Features

Snapshot

1 Jul 2013 by Alex McWhirter

Alex McWhirter looks through the Business Traveller archive. This month: Low-cost flights, February 1995

How did British Airways get it so wrong? Today there are many low-cost carriers (LCCs) flying within Europe. All told, they carry more than 200 million passengers a year, many of whom are travelling on business. And, unlike their conventional rivals, the LCCs turn a profit.

Yet back in 1995, BA’s then marketing director claimed that the LCC business model would never cross the Atlantic. “Many principles that would work in the US aren’t relevant to Europe,” BA told Business Traveller. “US airlines have given up the business market in favour of cheap seat policies. European business people don’t want that.”

Other factors against LCCs were air traffic control congestion, weather problems, slot restrictions, labour contracts and large numbers of transfer passengers. Yet despite these handicaps, they successfully implanted their business model in Europe and now thrive.

 Snapshot

European LCCs emulated the business model of Southwest, a Dallas-based carrier that is routinely billed as the grand daddy of budget air travel. US airlines come and go, but Southwest has never waivered from its mission to maintain the lowest cost of operation. It means it is the only budget carrier to have operated successfully ever since it took to the skies in 1971.

But, to be fair, what BA and its counterparts in Europe could not have envisaged in 1995 was the transformative effect of the internet. They also believed that low-cost airlines would target main hub airports and trunk routes. The likes of BA never realised that LCCs would be more canny and seek out secondary airports, many of which were based in the regions.

The internet enabled the LCCs to sell direct, cutting out the middle man, and electronic ticketing eliminated wastage, providing them with a lower cost structure. It meant they could profitably operate routes that conventional carriers could not.

They also developed new routes. It was Ryanair – now probably the world’s most profitable LCC – that dreamt up the wheeze of flying to Europe’s more remote airports. Management in these out-of-the-way towns and cities were so chuffed to obtain a direct link to London that they were happy to either reduce or, in some cases, waive landing fees.

More recently, the introduction of ancillary fees (see “Strings attached”, page 32) has provided the LCCs with a new revenue stream. From March 2012 to May 2013, Ryanair’s ancillary revenues broke through the e1 billion barrier. Passenger spend on ancillaries rose by 20 per cent, and it is now rising faster than ticket revenue.

In an effort to compete, some conventional carriers followed the example of US airline United and established their own low-cost subsidiaries. But, largely, they never met expectations. Some were sold off, while others were shut down.

In 1995, legacy carriers ruled the skies. Fast forward 18 years and we find large chunks of their networks have been surrendered to their budget rivals. Today, the traditional carriers’ short-haul flights are barely profitable and exist primarily for long-haul feed at their hubs. 

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