The likes of Ryanair, easyJet, and Southwest are some of the most successful airlines in history, with the former consistently being in the top three airlines by passengers carried. But, with prices as low as $30 for flights, how do these airlines manage to stay profitable, let alone be as successful as they are?
The Point-to-Point Model
Perhaps the biggest difference between low-cost carriers (LCCs) and their legacy counterparts is the destinations in which they operate. Legacy carriers tend to use a ‘Hub and Spoke’ model, meaning that the airline will have one or a few main hubs that almost all flights will operate to and from. For example, British Airways has all flights operating from London, and Singapore Airlines has all flights operating from Singapore Changi Airport.
However, this model comes with a downside; outbound flights have to wait for connecting inbound flights to allow for reasonable connection times. This is expensive, as aircraft are sitting around and not making money. So, to combat this, LCCs try and have their fleet in the air as much as possible.
Budget airlines tend not to offer connections, as they would result in an increase in cost to the airline, such as a more complicated ticketing system, or compensation if the first flight is delayed. Instead, they offer a ‘point to point’ model, which tries to connect as many destinations directly as possible. This overall increases their network’s reach, allowing more passengers to be transported.
Low-cost carriers have an incredible amount of power in that they can create new demand, simply because their flights are so cheap. While they may not see much business travel, leisure traffic is sufficient enough to bring in positive financial results.
Buying in Bulk
A good fleet is something essential to every operator. Low-cost carriers want to have the most efficient aircraft and do so for the lowest price. They do so by buying the newest aircraft possible, as the reduced fuel costs from more efficient aircraft outweigh the initial increased purchase price of a modern fleet.
Budget airlines will almost always buy aircraft of the same type, to reduce training costs for the entire team. For instance, Ryanair only operates Boeing 737s and the same with Southwest. Buying at the right time can also be important, which is why financial crashes can often mean that a low-cost carrier’s fleet increases in size, as aircraft prices can drop.
One thing possible to reduce the cost of new aircraft purchases is to buy in bulk. There will be deals made with the manufacturer to have discounts when in this manner, a compromise that has been popular with LCCs in the past.
Airports
Far-fetched, distant locations can often be the new destinations of low-cost airlines, as they bring with them cheap landing slots. For example, London, Gatwick, Luton and Stansted became major destinations for LCCs.
Because there is often little other traffic at these airports, bargaining power is at an all-time high. This means that should the airport do something to anger an airline, such as increase the cost of landing slots, the airline can just leave and severely impact the traffic for that airport. This allows for the cheapest prices available to airlines.
Jetways are expensive, which is why it’s rare to see a Ryanair aircraft at one. Instead, the airline will have passengers walk or take a bus to the plane.
Onboard the Aircraft
In-flight service is a way in which airlines can make a large amount of their profit. Onboard an easyJet aircraft, nothing is free, including the food. These all allow the Luton-headquartered carrier to make money, without having to increase the cost of your ticket.
Low-cost airlines have managed to do so well for themselves based on the principle that lowering the costs of operation means lowering ticket prices. This in turn brings in more passengers.
Ryanair boss Michael O’Leary has been very open about his interest in unique ways of making more money, such as charging for the use of restrooms or creating a standing cabin. While they initially may seem bad for the consumer, they still contribute to lowering the initial ticket price.
