this war broke out, they'd already pivoted a bit more to point-to-point European services, interestingly enough, and shed a little bit of uh uh North Atlantic capacity. So uh I wonder if I'd do more of that in the months ahead. The other niche player is North Atlantic. As we're talking, they haven't yet reported their year-end figures, or rather they've reported the year-end, which was a loss. They haven't yet reported their their Q1 figures. But we have seen that uh you know they pulled out of Los Angeles uh completely for the summer, which was uh a pretty significant market for them. They had other North Atlantic routes which had also stopped, particularly some out of uh London Gatwick, and they're not hedged. Now, half their fleet is leased out to uh Indigo, which gives them a staple guaranteed income flow for as long as that deal remains in place. But it looks like uh summer could be uh more than a bit challenging for them as well.
SPEAKER_01The low-cost long-haul model is probably the most exposed to fuel prices, given that uh the fuel then makes up for a very high percentage of the total operating costs compared to other models. But as you say, it is positive that they have the um the lease out arrangements, which should uh you know lessen some of the impact of the higher fuel prices.
SPEAKER_00Absolutely. Let's turn our thoughts now, Gaff, to the other side of the Atlantic. We've had a recent failure of spirit, you know, a long-standing low-cost carrier. I would call it Spirit by name, spirit by nature. Certainly it had the well-regarded Ben Baldanza behind it for many years. Sadly passed away, of course, now. But uh the airline seemed to lose its way. It was, it seems to me perhaps the closest in style to Ryanair on this side of the Atlantic. Of course, the granddaddy of low cost in the US was Southwest, but it they'd morphed maybe inadvertently into a different direction, which is now causing them challenges. But the spirit, it looked like it maybe was going to hang on in there. It had tried mergers which had been rejected, it had gone through restructuring. Even the administration had looked recently at supporting it, much to the the horror of the rest of the US industry who were not wanting that at all, but finally it fell by the wayside. What do we see, the lessons from that GAF, and and what does it mean in terms of the other side of the Atlantic? Uh, does it mean low-cost carriers here should be worried about what's happened? I'd say a couple things.
SPEAKER_01Number one, I think Spirit was kind of the quintessential ULCC in the US prior to COVID under Ben Baltanzer, as you say, it was a very successful business and really performing well against the ULCC model. Coming out of COVID, I think it's clearly been more challenging for Spirit. Their uh unit costs have increased substantially more than they were able to extract in terms of unit revenue. In the early period coming out of COVID, they still had a lot of new aircraft coming into the fleet. So probably ended up a bit overextended uh in terms of profitable route network while at the same time seeing unit costs go to a much higher level. So I think one of the lessons is not so much that the ULCC model failed, but that uh losing control of costs is uh, you know, if you're a ULCC and you lose control of your costs, there's really nothing left in the business. And secondly, I would say that there's been a lot of commentary, I would say, in the industry around the ULCC model or the low-cost model no longer works. I think that's absolutely not the case. If you look outside of the US, some of the strongest airlines in the world are low-cost airlines or ULCCs. If you look at uh Ryanair and EasyJet, both of those businesses have a net cash position on their balance sheet and substantially all of their fleet unencumbered. There are very few airlines in the world which have a balance sheet that is that strong. And of the seven um investment grade airlines, as rated by Standard and Pause, the rating agency, EasyJet and Rhine are the two highest airlines globally in terms of their credit rating. So I think this idea that ULCCs aren't able to weather crises or don't have the balance sheets to get through the current Iran conflict and higher fuel prices, I think it's just absolutely not the case. The best ULCCs actually have the strongest balance sheets globally, I would say.
SPEAKER_00I don't know what level of negotiation we were able to achieve with Airbus, again, as we see the uh the low-cost carriers doing in Europe, they really extract that power, Rhino in particular, in getting good aircraft deals. And I think also a very big difference is uh, on the one hand, the benefit of the massive size of the US domestic market, but that was the undoing as well, because the majors all have their spheres of influence around their different hubs, Delta, United, and America, and such a large amount of our own capacity in domestic operation, it was very easy to match more than Spirit's own capacity amongst all of them with uh not only numbers of seats but the type of pricing, these basic economy fares, but still offering something extra like loyalty points and so on, and Spirit was just struggling to manage to keep up with that. We don't have that. I can't really think of any way in which we have it in Europe. We have domestic markets, but there are not many that are that big. I mean, the UK domestic markets are modest, France is bigger, Spain is bigger, but nothing to compare with the US. And they're only part of the European landscape. So I can't think of one European group that could come out and do the same kind of thing to put a low-cost out of business.
SPEAKER_01Yes, I think in Europe the in X-field unit costs between the ULCCs and the network airlines is bigger. It's not something that's going to close anytime soon. And the European low-cost airlines coming out of COVID have, I think they've all seen slight increases in their unit cost versus 2019, but nothing on the scale of the increase that Spirit saw. And it's more common, I would say, that the European low-cost airlines do have strong market positions in certain markets. If you look at EasyJet in Gatwick or Ryanair in Stansted, Wizair in in Budapest or Bucharest, they do have strong markets where they are clear market leaders. That was less the case for Spirit. They were number one in Fort Lauderdale, but a lot of that traffic was inbound to Fort Lauderdale. So they were kind of competing for a customer in, let's say, Atlanta with the rest of the market in Atlanta. And I think what also changed for Spirit is that the South Florida market has become quite different today than what it was 10 or 15 years ago. Previously, this was, you know, if you were a college student going on spring break, uh, you might fly to Fort Lauderdale with Spirit. But nowadays, South Florida is more likely to attract a hedge fund manager from New York. So I think a lot of their kind of traditional price-sensitive traffic has to some extent been priced out of the South Florida holiday market.
SPEAKER_00That's interesting. Certainly, that's a dynamic. I knew nothing about Garth. So uh enlightening to understand that. And I think maybe also in in Europe we see all the three large LCCs willing to move capacity around. They open and close bases, they add and take aircraft away from those bases as well, uh, far more flexibly than perhaps uh was able to happen uh in the US.
SPEAKER_01That's true. I mean, I think you know, Spirit has largely concentrated on some of its core markets like Fort Lauderdale or or Detroit. You don't see the same dynamic in the US where, you know, unlike Ryanair, which happily throws its toys out the pram, if it doesn't like the uh the cost structure at a particular airport, uh, you don't really see that in the US. Things are more fixed and uh the kind of territory of each airline is a bit more established aside from a few key battlegrounds. Whereas in Europe, as you say, the the situation is probably more fluid and the low-cost airlines here do take more advantage of the fact that their assets are mobile. That said, I do think Frontier is making some more changes to their network now than perhaps we've seen previously. So I believe Atlanta is actually overtaking Denver as the number one market for Frontier in recent months. So that could be interesting.
SPEAKER_00And think of Frontier, that was a merger idea that seemed to me from a distance but would have made a lot of sense to really uh low-cost uh in terms of pricing model focused airlines, while the jet blue proposal came along looked to me to have been more challenging. In the event, neither of them happened, they were all uh uh consigned to the bin of regulatory history. Uh and maybe just as we we wrap up today, uh Garth, um, we know we're gonna get the results, the quarterly results coming out of the European LCCs very shortly after we publish this particular podcast. So I guess that's gonna be our next uh talking point in the next few weeks. But for now, we're out of time for today. We would like your feedback, we would like to know if you enjoyed uh our discussion and more particularly if you found it useful, and any other discussion points you'd like us to focus on in future airline inside podcasts. So, till the next episode, it's goodbye from me, John Strickland, and from me, Gusland.