In 1952 a trip to New York would set the average Englishman back a five months’s wagesIN THE 1950s flying was a privilege enjoyed by only the wealthiest. The costs of flying were simply too high for most ordinary folk. In 1952 a London-to-Scotland return flight would set the average Englishman back a week’s wages; a trip to New York might require saving up for five months. But in 2013 flying is a mass market, due in no small part to the growth of “no-frills” airlines offering flights at very low prices. Ryanair, an Ireland-based no-frills airline, has even been known to give tickets away for free. How can no-frills airlines be so cheap?
Southwest Airlines, the world’s first successful no-frills carrier, pioneered ways of reducing operating costs that are now used all over the world. To reduce costs Southwest filled its planes with more seats, made sure each flight was packed and flew its aircraft more often than full-service airlines. No-frills airlines also cut costs by using only one type of aeroplane. Both Southwest and Ryanair fly only Boeing 737s, whereas British-based easyJet flies mainly Airbus planes. Business class was abolished. Fees for non-essential services like carrying luggage in the hold were introduced. Innovative sales strategies also helped. When easyJet was founded in 1995 it accepted only direct bookings. This cut out the fat fees charged by travel agents. Ingenious use of yield-management systems—which raise ticket prices when demand is high and reduce them during quiet periods—also increased efficiency.
Ryanair has taken the no-frills concept further. The airline is not known for its glamorous waiting-rooms, nor for dazzling customer service. And it has used fees to manage passenger behaviour more than other airlines. For example, to reduce ground-staff numbers, it is now prohibitively expensive to check in at the airport or to store luggage in the hold when travelling with Ryanair. Aggressive in-flight sales strategies have also reduced ticket prices through cross-subsidy. Such tactics may not make for a pleasant travel experience, but Ryanair remains popular. Indeed, it is Europe's biggest airline. And it has even used its slightly dour reputation to cut costs further. Taking to heart the mantra that “all publicity is good publicity”, it has sometimes made provocative announcements—such as a plan in 2009 to charge passengers to use aircraft toilets—apparently with an eye on maximising the number of column inches it receives while keeping its advertising budget to a minimum.
Prompted by unease from shareholders that the firm’s reputation would hamper growth in passenger numbers, Ryanair announced in September that it would smooth its rougher edges to improve customer satisfaction. Does this mean we have seen the back of no-frills strategies in the transport industry? Probably not. Borrowing parts of the no-frills formula, such as stripping out non-essential services and introducing yield-management systems to ticket pricing, companies like SpeedFerries and Megabus have slashed ticket prices on Britain’s cross-channel ferry and on inter-city coaches in America. Oliver Wyman, a management consultancy, has even predicted that the introduction of airline-style yield-management systems to train travel will be one of the next great innovations in the American railway industry. Analysts say this is likely to spread to Europe and Asia too. No-frills airlines, it seems, have the power to transform the entire transport system, not simply the way we fly.
The Economist explains: Why are no-frills airlines so cheap? | The Economist