In the Early days of air travel, flying was extremely expensive, only the rich could afford
to travel by air.
After the second world war, airplanes became safer and more reliable.
Powerful engines and improved plane designs made it possible to carry more passengers
for longer distances.
The economics of scale brought the price of a plane ticket within reach of the average
family.
Still, Airlines like Pam Am, TWA, British Airways, and Qantas continued to treat air
travel as a luxury, however.
Free meals, drinks, comfortable seats, and other amenities kept the price of plane tickets
relatively high.
Airline deregulation and the changing economics of the airline industry in the 70s and '80s
led to a new type of airline category: the Low-cost carriers, aka budget airlines, and
this came the rise of Ryanair, EasyJet, AirAsia, and Southwest.
Budget airlines, as you would guess from the name, offer inexpensive tickets, sometimes
as low as $10 for a one-way ticket.
They manage this by cutting down operating costs.
So, how do they do this?
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Firstly, the most critical part of an airline is the airplanes, because Airplanes are airlines,
but airlines are not airplanes haha, that was a joke.
So, when it comes to this, low-cost airlines make a decisive long-term choice on one plane
type and of course, they don’t just choose any plane, they go for the newest ones because
newer planes are far more efficient than the older ones.
They choose one type of plane which will give the best cost-performance.
For example, AirAsia operates only the Airbus A320 family fleet, Southwest operates all
Boeing 737 fleet, same with Ryanair, Easy Jet also use only the Airbus A320’s, and
this practice saves a lot of money because firstly, the company only has to buy and stock
parts for only one type of plane, and this gives them a strong negotiating power because
they buy everything in bulk, they buy airplanes in bulk, parts in bulk, pay for training in
bulk and pretty much everything in bulk, and this gives them discount at everything.
For example, shortly after the September 11 attacks, the airline industry was struggling,
Boeing which has been heavily beaten by the crisis in the airline industry laid off 30,000
workers at a cost of $622m, which contributed to a 79% decline in profits.
Ryanair saw this opportunity and stepped in, they told Boeing: will you sell me 151 737’s
at a huge discount?
You know you won’t sell them anyways if I don’t buy them because no one is currently
buying planes.
Boeing who is struggling to survive couldn’t resist the deal.
Last year, when Boeing was battling over the 737max, which made a lot of airlines lose
confidence in them, Ryanair placed an order for 75 new 737 MAX aircraft, the largest order
the American manufacturer has received for the embattled jet since the two accidents.
Low-cost airlines save so much money by buying one type of plane because they only need to
train their pilots for one type of plane, mechanics for one type of plane, flight attendants,
and even ground staff only have to be trained for one type of plane, they don't need separate
training programs for each different type of aircraft.
Other than that, low-cost airlines are known to be ruthless at negotiating with airports,
they ask for extremely cheap landing and handling fees, and if the airport is not willing to
offer them a good deal they just pull out.
There’s always another airport willing to serve them cheaper.
If that means their aircraft is going to be serviced at remote stands instead of at the
main terminal, the low-cost airlines won’t mind as long as it's cheap, this is why you
will never find low carriers at Jetways, they use steps, also, you will hardly see them
land at major airports like JFK, LAX, Heathrow, or Amsterdam Schiphol.
A major airport, like Chicago O'Hare, is in high demand from airlines.
The airport commands higher fees because so many airlines want to use it.
But Chicago's Midway Airport is less popular, though it serves the same basic function,
allowing planes to take off and land near the Chicago metropolitan area.
Low-cost airlines are willing to deal with whatever drawbacks the smaller airport may
have in return for the smaller fees required to use it.
Of course, not every city has two airports to choose from.
In that case, an airline might choose to fly into a smaller city in the same region as
a major destination.
The airports in Washington, D.C. are very expensive for airlines and passengers.
The airport in nearby Baltimore is cheaper, though it requires a train ride or a drive
to get into D.C. low-cost airlines bank on the fact that many passengers are willing
to take the extra train ride if it means saving hundreds of dollars on their plane fare.
High unemployment rates are good news for low-cost airlines as that means they can hire
staff very cheaply, and people rush to work for them because Afterall, an underpaid job
is better than no job at all so they won’t complain.
Inside the plane, the airline removes anything that will cost money to run and maintain,
for example: on most low-cost airlines, you won't find first-class, business class, or
economy class.
The entire plane is one class, with all the seats lined up in one cabin, it's basically
like a bus with wings.
Low-cost airlines also streamline things by eliminating reserved seats, passengers file
into the plane and choose their own seats on a first-come, first-served basis, if you
want to select your seat before you board, you pay extra for it.
The interiors of Low-cost airlines are very minimal and basic because any kind of customization
in an aircraft costs money, so they avoid it.
For example, Seats in Ryan Air do not recline.
Reclining seats cost much more money to design, install and maintain, and there are no cup
holders and seat pockets which means it’s easier for the crew to clean the plane and
prepare it for the next flight, and this results in a shorter turnaround time.
Having a very simple and basic interior also reduces the number of crew members required
per flight and reduces operating costs.
It also speeds up turnaround times, allowing the airline to schedule more flights and therefore
make more money.
Whenever they land, they don’t wait for the conservancy to clean their aircraft because
their crew does it.
They don’t onload fresh food because it isn’t served.
The only thing that these airlines have to do is inspection, luggage loading, and refueling,
they keep their planes flying all day by using a very short turnaround time,
Low-cost airlines only fly short-haul and direct flights, instead of scheduling long
flights and transferring passengers at busy hubs, Low-cost airlines emphasize short-haul
flights that allow passengers to fly directly to their destination.
