MADRID (AFP) — Europe's two biggest low-cost airlines, Ryanair and easyJet, have stepped up their competition in Spain, forcing down fares and causing turbulence for the nation's domestic carriers like Iberia.
Last month Ireland-based Ryanair, Europe's largest budget carrier, said it would set up two more bases in the country by 2010, adding Valencia and Alicante to its existing hubs in Madrid and Gerona.
"There's still a lot of room to grow," the company's director of marketing and sales in Spain, Maribel Rodriguez, told a news conference at the time.
The announcement follows the opening in February by England-based easyJet of its first base in Spain at Madrid's international airport.
The airport has become a magnet for low-cost airlines since it opened a fourth terminal at the end of 2006 and doubled the number of runways to four.
The moves are a sign of the appeal that Spain, as the second-most visited country in the world after France, has to the budget carriers which emerged in Europe the early 1990s following the liberalisation of the aviation market.
During the first seven months of the year 12.4 million people arrived in Spain on low-cost airlines, a 24.1 percent jump over the same time last year, according to the tourism ministry.
Arrivals on budget carriers accounted for just over one-third, 36.6 percent, of the total number of passengers who entered Spain by air during that time.
EasyJet, Ryanair and German low-cost airline Air Berlin accounted for about 60 percent of all low-cost flights in and out of the country during the period.
While business has grown for budget carriers in Spain, the nation's flag carrier saw its market share in the country drop to 22 percent last year from 26 percent in 2003.
"Low cost airlines have been growing at the expense of Iberia," Geoff van Klaveren, an airlines analyst with Exane BNP Paribas in London, told AFP, adding he expects the trend to continue.
Iberia should cut capacity on European routes where it struggles to compete with budget carriers and focus on higher-margin flights to Latin America where it is the market leader with about 20 percent of the market, he said.
The pressure has also taken its toll on Spanish low-cost airline Vueling whose first-half net loss widened to 33.7 million euros (45.8 million US dollars) from 6.5 million euros last year.
Last month the airline, which started flying in 2004, warned that it would not meet is 2007 targets in large part because growing competition had forced it to slash its fares.
The company said its average ticket price fell to 39.71 euros in the second quarter from 51.85 euros during the same time last year.
Brokerage BPI called Vueling's first-half results "dreadful."
"We believe the company is not coping well with the current competitive environment in Spain," it said in a research note.
Even Clickair, the Iberia-controlled budget carrier set up in 2006, has felt the heat. It posted a loss of 8.6 million euros during its first fiscal year.
Against this backdrop Scandinavian travel group SAS announced in June that it plans to sell its fully-owned airline Spanair, Spain's second-largest, to focus on its flagship carrier, Scandinavian Airlines and its smaller airlines Blue 1, Wideroe, airBaltic and Estonian Air.
Analysts expect the competition will intensify.
"With Ryanair expanding rapidly in a market that is being fought over by easyJet, Vueling, Spanair, Clickair and the incumbent flag carrier Iberia, it is clear that the price war will continue for some time," said Joe Gill, research director at Goodbody Stockbrokers in Dublin, in a research note.
Ryanair is planning to open six new routes from Madrid in October, flying to Santander and Gerona in northern Spain, Alguero and Cagliari in Italy, as well as Liverpool in England and Frankfurt in Germany.
EasyJet meanwhile is looking to specifically tap into Spain's immigrant market for the first time with the start of flights between Madrid and the Romanian capital Bucharest in November.
The firm's director-general for Spain, Arnaldo Munoz, said it may also increase the frequency of its flights from Spain to Morocco.
"Low-cost is not just for tourists," he told Spanish business daily Cinco Dias last month.
Moroccans make up Spain's largest foreign community with some 576,000 residents followed by Romanians with 525,000 inhabitants.
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