The economics of how low-budget airlines are so inexpensive

It seems incredible how cheap plane tickets can be on so-called low-cost airlines — $35 for a week in Barcelona, Budapest or Milan, $153 to Moscow or $437 to New York City. These airlines, usually based in Europe, can offer vastly lower prices than their competitors by slashing costs at every possible turn, while still making a healthy profit in the process.

One of the first low-cost airlines, Southwest Airlines in the USA, was founded in 1967 and can be credited as one of the first companies to implement such price-saving measures. In 1993 the Department of Transit even called the business model the “Southwest effect” and a University of Virginia study found that fares could be up to $45 lower when Southwest serves the market.

Low-cost airlines are dangerous for traditional companies that have been around for a long time because, by simply setting up a route along the same path as them, they force fares to drop which cuts into profits of the larger airline.

Passenger and airfare change in the US as a percentage

The US Bureau of Transportation Statistics keeps track of the average cost of airline tickets for both international and domestic flights, though only domestic ones are used in the data above, and the annual amount of passengers flying around the country. Ticket prices account for both round-trip and one-way tickets where applicable, include all taxes and service fees charged by airlines and are adjusted for inflation. 📈: US Domestic Fares and Passengers in the US

By creating and marketing cheaper flights, these low-cost airlines are creating a demand for more seats and by purchasing larger and more efficient planes, they can fill the demand. Planes are flying more full than before, according to the US Bureau of Transportation Statistics, with a load factor of 84.57 for 2017 compared to 72.68 in 2003 — and with this newfound demand, airlines have introduced new fees for things we used to get for free, including carry-on and checked baggage, in-flight snacks, printed tickets and seat selection.

Load factor of domestic flights in the US

The Bureau of Transportation Statistics historical data shows that airlines are flying their planes fuller and fuller, reaching a load factor of almost 85 percent in 2017. Load factor is simply a calculation based on the number of passenger miles and available seat miles to determine the percentage at which the plane was filled. 📈: Load Factor in the US

The Bureau of Transportation Statistics historical data shows that airlines are flying their planes fuller and fuller, reaching a load factor of almost 85 percent in 2017. Load factor is simply a calculation based on the number of passenger miles and available seat miles to determine the percentage at which the plane was filled. 📈: Load Factor in the US

Planes flying only partially full is an airline’s worst nightmare, meaning they’re wasting money on fuel, staff and paying out-of-pocket for the airport fees that aren’t being covered because of a lack of passengers. It’s in the best interest of airlines from both a business and logical perspective to fill seats on their planes — employing teams of computer scientists to figure out the ideal price for tickets, slashing fares if needed to fill seats and overbooking to ensure that planes are full.

They don’t do luxury

Expectedly, the main reason that these airlines don’t cost much to fly with is because they don’t offer high-cost features, making them inexpensive to run. For instance, think about the chair on a Ryanair flight — it doesn’t recline because that would mean higher maintenance costs, lacks an in-flight entertainment system built-in and because it doesn’t have pockets on the back, there’s less time spent cleaning up garbage left behind.

Not much is free for passengers once on board with many airlines beginning to skip the typical round of cookies and juice in the name of profit. Ryanair sells lottery tickets on board its aircraft, which are a good money generator because the chance of winning is almost impossible. The food available usually isn’t the best tasting and comes at a steep markup, leaving people with no other option at 30,000 feet up if their stomach starts rumbling.

Buying in bulk

Companies find savings in buying in bulk — something Costco customers can understand — because they can achieve a high discount for putting down such a large chunk of money with one company. EasyJet Europe only uses planes in the Airbus A320 family and Ryanair operates only Boeing 737 planes, purchasing 175 of them in a single order in 2013 to achieve massive savings. By focusing on a single airplane model, pilots, mechanics and flight staff all only require training for that vehicle, saving money on training cost and the time spent preparing each plane between flights.

More often with budget airlines, their fleets are top-of-the-range efficient and are newer than the fleets of other traditional airlines, giving them higher fuel efficiency and more mileage between repairs.

Saving on staffing costs

At low-cost airlines, staff are typically just entering the field and therefore, can be paid less while still serving a variety of roles. During a single day a plane could travel London to Dublin to London, to Brussels and back, then off to Vienna round-trip before jetting off to Paris and then finally home to London.

These airlines are all about efficiency and by leaving little time in-between flights — usually less than a hour — they can utilize the aircraft to a higher extend and send it on a handful of flights in the span of one day. In other words, anytime that the plane is spent sitting around is wasted time.

Airports are another place where costs can be cut and by promoting check-in either via a mobile app or online, Ryanair can find an excuse to charge passengers an airport check-in fee of €55, or €20 for passengers unable to download their boarding pass to their phone.

Flying from smaller airports

Generally airports closer to main cities are more expensive, such as Heathrow, Charles de Gaulle and even John F. Kennedy airport in NYC. These airlines have limited space for planes to take off and land at, meaning the landing fees paid by airlines (and therefore passengers) can be high and can raise the price of a plane ticket significantly. By flying into smaller, suburban airports like Stansted, Luton and Southend, airline can benefit from lower landing fees and can even use their traffic as negotiating power to get lower fees yet, with some airports having little other choice than to play by their rules.

📸: Wikipedia