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Aviation History
2002
2002 - 1138.PDF
Cover story The market How are Europe's low- cost carriers bucking the trend? I n the current European airline slump, one sector is still performing extremely well - the group of airlines known as no-frills, bargain, or low-cost carriers (LCCs). While their established rivals, the full-service carriers, are cutting staff, grounding aircraft and even collapsing into bankruptcy, the LCCs continue to open new routes and order new aircraft. In this in-depth analysis of Europe's LCC market, Flight International will consider three ques tions: what are the keys to the low-cost busi ness model, how did low-cost airlines start and what does the future hold for the European low-cost sector? The table below compares the most recent full-year results of several airlines in the full- service and low-cost sectors. Not all low-fare airlines are low-cost: Buzz, for example, ini tially offered low fares, but inherited the high-cost base of its parent, KI.M uk. The dif ference in cost per available seat kilometre (ASK) - a measure of the running costs of the airline - is clear: carriers such as Ryanair and Easyjet in Europe, and Southwest Airlines in the USA, are operating at almost half the cost per ASK of full-service airlines. The carriers, understandably, are unwill ing to explain exactly where and how they make their savings. But the chief differ ences between low-cost and full-service air lines fall into three groups: service savings, operational savings and overhead savings. The most noticeable are in service. Many LCCs have cut cabin crew to the legal minimum - three in the case of a Boeing 737, the commonest aircraft in the no-frills fleet. This is possible largely through providing a lower-quality cabin service. They provide no premium-class service, which would demand far more staff per passenger than economy class. There is no inflight meal - this not only saves catering outlay, but also places less workload on the fewer cabin crew, and means that the cabin needs less cleaning at the end of each sector. Similarly, while snacks are offered, they are subject to an extra charge, again saving costs. In fact, this strategy makes inflight service an extra profit centre and the service at the airports is similarly cut back. No premium class passengers means no expensive lounges for their use. And, in some cases, when air ports allow it, LCCs have refused to pay for the use of air bridges, instead unloading passengers down stairs and across the apron. Easyjet's start as a "virtual airline" with very few of its own employees underlines another important tactic: many no-frills carriers outsource ground operations, mak ing cuts and expansion easier, and reduc ing the number of employed and thus pen sionable staff. Short haul Operational savings reflect the most imp ortant differences between low-cost and full-service airlines. Many of the savings here stem from the low-cost strategy of operating point-to-point services with fairly short-sector lengths. Short sectors also mean that passengers miss full service less; the benefits of first-class service, or even of free meals and drinks, are less apparent on a flight lasting only 90min. Deciding to operate only one sort of route - the short domestic or intra- European flight - means that LCCs can sur vive with only one aircraft type, almost invariably the Boeing 737. This in turn cuts maintenance and training costs, com pared with full-service carriers which may have fleets of eight or 10 aircraft types. Aviation consultant Michael Tretheway of Intervistas Consulting of Canada adds: "Some carriers are now re-certifying down their aircraft to lower operating weights. This gives them less range, but more seats and lower landing charges, which depend on operating weights." The point-to-point decision has subtler benefits. There is no commitment to mak ing connections - a passenger flying, for example, on Go from Edinburgh to Rome buys two tickets, Edinburgh-Stansted and Stansted-Rome, and Go does not guarantee that he will reach Stansted in time for his onward flight. Not only does the LCC not have to pay transfer costs - the passenger transfers himself - but a full-service airline would make such a commitment to onward connection, meaning that, to insure against delays on the Edinburgh- Stansted sector, it must build a certain amount of slack into its timetable. A no-frills airline, by sacrificing passenger convenience, removes the need for slack, allowing its aircraft to operate to a tighter timetable. Running the aircraft for more hours a month - higher asset utilisation - is also important for the low-cost model. This means concentrating on fast turnaround at each sector end, and ensuring fast passen ger loading and unloading. Aviation econo mist David Gillen says: "Fast throughput is a value proposition for full-service carriers, but a cost proposition for the low-cost carri ers. This makes different demands (on air port and airline operations]." This is evident in the comparison of ASKs per aircraft in the table below - this reflects 8h of revenue flight a day for British Airways' short-haul fleet, for example, against nearly 13h for Easyjet. The simpler point-to-point operation also removes the need for positioning flights - except in emergencies - which also increases the return from each aircraft in the fleet. Buzz's commercial director Tony Com- acho breaks destinations into three cate gories - with primary airports being the obvious and secondary airports being points near, but not at the heart of, a city. Tertiary airports Tertiary airports are not linked to any city, says Comacho, but provide a starting point for low-fare passengers in a region. The advantage of secondary and to a much greater extent, tertiary airports, is that they usually offer the most competitive pricing policies as they are developing and trying to capture new business. The increased commercial muscle asso ciated with being one of only a few cus tomer airlines has also benefited LCCs at airports such as Frankfurt Hahn. Frankfurt Airport, which operates the primary air port, Frankfurt Main, and the secondary Hahn 60km (38 miles) away, has decided to devote Hahn exclusively to low-cost Airline Revenue (S million) Profit after tax ($ million) •RPK (millions) *ASK (millions) Cost per ASK (0) Profit per ASK (0) BA 13,235 -112 116,674 162,824 8.19 -0.06 Passengers (millions) 36.2 •RPK: revenue passenger kilometres. ASK Lufthansa BMI 13,408 1,054 608 8.6 88,608 3,837 1.178,62 6,071 10.86 17.21 0.51 0.14 41.3 7.1 available seat kilometres Ryanair 430 92 4,656 6,661 5.07 1.38 7 Go 245 4.1 3,081 4,250 5.66 0.09 2.76 EasyJet 509 54 4,730 7,003 6.49 0.77 5.6 Virgin Express 256 -58 4,016 5,749 5.46 -1.0 3.82 Southwest 5,555 511 71,188 104,472 4.82 0.48 64.4 • 30 9-15 APRIL 2002 FLIGHT INTERNATIONAL www.flightinternational.com
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