The Economics of Low Cost Flying: Part 1 - Operations

LONGFORM

Travel Analysis


Living the low-cost dream

Got charged a payment and processing fee? Got gouged at the airport for having to check in a bag? It's all part of the plan.

 Examples of popular low-cost carriers, photo from Brookfield Aviation International

Examples of popular low-cost carriers, photo from Brookfield Aviation International

Living the low-cost dream

Just how much money can low-cost airlines save from ditching complimentary meals on board and free checked baggage? After all, these are the only two visible things customers see when they book themselves on budget carriers right? Well, low-cost operations are indeed way more complicated than it appears on your booking screen. Budget air travel is, after all, hardly the exception to the timeless adage -  ‘you get what you paid for’.

Hence, this article is an attempt to explain how low cost airlines have despite their low-cost approach, been able to rake in record profits and threaten the business of their legacy counterparts. Pragmatically, this will also be helpful for those wishing to avoid being charged extra fees on budget flights. 

Money to be made

Budget carriers are often said to offer a flying experience that is worlds apart from their full-service counterparts (except in Europe). But this is just what we’re paying for as a cheaper ticket means that we have to sacrifice some the ‘perks’ associated with flying. On the flip side, budget carriers can either save money on operational costs or earn money from our add-on ‘perks’, which are both beneficial to their bottom lines.  

What are some of these ‘perks’ I’m talking about? Well, read on.

1. Hidden fees everywhere

Budget carriers love to pile extra charges on to their customers when they least suspect it. Though most of them disclose what the various charges are on separate web pages (probably after complaints), these don’t appear on booking screens until you’ve already keyed in your passenger details and have decided to dispense with extortionary add-ons.

For example, click here for the fees and charges schedule for Scoot.

These fees run the gamut - credit card fees, online booking fees and checked baggage fees that confusingly change based on which route you are flying. Good luck if you want to select your seat or change/cancel your flight - there are another set of fees that change with time. Don’t you dare ask for such upgrades at the airport.

All of these extra fees collected are known to the airline as ancillary revenue - a huge contributor to bottom lines. For illustration, Norwegian’s ancillary revenue grow by 20% in 2016. Not opting to check in baggage or have a meal? The airline saves money by not offering such amenities and improves their profitability per flight. If you do want a meal, you’ll be charged a pretty sum for it. Even the best low-cost airlines do this.

2. Efficient and quick turnarounds

Airlines regardless of whether they are full service or budget, do not make any money when their planes are sitting on the ground. For this reason, flight operations demand that planes should depart with passengers on board as soon as possible after landing. Budget airlines take this concept to the next level with their planes often taking only 25-35 minutes to be refreshed and refuelled before taking off again.

 
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A greater amount of time is spent in the air means that more revenue is earned from flying passengers instead of idle time on the ground. Though this accelerates the depreciation of the aircraft’s value, this gives low-cost airlines the impetus to maintain a young fleet. Operating young aircraft is both a marketing boon and also begets huge savings from more fuel-efficient operations.  

3. Avoiding foreign accommodation costs for cabin crew

If you’ve wondered why the service on budget carriers is lacking, here’s why. Flight attendants on budget carries are really mostly there for your own safety and not to placate middle seat passengers. They don’t have to serve everyone food or offer drinks during the flight because there isn’t any included in the ticket. 

In addition to the plane’s quick turnaround requirements, this flight attendant lite job scope means that crews don’t spend the night at their destinations but instead operate the return flight back. While I’m sure that the individual sector is less tiring than a shift at a full-service carrier, operating two sectors back to back (and sometimes even more) is guaranteed to tire out even the most jubilant sets of crew.

I’d also like to point out that at some airlines, crews are trained for operational purposes and are less likely to be given sufficient hospitality lessons. Crews at some carriers also man check-in and boarding counters and then stressfully proceed to fly those same passengers to their destination. 

