Business Strategy: next steps for the budget airline industry

It’s amazing to think how over just 15 years, Europe’s budget airlines have soared to account for a third of all air travel in the region. But their growth is slowing. Here are a few ideas and a link to an article which outlines some of the approaches the industry might take in the years ahead.

The Economist points out that it’s hard for the airlines to achieve rapid market growth in the near future as the opening of the market means that the low-cost carriers are left with few new places to explore. Market share is harder to grab too: national airlines such as British Airways and Lufthansa have tried to defend their business by offering stripped-down service and cheaper fares on more short-haul routes. “The low-cost carrier market used to be about fast growth and uncomplicated strategies,” says one consultancy. “Now it is about slow growth and complicated strategies.”

Take a minute to see if you can think how the “uncomplicated” strategy works.

The basic budget aviation model is to hold down maintenance costs by using just one kind of aircraft, bought in large numbers with bulk discounts. The next part is to charge for, or do away with, frills like meals and drinks. It helps if the aircraft fly back and forth along a single route, often between quiet, out-of-the-way airports, rather than using busy hubs which allows for faster turnarounds. Bookings take place online, with savings passed on to customers.

But slowing growth has forced the industry leader, Ryanair, to drop ultra-low fares on new routes and may move some flights to primary airports, which are attracting low-cost carriers to boost their own flagging growth. Ryanair has already moved into one in Barcelona. In future it will concentrate less on increasing traffic and more on extracting larger amounts of money from each passenger. EasyJet is also offering greater frequency on its routes and makes more use of primary airports such as London Gatwick and Paris Charles de Gaulle. It is also targeting cost-conscious business travellers. The firm recently smartened up cabin service too.

The European sky used to offer a stark choice between full-service and budget airlines. It is increasingly crowded with options of all shapes, sizes and costs. Take your pick, and hope your luggage arrives.