Many interesting comments here but largely made on the passenger experience.
To get a real insight into why budget carriers are profitable, we need to look at their business model which is quite different to that of conventional carriers. Although the latter now copy certain aspects of the budget carriers’ way of doing business.
* They are creative in dealing with airports and driving down handling fees and so on. Before the days of Ryanair, which carrier would have had the audacity to ask an airport to pay it for the privilege of landing (rather than the other way round) ?
* Simple one-way fares with tiered pricing. Easy for the average passenger to understand and useful for a budget airline to manipulate its yield. Simpler fares also mean the carriers can maintain simpler, less expensive to operate and speedier websites.
* Direct selling. Cut out the middle man, avoid agency commission control your own marketing.
* Sophisticated pricing systems which constantly adjust fares according to supply and demand. Conventional carriers tend to have cruder systems which increase prices substantially (thus frightening away potential customers) within three days of travel, irrespective of how busy the flight is.
* Simple products mean there’s no need to spend millions on FFP schemes, membership of IATA or an airline alliance.
* Flying point-to-point means they avoid the cost and complexity of a) having to split revenue with another carrier and b) having to worry about and having to compensate passengers when bags are lost in transit.
* Clever buying of planes. Remember the deal which Ryanair secured from Boeing for its B737s in the aftermath of 9/11 ? It was a time when airplane orders dried up but Ryanair, unlike its conventional rivals, showed confidence in the future of air travel during those dark days and Boeing rewarded it with a huge discount.
* The raising of cash through ancillary fees. Check Ryanair’s revenue for the past year and you’ll see that ancillary fees earnt it over £500 million.
* Developing an entirely new market. Budget carriers have opened up routes previously neglected by the big airlines.
* Taking away lots of passengers from the charter airlines by moving into the regional market.
* Getting to the stage where you have a monopoly so you can better control your revenue. Look at Ryanair’s Europe-wide route network (I say, Europe-wide, because Ryanair probably sources more passengers from mainland Europe than it does from the UK) and see how little competition it faces on an airport-to-airport basis.
* Driving your costs down so low that no conventional rival dare compete with you. Indeed Ryanair’s costs are so low that not even a fellow budget carrier would take it on.