Why are cheap flights so cheap? The truth behind low cost airlines

Shashank Nigam

Shashank Nigam

Shashank Nigam is the CEO of SimpliFlying and a globally sought-after consultant, speaker and thought-leader on airline branding and customer engagement strategy. He is also the youngest winner of the Global Brand Leadership Award and has addressed senior aviation executives globally, from Chile to Canada and from Sydney to San Francisco. Shashank's perspectives have found their way into major media outlets, including CNN Travel, CNBC, MSNBC, Bloomberg UTV, Mashable and in leading publications like Airline Business, ATW, Aviation Week, and others. Shashank studied Information Systems Management and Business Management at Singapore Management University and Carnegie Mellon University. Hailing from India, he splits his time between Singapore and Vancouver, among other cities.
Shashank Nigam
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Showing 11 comments
  • Oussama Salah
    Reply

    Good overview of costs and factors affecting the productivity and efficiency of LCCs versus Legacy and Service airline. What is missed here is the effect of corporate and organisational culture between the two models. The ability of staff to resolve problems as they go,the can do attitude that prevails in an LCC, the hunger (for want of a better word) and desire to succeed.

  • Martijn Moret
    Reply

    Nice comparison picture! Beware though the data is from 2005, and in 4 years time a has happened. The percentages will now be different, and of course, a higher seat density helps only when the plane is full.

    What is missing in this picture is the conclusion that faster turnaround in combination with short haul (and very early departures and late arrivals) mean a better overall utilization of the aircraft. It simply is more in the air. Next to that the age of the fleet plays a role. The younger the fleet, the more fuel efficient.

    Airport costs are being differentiated now as well: e.g. at Schiphol (AMS for pax, EHAM for pilots) there is a special low-cost section for fast turn around, efficient use of space in waiting areas and no thrills, with lower airport charges.

  • Allan Edwards
    Reply

    As these are old figures what I am about to say may be less true, however, as Ryanair for example now charge for using check in desks, charge for hold luggage, charge for paying by card etc. does the ticket price given truely show the price actually paid for the service? Are taxes and security charges included – they too are often separated out from the “ticket”.

  • Matthew
    Reply

    Oussama, a can do attitude? You’ve obviously never had the misfortune to travel with ryanair…

  • Oussama Salah
    Reply

    Matthew, you are hundred 100% correct and I don’t want to if I can help it. But they are not the only LCC and a can do attitude is more prevalent there than with Legacy and Service airlines.

  • Martijn Moret
    Reply

    Matthew, Oussama,

    Perhaps Ryanair has more of a “Can do, but not free” attitude. I guess Oussama meant that legacy carriers (and their unions) think mostly why some innovations can not be done, instead of trying new things. Ryanair is continuously trying new things, and converted the business model (ticket including all services) to the extreme (pay for every bit of hassle you want/need). I am amazed with the number of new ideas they launch, even if many don’t get beyond the initial stage.

    If you look at the service/$ ratio they are pretty good. If you expect to fly like a king, you should pay like one. Aviation stills is a sexy industry but the (free) romance is gone.

  • Roger Cannegieter
    Reply

    I agree with Martijn Moret, Ryanair has and still is taking the low cost model to the extreme. On the airliners.net forum there was a discussiong about Ryanair looking at the idea for Boeing to design an aircraft with standing room. This way they can squeeze in 50 percent more passengers in the aircraft and could cut costs by 20 percent. Their idea for charging to use the lavatory in the aircraft is also a popular stunt they are looking at. The commercial of Southwest Airlines with all the coin slots everywhere in the cabin to resemble today’s low cost airlines is an excellent and one that certainly makes me think about Ryanair. On the other hand, one has to give Ryanair “credit” for using the media so well to promote their sometimes controversial ideas. Whether they will implement those ideas or not, Ryanair does get people’s attention which I think is their ultimate goal.

  • maunu_avion
    Reply

    This is all pretty much true. The significance of the secondary airports is not true for all low cost or value based carriers. Many of them including Easyjet operate also to primary airports. I would also want to argue about the savings coming from the distribution costs (sales, reservation etc.). It should be higher than only 3%. For example bookings made through internet based booking engines are only about 10% of the cost of bookings made through GDS. Considering that every passengers must be booked one way or another there is a huge saving when an internet booking engine is used. One must also remember that as long as the full service network carriers are needed a comparison between the full service and low cost airlines is not really relevant regarding the costs generated by the service elements. If they are needed, they must be offered and there is a cost to them. Incumbent airlines are on the other hand dinosaurs that have been growing organically creating unnecessary functions being constantly filled with unnecessary people. A fixed workforce is also a burden in an industry that is so sensitive to environmental changes. In these areas the low cost carriers are well ahead of the full service carriers. Anyway, the full service airlines could and should learn from the low cost carriers if they want to stay in business. Costs are rising, yields are decreasing so where is the balance. You either lower the costs, increase the revenues or both. easier said than done but there is no other choice.

  • maunu_avion
    Reply

    This is all pretty much true. The significance of the secondary airports is not true for all low cost or value based carriers. Many of them including Easyjet operate also to primary airports. I would also want to argue about the savings coming from the distribution costs (sales, reservation etc.). It should be higher than only 3%. For example bookings made through internet based booking engines are only about 10% of the cost of bookings made through GDS. Considering that every passengers must be booked one way or another there is a huge saving when an internet booking engine is used. One must also remember that as long as the full service network carriers are needed a comparison between the full service and low cost airlines is not really relevant regarding the costs generated by the service elements. If they are needed, they must be offered and there is a cost to them. Incumbent airlines are on the other hand dinosaurs that have been growing organically creating unnecessary functions being constantly filled with unnecessary people. A fixed workforce is also a burden in an industry that is so sensitive to environmental changes. In these areas the low cost carriers are well ahead of the full service carriers. Anyway, the full service airlines could and should learn from the low cost carriers if they want to stay in business. Costs are rising, yields are decreasing so where is the balance. You either lower the costs, increase the revenues or both. easier said than done but there is no other choice.

  • rococo911
    Reply

    Thanks for this insight on cheap vs. regular flights. I didn't travel much with the regular, or expensive airlines, so I had no idea about the advantages, other than the obvious ones, like increased comfort and the possibility to get your money back if you lose your flight. Still, I'd rather buy cheap stuff online like airplane tickets than take the time to go to a travel agency and pay for the extra effort.

  • Modern Sofas
    Reply

    Thank your fir sharing this data. I'm impressed that the author show all the costs and evidences why cheap flights are affordable.

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