Low-cost airlines success

Essay by FrancataUniversity, Bachelor'sB+, August 2006

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The phenomenon of low-cost airlines is relatively recent in the airline industry, and it was firstly introduced by Southwest Airlines, set up in 1067 and the only American airline that has been consistently profitable for the last thirty years . It took much more time to see the first low-cost, no-frills European airline, Ryanair, in 1991, which emulated the Southwest's budget model. "We went to look at Southwest. It was like the road to Damacus. This was the way to make Ryanair work". (Michael O'Leary, Chief Executive, Ryanair)

The low-cost model became so popular among passengers. Budget carriers have gained an important market share. In fact, "On latest official estimates, no frills operations already accounted for some 30% of domestic US passengers numbers by last summer and should account for more than 20% of total passenger miles within North America. In Europe too, the summer schedules suggest that no-frills sector will take close to 20% of traffic" .

This success is motivated by the low ticket prices which can be achieved by maximising cost reductions. The airlines' low-cost model is based on high seating density, high daily aircraft utilisation, a single aircraft fleet, simplified boarding procedures, the use of secondary airports, elimination of in-flight catering, direct booking from internet, etc. "In essence, the successful innovation which these carriers introduced into Europe was the provision of easily accessible scheduled short-haul services at very low unrestricted fares" .

Ryanair and Easyjet are the two most important low-cost airlines in Europe. Both of them dominate two-thirds of the European Low-cost airline market . Their success is not just consequence of their reduction-costs policy, they have implemented new technologies in their operational and distributional systems such as, online booking which "is easy and there are financial incentives to make it more attractive than...