Low cost Lisbon – Caiado Guerreiro

The airline industry is currently undergoing numerous changes. Airline companies have suffered from the increase of the oil prices and natural catastrophes, as well as from constantly changing legal regimes. Nevertheless, there are certain airline companies that have found a different way to approach the difficulties and the crisis that cut their profits – the low cost airline companies.
Within the context of the continuous de-regulation arising from the entering into force of the third package of liberalisation of air transportation, several low cost companies have been incorporated since 1995 and began regular routes to Portuguese airports, focusing mainly on tourism. Between 1999 and 2004, the European market of low cost companies suffered a boom, primarily due to the operations of Ryanair and Easyjet, two of the biggest, more profitable and well-known European low cost airline companies.

INAC, the Portuguese National Institute for Civil Aviation, has recently issued a report in which the impact of low cost companies in the Portuguese aviation market was evaluated and a connection with the astounding increase in tourist numbers in Portugal was established.

Within the context of the continuous de-regulation arising from the entering into force of the third package of liberalisation of air transportation, several low cost companies have been incorporated since 1995 and began regular routes to Portuguese airports, focusing mainly on tourism.

Between 1999 and 2004, the European market of low cost companies suffered a boom, primarily due to the operations of Ryanair and Easyjet, two of the biggest, more profitable and well-known European low cost airline companies.

Impact on the Portuguese economy

In Portugal, Faro (Algarve) was the airport that experienced the principal increase in numbers of passengers transported and the local economy has largely gained from that fact. The South of Portugal began to modernise its hotels, golf courses and services in general. Roads were built, cities were developed, and business and labor posts were created.

Later on, this impact spread north. Lisbon airport began to feel the demand for new slot spaces for new routes coming from European cities, mainly from England, Ireland and Germany. And Lisbon has become in the past few years a city to look closer to. The New York Times called it a “fastest-rising cultural centre”, encouraging Lisbon to compete with other European cities such as Madrid, Rome or even London in terms of culture, leisure and also business.

Lisbon has become not only a financial centre itself but also a platform from Europe to African countries and South America. This was largely facilitated by the several air connections between Lisbon and the main European cities, leading to the development of the Lisbon airport hub.

In 2002 and 2003, the number of companies operating to Lisbon has duplicated, even though the total increase in the number of passengers only represented four percent of the total air traffic.

This number was rapidly overturned. Between 2004 and 2011, the medium rate of growth of the total passenger traffic regarding low cost companies in the connections to and from Portugal was of 27 percent.

The upcoming challenges

Low cost companies as well as regular airlines will be facing a new challenge in Portugal.

ANA (ANA – Aeroportos de Portugal), the National Authority in charge of managing the Portuguese airports, is undergoing a privatisation process, won by the French company Vinci Airports, which manages 13 airports worldwide.

The process is expected to be concluded later this year and airline companies should keep a close eye on this, as it is expected that procedures regarding authorisations and permits issued by ANA will suffer changes and affect the already existing ones.

ANA acts in the regulated market of aviation in which it is in charge of managing infrastructures for the aircrafts, passengers and cargo traffic, including the issuance of handling licences and market access licences, but also in the non-aviation, non-regulated market, with respect to the exploration of commercial and marketing spaces in airports, in the offering of commercial spaces and parking lots located in airports.

TAP and the privatisation process

Under the Financial Aid Process currently in force in Portugal, TAP, the Portuguese airline carrier, is next to be privatised.

After a failed attempt in late December 2012, the Portuguese Government intends that TAP returns to the privatisation market in 2013, representing an opportunity for foreign investors to gain a strategic position and much disputed routes, such as Brazil or Angola.

The opportunities within the air transportation services in Portugal arise both to the airline companies and to the economy itself, creating a symbiosis that leaps the country forward by creating a constant flow between Europe, Portugal and the world.

Ricardo Rodrigues Lopes is a Partner and Maria Leonor Piconez an Associate at Caiado Guerreiro. They can be contacted at rlopes@caiadoguerreiro.com and mpiconez@caiadoguerreiro.com