Economic Model of European Budget Airlines

Depending on where you are, the terms “Budget Airlines” and “Cheap Flights” can mean two very different things. In the US, the first thing that comes to mind is an airline such as Southwest Airlines or Spirit Air, and a “cheap flight” would be $250-500, depending on how far you are trying to go domestically. But in Europe, there’s a completely different reality. In Europe, Ryanair and JetBlue are two airlines people know as budget options, but a $250 flight would be seen as ridiculous—a “cheap flight is often $20-$50 dollars on a European budget flier. In fact, as of last year’s End of Year Financial Report, Ryanair’s fares averaged a price of 30.40 Euros (“Ryanair FY18 Annual Report,” n.d.) That appears incredibly low to a US consumer, who is even more surprised to learn that Ryanair reported a profit margin of 23% last year (“Ryanair FY18 Annual Report,” n.d.) while Spirit (one of the more well known, true “budget” US airlines) posted a profit margin of just over 13% (Spirit Airlines 02/05/2019). To a logical person, these should be reversed—so how does the European model of a budget airline allow for such a higher profit margin?

To begin to tackle this question it is important to realize the different cost structures of the European vs. US companies. European airlines have done a much better job streamlining their cost structures than US budget airlines, which greatly improves their bottom line. One large way that they manage this is by having a uniform fleet of one plane type, as opposed to a fleet with several different types of planes (Manuell 2017). It seems that for US carriers, this singular plane type hasn’t occurred—it's easy to think about flying with a domestic carrier for a connecting flight on a small, narrow jet and then a much larger plane for the “main” leg of the journey. The benefit of only operating one type of plane, such as the Boeing 737 for Ryanair, (Manuell 2017) is the reduction in costs to train employees. Flying just one type of plane, pilots only need to be trained to operate one type of plane, stewardesses only need to be trained on information specific to one model, and mechanics only need intricate knowledge of one plane to keep the fleet in the sky. Because all of the employees are able to work on all of the planes in a company’s fleet, each employee can work more efficiently, and the company saves on all associated costs of operation as a result, making each employee more profitable and efficient at their job. With a minimization of operating costs, European airlines have a lower total cost of operation than many US counterparts, making it easier for them to make a (larger) profit while maximizing the use of their personnel.

Through this phenomena of maximizing the usefulness and profitability of all people and things it employs, these airlines will have longer flying hours, faster flight turnaround, and less rest time for planes (Dobruszkes n.d.). According to Dobruszkes’ article, the average rest time of a Ryanair plane between flights is only 25 minutes, with an average in-airtime of 11 hours a day, as opposed to British Airlines average in-air time of 7.7 per day. This helps to create a more stressful work environment and more responsibilities being placed on employees without any additional compensation, such as gate workers cleaning the planes in between flights. Practices like these cause many to criticize this treatment of employees as unethical. With an overworked, overstressed captain and crew, there is more room for dangerous mistakes and accidents, and can lead to further poor services. Despite this, there is definitely an argument to be made for the benefit of the added revenue for the company, even if it is not through the prettiest or most glamorous ways. All of these aspects mentioned above—from the cost structures to the increased “efficiency” by maximizing potential usage of employees and capital, European budget airlines are able to maximize the productivity of their assets, while maximizing availability of flights, leading to lower average costs per unit. With these structures and strategies in place, it is easy to see how a European budget airline has managed to operate with a much smaller cost per seat or cost per flight than its average US counterpart.

Another way that European budget carriers try to minimize the services they provide involves planes’ level of comfort. These budget airlines generally have little to no creature comforts—no in-flight meals, only one small/no free carry-on luggage, and only economy seats makes it seem that these European budget airlines appear to have an “allergy to luxury” of any kind (Manuell 2017). Again, this is the airlines trying to find the lowest operating costs it can, while providing the most uniform and basic experience possible. With a uniform economy class, you can fit more people; with seats that don’t have pockets on the back, you reduce cleaning times, allowing for a reduction in turnaround times. Ryanair doesn’t have seats that recline, because they are both cheaper to buy and maintain than seats that do recline (Manuell 2017). Manuell puts it perfectly when he says “Budget airlines are ruthless (with a capital R).” They are willing to do so much more to cut out costs than their US counterparts and have made consumers somehow accepting of this total lack of luxury or creature comforts, while continuing to thrive and post record profits.

For the American consumer, this seems completely foreign. We are accustomed to “free” carry-on luggage, meal services, and seats that recline—and ultimately the option of “upgrading” to first class seats if we desire, for added creature comforts. The concept of an airline being able to get away with what we would consider conditions ill-suited for travel, European customers have embraced the differences. How can they get away with this? In an interview with a peer, Christian Suglia, he attempted to shed light on the reasons for these differences, from a sociological perspective. In Europe, where travel between different countries is possible for a weekend vacation, their attitude towards economic air travel is often different. In the US, service has become a must—consumers have come to expect a certain level of amenities when they fly, and it is more of an “experience,” especially for flights that are part of a vacation. In Europe, the culture of flying for a vacation has just evolved differently. Europeans have come to treat budget airline tickets as a “means to an end” rather than part of the experience—they would rather give up the creature comforts on a flight from say, the UK to Madrid, so they can have more money to spend on their vacation once they get there. Mr. Suglia discussed how, when in Europe and planning a weekend/short trip to a different country or region, hundreds of thousands of people would be willing to give up leg room and reclining seats for a cheap ticket, so their experience in the city they were going to would be better. “It's much more of a means to an end…they [European patrons] care more about the time spent in their destination and less about how they get there” (Suglia 2019). Because of this and the regulation in the EU that allows for free travel within member states, budget airlines have been able to not only survive—but thrive while only providing low service flights to other parts of Europe.

This is a culture that we just don’t have in the US. We have come to “expect” a certain level of comfort on flights, and to not have to pay extra for an extra carry-on bag—and this culture is what limits US “budget airlines” from being able to post such wide profit margins as their European counterparts. Because they have made the decision to fly several different types of planes, their fixed costs are much higher in training personnel on all aircrafts, and because they are required by social constraints to provide more “services,” the idea of a US budget airline operating on the model of a Euro budget airline seems far-fetched. Airlines like Frontier are trying to make customers pay for carry-on bags, which to the average US consumer sounds foreign. US companies know the technical “how” to make their profit margins resemble that of their European competitors—but the real question they face is one of how to alter the American perception of budget flying so they can implement the necessary changes.

Will we see this change happen in our lifetime? Ultimately, it's up to you—the consumer.

Works Cited

Dobruszkes, Frédéric. n.d. “An Analysis of European Low-Cost Airlines and Their Networks - ScienceDirect.” Accessed November 4, 2019. https://www.sciencedirect.com/science/article/pii/S0966692305000566?via%3Dihub.

Manuell, Roy. 2017. “8 Reasons Low Cost Carriers Are So Cheap - International Airport Review.” March 1, 2017. https://www.internationalairportreview.com/article/32697/low-cost-carriers/.

“Ryanair FY18 Annual Report.” n.d. Ryanair. https://investor.ryanair.com/wp-content/uploads/2018/07/Ryanair-FY-2018-Annual-Report.pdf.

Spirit Airlines. 2019. “Spirit Airlines FY Full Year 2018.” February 5, 2019. https://www.globenewswire.com/news-release/2019/02/05/1711010/0/en/Spirit-Airlines-Reports-Fourth-Quarter-and-Full-Year-2018-Results.html.

Suglia, Christian. 2019. Discussion of Budget AirlinesIn person.