The Economist explains: Why are no-frills airlines so cheap? Ryanair boss promises it will stop being quite so horrible to customers

The Economist explains: Why are no-frills airlines so cheap?

Oct 17th 2013, 23:50 by C.R.

IN 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.

Ryanair’s future

Oh really, O’Leary?

The airline’s boss promises it will stop being quite so horrible to customers

Oct 19th 2013 |From the print edition

FOR a business with a reputation for treating customers with an indifference bordering on hostility, Ryanair has done rather well. The Irish low-cost carrier is Europe’s biggest airline, transporting 80m passengers a year. It is still growing, and raking in pots of cash. Michael O’Leary, its abrasive boss, says the common perception is that Ryanair’s tickets are so cheap that travellers will “crawl over broken glass” for them.

Why then did he use the firm’s annual general meeting in September to announce a new, softer Ryanair? Perhaps he worries that new European rules on state aid will force him to put up prices and that flyers will expect more for their money. Or that he is losing out to easyJet, a slightly less downmarket carrier. Or maybe all those tales of woe from flyers are weighing on Mr O’Leary’s conscience? OK, scrub that last one.

Newspapers across Europe eagerly print passengers’ gripes about Ryanair’s abrupt service, and are encouraged to do so by the airline’s reluctance to apologise or even comment. Hitherto, it seems to have assumed that such “bad” publicity saves it more by deterring compensation claims than it costs in lost custom. Now its calculation may be changing, but not by much. The fixes it is introducing are cheap and easy ways of appearing less “irritating and confrontational”, as Mr O’Leary describes his airline’s current customer-service ethos. Improving the website, which he admits is “crap”, will mean more business. An unpopular €70 ($94) fee for reissuing boarding passes at the airport will be lowered to €10. Although it is portrayed as a money-spinner, Mr O’Leary says fewer than ten passengers a day have to pay it.

Mr O’Leary also promises that flyers will no longer be stung for small transgressions in hand-luggage size: he blames local agents in some airports for applying his rules with excess zeal. A new marketing chief will act as spokesman for the airline, and its public relations will be less “abrupt and officious”, he says.

Sadly, this means the public will be seeing less of Mr O’Leary. The world will be less cheerful without his readiness to pull a silly face, or don a leprechaun hat and matching pants, to publicise his airline. Or teasingly to suggest that his planes may charge for using the toilet or offer discounts for passengers prepared to stand up. Surely he was joking?