How Budget Airlines Work

“Two weeks ago, I posted a video on why flying is so expensive, and, people seemed to like it, however, they wanted to know, how are budget airlines so cheap? Well itu2019s another complex answer but an interesting one. For the purposes of simplicity, and to keep our European friends from feeling left out, weu2019ll focus on the European model of budget airlines. While there are low-cost carriers in North America, South Africa, India, Asia, and plenty of other places, budget airlines really were first successful in Europe and thatu2019s where theyu2019re still most prominent today. The magnitude to which airlines like Ryanair and EasyJet reduce the cost in Europe is also much more significant. Budget airlines in the US might be 10 or 20% less expensive than their traditional competitors while in Europe a fare on a budget airline might only cost half or a third of what you would pay to a normal airline. You can regularly find 2-3 hour flights on budget airlines for less than 10 euros So how do they work? Well, unsurprisingly, budget airlines essentially take every expensive part of the flight and make them less expensive.

The most essential thing an airline needs is airplanes and it is possible to spend less on those. In the months and years following 9/11, the growth of air travel stalled and most airlines were simply fighting to survive. Meanwhile, Ryanair was thriving and placed a massive order of 151 737u2019s from Boeing at unbelievably low-prices. A circumstance like that luckily isnu2019t frequent but budget airlines can place large orders at any time which gives them a bulk discount. It might seem weird that a budget airline would buy brand new airplanes, but the newest planes are the most efficient which saves fuel. The fuel efficiency of new aircraft offsets the higher purchase price, so EasyJet (4.0), JetBlue (4.7), Ryanair (5.0), and Spirit Airlines (5.7) all have younger fleets than any major airline (KLM 9.4, Air France 11.5, Lufthansa 12.4). Budget airlines will also typically have only one type of plane. Ryanair only operates 737u2019s and EasyJet only operates the a320 family. Having only one type of Aircraft means that pilots, flight attendants, mechanics, and ground staff only need to be trained on one type of aircraft which saves an enormous amount of time and money.

Within the planes, budget airlines will often avoid luxuries to keep costs down. Ryanair seats, for example, donu2019t recline because that increases the initial purchase price for seats and also requires more maintenance. The seat design also saves time for flight attendants since there are no seatback pockets to clean between flights. Flight attendants on budget airlines are often in the beginning of their careers and receive little training. Of course theyu2019ll get the required safety training but only minimal hospitality training. Theyu2019ll also often serve multiple roles. While on the ground, some of the flight attendants might go to the gate and check tickets while others clean the airplane. Through this, the airline eliminates three or four positions that they regularly would pay for. Onboard, flight attendants are of course responsible for food and drinks which are almost never free. Onboard service can be an excellent way for the airline to make money. Many budget airlines also do duty free sales and Ryanair even sells lottery tickets.

Letu2019s talk Airports. Youu2019re never going to see Ryanair fly to London Heathrow or Paris Charles de Gaulle because those airports are expensive. Thereu2019s only a set amounts of flights per day that can operate out of them so supply and demand dictates that landing fees are high and slots are regulated. Instead, Ryanair flies to Gatwick, Stansted, or Luton in London or Beauvais in Paris, which, by the way, is a 80 minute bus ride away from Paris, isnu2019t even technically in the same region of Paris, and has a website that looks like this! In a lot of cases, Ryanair or other budget airlines are the only or one of a few airlines flying out of an airport which gives them huge negotiating power.

Often they will take a small regional airport a ways away from a city and rebrand it as another city airport. They can ask for lower landing and takeoff prices and, if the airport doesnu2019t comply, just leave and the airport will essentially cease to exist. If there isnu2019t a viable cheap airport available around a city, budget airlines can also fly to regular airports at less busy times when landing fees and the chance of delay might be lower. Now letu2019s get into the nitty-grittyu2014the small details. The planes of budget airlines tend to operate all day non-stop. For example, in one day, this Ryanair plane went from Brussels to Copenhagen, Copenhagen to Brussels, Brussels to Prague, Prague to Brussels, Brussels to Nimes, Nimes to Brussels, Brussels to Trevioso, then finally Trevioso to Brussels. Budget airlines will schedule only 30-45 minutes between the landing of one-flight to the take-off of another which often leads to delays and leaves very little time to clean the aircraft.

This does, however, mean that the airplane is always making money and passengers are not paying for the time itu2019s sitting around. Ever wonder why Southwest doesnu2019t have reserved seating? Well by having a first come first serve system for seats, people almost always show up to the gate early and line up in an orderly line. This way, less time is spent on the ground boarding and more time in the air flying. Another principle of budget airlines is the point-to-point model. Most traditional airlines have hubs where most or all of their flights go in and out of. British Airlines has London, Air France has Paris, KLM has Amsterdam. To get to most places on these airlines, you have to connect through their hubs.

Budget airlines, on the other hand, try to have a lot of destinations from everywhere. That does mean, however, that many destinations are served only a few times per week. The cheapest budget airlines donu2019t even allow for connections between their flights. Allowing connections adds cost because then you have to pay for ground crews to transfer bags, create a more complicated ticketing system, and pay to rebook a passenger if a delay in their first flight makes them miss their second. Speaking of ticketing, thereu2019s often no way to get a ticket from a real person on budget airlines. Ryanair charges 45 pounds if you fail to print your boarding pass at home and EasyJet and some other carriers have almost all their check-inu2019s handled by machines. This, once again, cuts down on personnel costs.

At the airport, these budget airlines wonu2019t bother using jetways because theyu2019re expensive. Theyu2019ll use steps and just have passengers walk across the tarmac or take a bus to the plane. Budget airlines make a lot of money, if done right. EasyJet (11.15%), Ryanair (24.10%), and Wizz Air (10.2%) all have higher profit margins than Lufthansa (4.03%), British Airways (7.09%), and Air France (2.15%). Many of the traditional airlines have unionized workers with salary agreements that cannot be changed while the budget airlines can hire anyone and train them in a few months. Itu2019s also hard for these traditional airlines to grow. Any route they make has to be one with a lot of preexisting demand since much of their business comes from business travelers. Since budget airlines are targeted more towards tourists, any destination that Ryanair, for example, opens up in will become a popular destination just because itu2019s possible to go there for so cheap. Some traditional airlines in Europe are opening their own budget airlines to get in on this profit. Air France created Transavia and Lufthansa created Eurowings, both of which are losing massive amounts of money. What they seem to forget is that the US went through this budget airline within an airline phase a couple decades ago.

Delta created Song, which failed. US Airways created MetroJet, which failed. United created Shuttle, which failed, then they went into bankruptcy and decided they should try again and make Ted, which failed. None of these worked! Traditional airlines canu2019t get away from their labor agreements, honest business practices, and devotion to their hubs. The reason Ryanair and EasyJet are able to succeed where others have failed is largely because they are so large and flexible. They have hundreds of planes, hundreds of destinations, thousands of employees, and negotiating power that allows them to overpower competitors. In the end, for us consumers, any competition is good competition. Even failing budget airlines will bring down the cost of traditional airlines and allow us to travel the world for less.

Thank you for watching. I hope you enjoyed this video. Make sure to click subscribe and follow me on twitter @wendoverpro. If you want to discuss this video with me and others, Iu2019ll link the first reddit thread of my video here. Iu2019ll be back next week with another episode from That Wikipedia List.

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