There you go... it's public now.

http://www.bloomberg.com/apps/news?p...1jk&refer=home

Low cost carriers are very sensitive to cost base, and the fuel cost is the major factor. No fall is in sight and if I remember correctly the company is no longer hedged.

To maintain load factors (again a major component of the low cost model) then it makes sense to reduce your ASK to sustain your RSK. Pilots are often non unionised and on individual contracts, so the process of reducing capcity is often painless from a company point of view.

The lease-maintenance and other overheads associated grounding aircraft are obviously significant but I think the taxi-driver Ryanair CEO is canny enough to understand the numbers

dave

I like where this discussion is going, so I've made it a thread on its own.

The low-cost model has been successful for quite some time, but can this continue?

Yes, the model still holds, air travel will double in the next 20yrs, but it is cut-throat and differentiation therefore competition is difficult. It will lead to the development of dedicated low cost terminals aka sheds with minimal dwell time and ground costs. Expect to see more obscure places on the map.

It's basically the commoditisation of the airline industry (made up word ?) and will be favoured even more by those that have more time than money.

dave

I can't see Ryanair biting the dust, hopefully not until after my next flight home, anyway...
I saw in an article yesterday that O' Leary is prepared to absorb fuel costs from company profit rather than pass all of it onto the customer at the moment. If oil does cool off a little bit, then I guess that will have helped them not to have put customers off in the meantime.
From what I read they're much more p***ed off that Stansted has suddenly doubled its airport fees.

I'd agree that it is a cutthroat market. And, I think we'll see some major flux in it. The majors might be in position to pick up a low-cost carrier at a bargain price (or vice-versa).

Mmmm not necessarily a good idea. In the earlier stages of development some of the full-service legacy carriers such as BA thought they fancied a piece of the market. In doing so they launched low-cost businesses that on the surface appeared to be autonomous but in fact were plagued by the old-school practices and attitudes. The fresh and ruthless approach was not allowed to flourish and many of them floundered.

It will be too difficult for some of the larger carriers to juggle the conflict of interests, and not meddle in their new acquisition - thinking they are getting economies of scale, with maintenance, staffing, slots etc when in fact they are destroying the main tenets of a low cost operation.

dave

www.corporatejetchat.com

I think that in this market (as well as many many others) only two models will remain: the low-cost and the superpremiumtopnotch service, since they are the only profitable ones, the former for the sheer numbers and the latter for the ridiculous prices.

And if you think about it, it reflects the fact that the middle class is disappearing from society, leaving the rich richer and the poor poorer. But I guess that's OT.

I think there are already a number of threads on that.

A big issue with that is the fact that the legacy carriers are not the ones that are going to be able to compete in the super premium service. In many instances, its far cheaper to charter a corporate jet than to fly first class on an airline. Combine the costs with the convenience of having ground transportation waiting for you as you step off the plane, and it's a no-brainer to go with the corporate jet.

Right now, it's the long-haul international flights that are keeping the major carriers in business. That and terminal slots at the airport.

Rumour has it airlines will soon charge for ALL baggage.

It's not as clear as that. There are far more market segments: VIPs, Business Travellers, VFR, short-notice, scheduled holiday-makers, weekend commuters, charters etc etc

One of the main characteristics of the low-cost is a simple flat single-class fare structure that moves according to the airline's pricing model which can trend upward or downward toward flight date.

As regards price: business travellers need flexibility and the vacant centre seat and no annoying riff-raff. Meetings may run on. The companies pay for that, and presumably think it money well spent.

The revenue mix from the passenger class will be determined by the airline in order to maximise profitability of a route. The margins on Business Class passengers is obviously a lot higher, but recent months has seen the demise of several Business-Class-only operations operating transAtlantic who could not sustain the required loading.

The characteristics of each passenger group of obviously different and the airlines must be clear with their marketing.

dave

www.corporatejetchat.com

Surely all that matters is that they stay low cost relatively to the big 'uns?

I don't think the relative pricings between classes are of much interest to most people, as they are constrained to a large extent by their needs. Where demand causes the classes to overlap, then it presents a choice...

Some flexibility may be possible though - if you are a weekend commuter for example - working in CH and flying back home each weekend - then the timings of the flights are vital to maximise useful time at home.

How much would you pay for a flight that got you home at 0200 Sat morning instead of 1945 Friday night costing 243CHF ? Given the choice of the two flights the later one would have to be priced at below 80CHF before I would consider it.

It is interesting to note that low-cost airline really pull into focus the cost of journies to or from the airport, be it a train to Basel, or the Stansted Express. They quickly push up the cost what seemed like a bargain...

dave

www.corporatejetchat.com

Not wrong there - we got a CHF 80 set of of flights, but the train fares involved are more than double this.
If the Queasyjets and Ryanairs do go bust, then when you factor in the rise in petrol prices, train fares and diminishing bus services, then we'll end up in a situation where only the quite well-off can travel, as it was for most of the period up until trains were invented.
Progress!

Don't worry - Ryanair have some innovative new cost-cutting ideas!

http://www.thedailymash.co.uk/news/b...t-20080603996/

BUDGET airline Ryanair has vowed to maintain profitability this year, despite rising oil prices, by throwing passengers from its aircraft in mid-flight.
..
"We could simply identify the ten largest passengers on any flight and heave them out the door. But that's discrimination. We want this process to be fair, transparent and fun."



Probably not too far from the truth.

I saw the CEO of Japanese Airlines on Tv the other day talking about how the had redesigned the cutlery onboard to reduce weight. It saved about 5g per passenger if I recall....

dave

Why not just use sporks?

Sanwiches - no galley needed and no cutlery. And make them a fiver so the aircraft doesn't have to carry coins in change but only light paper money.

Oh, hang on...

You seem to know a lot about airline economics for someone who's been doing manual work for the last 30 years.....