Full-service carriers often give generous meal and accommodation allowances to their crews who have to stay the night in foreign countries. Budget carriers dispense with this requirement even for some long-haul operations. Therefore, be nice and don’t scowl at your attendants.

4. Secondary airports and jet bridges

Budget carriers also often fly to secondary airports where landing fees are way cheaper. This further drives down their operating costs and at the same time gives them huge negotiating power with the airports. You won’t find a budget carriers’ hub at airports like London Heathrow but at secondary ones like Gatwick, Stansted and Luton. 

Though not the case at Changi where all flights board with jet bridges, budget carriers usually opt to board passengers using remote stands and an apron bus because they do not have to pay for jet bridge fees. 

While this is generally okay when the weather is favourable, imagine boarding your wide-body aircraft in the scorching 50-degree heat of Dubai or in the monsoon downpour of a wetted Kuala Lumpur. 

5. Lack of interline agreements

As I’ve covered (and used to good measure) before, interline agreements could save you a few grey hairs and actually net you some cost savings. These agreements basically mean that airlines will agree to help you check your baggage to your final destination even if you are flying on two different carriers and on different bookings.  This can often make or break stressful connections because you’ll end up having to clear customs to check in and then clear it again to enter airside. 

Full-service carriers often have this in place for your convenience and to boost bookings within their alliance. Budget carriers instead, do away with this because they often operate as single entities and hence do not see the need to conclude expensive and complex agreements with other carriers (they’re usually hostile anyway).

6. General reluctance/inability to compensate for delays

Though some low-cost carriers have pledged to recompense passengers for flight delays, the reality on the ground can hardly live up to such promises. Even the best low cost airlines aren't spared from operational mishaps.

Flights delays and cancellations are not new to airlines as flying is an invariably uncertain prospect. Bad weather conditions, airport strikes and even terrorist attacks can easily shut down whole airports - causing delays and roll on disruptions to whole flight networks. 

Known in the industry as IROPS (irregular operations), airlines (even full-service ones) really do have a hard time managing these incidents when they come about. Yet, I’d still place my bets with full-service carriers that have the experience and ability to recover service levels. As someone who values flights leaving on time, I don’t want to spend 2 hours on the ground despite my love for planes.

Apart from mishandling delays, budget carriers also often have understaffed ‘customer service experience’ and PR departments owing to the need to run a tight ship. That being said, sometimes full-service carriers can provide experiences that make budget carriers seem like saints.

7. Exclusive operation of one type of aircraft

Airlines can receive significantly lower maintenance costs if they have a fleet that is wholly made out of one type of aircraft. 

This means that they can bulk order replacement parts and streamline training processes which saves these airlines a huge amount of money.

 A depicition of the various low cost airlines around the world, photo from wego.com

A depicition of the various low cost airlines around the world, photo from wego.com

Cheap chirping

The proliferation of budget carriers all across the globe is a testament to the popularity (and profitability) of bare bones flying. Many carriers have done well with this model - AirAsia, Jetstar and Norwegian are just some of them. 

Yet, while many low-cost upstarts have come and gone, new ones are launching operations quick and fast. More often than not, they are actually new ventures under full service carriers; think of IAG’s Vueling and Level, Lufthansa’s Eurowings and Singapore Airlines' Scoot. 

So - is the allure of low fares worth the risk of being re-accommodated on such flights? Well, despite my cynical attitude towards budget carriers, my answer is still a resounding yes

Budget flights are fantastic and I routinely use them to make weekend trips that don’t require checked luggage. For such short trips, it often makes more sense to fly budget if the prices are right. More often than not, even on full carriers, I don’t even come close filling the allotted luggage allowance. Furthermore, last minute flights with international low cost airlines can often still be found at cheap prices.

The point of this article is to show that low-cost flying has fundamentally altered the industry but it remains to be seen how full-service and budget carriers alike adapt to an aviation landscape that is ever-dynamic. Stay tuned to part 2 of this series that will cover how airlines have reacted to the changing expectations of passengers. 

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