This increases the number of scheduled flights, boosts profits, and cuts down on waiting time
on the ground.
Low-cost airlines also save money through fuel hedging.
Though all airlines use fuel hedging, Low-cost airlines seem to be particularly good at it.
For example, between 1991 and 2008, Southwest Airlines paid $3.5 billion below the industry
average for jet fuel by using aggressive fuel hedging.
But wait, what is hedging?
Hmmm, hedging is basically a gamble, it’s a kind of way of gambling against the future
price of jet fuel.
For example, if an airline thinks that the cost of fuel is going to rise in the future,
they can sign contracts locking in the current price for months or even years.
If fuel prices double in 12 months, the airline would be buying fuel at last year's cheaper
rate.
However, if prices drop, the airline will be stuck paying the last year's higher rate,
on the case of Southwest, when oil price ran up to $150 back in 2009, Southwest was prepared
because they bought when it was about $40.
This gave them a huge competitive advantage as their ticket prices stayed stable while
their competitors were forced to jack ticket prices up much higher to cover their fuel
costs.
A ticket on a low-cost airline will buy you nothing but a randomly selected seat and a
small hand luggage allowance.
They charge extra for anything on top of that, which is called ancillary revenue.
Most low-cost airlines don’t make any money on the tickets themselves (they’re often
sold at a loss) but gain their profits out of ancillary revenue.
Seat selection, large hand luggage, checked luggage, food, and drinks on board, all come
at an extra cost.
For customers, this is attractive because they can leave out whatever they don’t need,
and thus not pay for it either.
Regular airlines usually have ticket sales booths at the airports which they serve.
Low-cost airlines don’t.
It costs money to rent and staff a ticket sales booth, so they save on those costs.
Low-cost airlines sell just about all of their tickets online, which is way cheaper than
on a ticket sales booth.
Speaking of online, most low-cost airlines charge you for checking it at the airport
check-in desk.
You can check-in online for free and print your own boarding card (or use their app as
a boarding card).
That saves them the money of hiring a check-in desk at the airport, which you now no longer
have to use, if you forget to print your ticket at home or show up with their app, you pay
money.
Also, if you make a mistake on your booking which needs to be fixed, or you need to cancel
or reschedule your booking or whatever, and you contact support, they will charge you
for that, not only for contacting support but there’s also a fee for changing your
booking details.
That way, instead of support being a cost for them, they even make money on support.
The vast majority of their passengers never need support, so why should they pay for it?
Support is entirely financed by those who need it, haha, you see?
If you are wondering how Low-cost airlines profit by charging 10 dollars for a flight
if fuel is so expensive, well the truth is, they don’t make a profit from them.
There are about only 5 or 10 seats at that price (out of 140+ on a 737).
And those seats are sold in the first few minutes after the flight was released for
sale, six months before the departure.
The reason for the $10 seats is that it is something they can advertise without it being
a lie.
Well for those $10 dollar tickets?
Other passengers pay for it.
The first few seats sold at $10 are called “loss leaders” - The airline sells them
for really cheap prices in order to get reservations going.
You can rest assured that other seats on this flight won’t be sold for $10.
In many cases, governments pay airlines a certain amount to some airlines to fly to
their country.
Turkey, for example, pays German carriers to fly to Turkey because reducing the costs
of the flights to Turkey brings more German tourist, and German tourists bring money that
is spent on hotels, restaurants, and other tourism services, and more money spent by
tourists means more boast to the economy.
Israel too paid low-cost airlines in 2018 to fly to Israel, which plays a major part
in the substantial increase of tourism to Israel.
In addition to that, governments sometimes waive the landing fees as well.
The truth is, the market low-cost carriers target is not individuals that will stick
to visiting their dream city no matter how expensive it is, they target average people,
people that will want to visit a place just because it is cheap to get there.
This is why premium airlines only fly to popular destinations, while low-cost carriers focus
on routes that have demand at all, because any route they open becomes popular, because
it is cheap, and because it is cheap, people will want to go there.
For example, all premium airlines have a hub, KLM operates from Amsterdam, Emirates operate
from Dubai, British Airways operate from Heathrow, Let’s say you want to fly from India to
London on Emirates airlines, they will first fly you to Dubai, and then put you on a connecting
flight to London.
Also, if you want to fly from Nigeria to New York on Ethiopian Airlines, they will first
fly you to their hub in Addis Ababa, then put you on a connecting flight to New York.
But low-cost carriers fly point to point, and this eliminates cost in unimaginable ways.
Rather than having one major base in their home country, they use multiple bases, where
they keep a few aircraft and local crews to fly serve demands there.
For example, A low-cost carriers daily flights looks like this: Manchester to London, London
to Manchester, a different flight from Madrid to Brussels, Brussels to Madrid, Frankfurt
to Amsterdam, Amsterdam to Frankfurt, they make different flights out of different airports,
instead of operating out of a single hub.
Finally, some people fear that all the cost-cutting extends to safety and maintenance, but this
is completely false, the word "low cost" implies something made cheaply, without much concern
for quality.
Low-cost airlines are no less safe than any other airline.
While they do cut corners to save money, they know that cutting corners on safety could
completely ruin their business.
Some of their cost-cutting measures even increase safety, such as the reliance on one type of
aircraft across the fleet.
Indeed, one of the oldest Low-cost carriers, Southwest, has never had a major crash or
passenger fatality.
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