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martytravels May 29th, 2008 12:46 PM

Guardian UK: The end of the budget airline?
The end of the budget airline?
Dan Milmo in Houston, Friday May 23 2008

The list of bankrupt airlines is growing by the week, but the biggest casualty of the oil squeeze in the airline industry could be the cheap fare and the holiday plans of a generation weaned on affordable air travel. A decade of low ticket prices has fuelled the Tallinn stag do and made Ryanair an unlikely linchpin in the market for continental second homes. It has also led to a 200% growth in UK regional airports. But airline executives warn that fares have to rise.

This raises serious questions over the business models of two of the most financially robust carriers in the world: Ryanair and easyJet. The dominant players in the European budget airline market rely on low fares to pack their aircraft, wringing profits out of passengers by charging for add-ons such as luggage check-in and hotel bookings.

British Airways, Air France-KLM and Australia's Qantas are hoping to trade their way out of trouble by raising fares, but that approach is anathema to Ryanair and easyJet. According to analysts at the investment bank Credit Suisse, they have to take action.

"Without the benefit of fuel hedging, and in the absence of mitigating action by management teams, we do not believe that any airline can be profitable in the medium term not even easyJet and Ryanair," said Credit Suisse, acknowledging that Ryanair will slip into a loss if oil trades at $140 a barrel. Even Michael O'Leary, the combative chief executive of the Irish carrier, was forced this week to concede that the oil price was "really hurting".

EasyJet admits fares will have to rise, but says it will still be cheaper than competitors. "In the long term no industry can exist if it doesn't cover its costs. However, that cost is very different for different airlines and it is incumbent now on all airlines to look at all areas of their costs base to see where other costs can be axed to keep fares low," said Toby Nicol, easyJet's director of communications. ....(more)

The complete piece is at:

Trekker5211 May 29th, 2008 12:51 PM

I'm not sure about the European industry, but in the U.S., the airline that is doing the best (in terms of managing fuel costs and, IMHO, in terms of customer service), is Southwest Airlines, a budget carrier.

AAFrequentFlyer May 29th, 2008 04:20 PM

What was the last time you compared Southwest fares to legacy domestic fares?

Budget? - don't think so.

Gardyloo May 29th, 2008 05:55 PM

Southwest made a huge bet on oil prices when they bought their long hedges. Other airlines either obeyed the dictates of the green-eyeshade crowd in their bean-counting offices (AA most notably) or else were indisposed in bankruptcy court, to do the same.

When Southwest's hedges expire (next year and the year after) their shareholders will get a seriously cold shower.

We might as well get used to economic pricing of things like air travel and artichokes.

flanneruk May 30th, 2008 01:30 AM

The author of the piece quoted seems to miss the basic point.

Unless - which no-one believes - oil prices fall sharply, ALL airlines are going to hike their fares, and passenger numbers will fall.

That's going to hurt most those airlines least able to react quickly. Ryanair et al, with no unions, no legacy of pension committments, post-retirement health benefits or rash promises to fly former customers for free, can chop what it likes a lot easier than anyone else.

It'll be a smaller airline, there won't be any more flights from Liverpool to Cracow and the French market for country houses will collapse. But Ryanair will still be the world's largest carrier of international passengers and just about the most reliable money-maker (or at least loss-avoider) in the aviation industry.

The question isn't about the viability of Ryanair. It's who else will survive as an independent airline. At least one of the global majors won't: nor will lots of second division players - budget and legacy alike.

JamesA May 30th, 2008 02:20 AM

Certainly the oil price is going to hurt many. But airlines in some parts of the world are doing ok. Air Asia as a budget carrier recently added a checked bag charge, but it was $1 ! , Tiger Airways are doing ok and adding more routes, they still have very cheap fares.

travelgourmet May 30th, 2008 07:59 AM

JamesA: I have seen reports that AirAsia is actually in some pretty serious financial trouble.

Smeagol May 30th, 2008 11:23 AM

Travelgourmet - i am in the process of booking some flights on Air Asia for November. Do you think i should hold off them based on your comment re they may be in financial trouble?

travelgourmet May 30th, 2008 11:36 AM

I really don't know.

What I saw was not much of a comment. It was just an aside in the midst of a larger article, so I wouldn't make too much of it. They do have some deep-pocketed backers, including Richard Branson.

Besides, my experience is that the flights are pretty darn cheap, so at the prices they charge, I would probably just book it, risks be damned.

UPDATE: Apparently, they just announced earnings and recorded an 86% increase in profits. This isn't a guarantee, but I would feel pretty darn confident.

Smeagol May 30th, 2008 12:49 PM

many thanks for the update, your right the flights are cheap so i may as well go for it.

JamesA May 30th, 2008 08:23 PM

Have never heard of anything about Air Asia not doing well, "and recorded an 86% increase in profits". They have more aircraft on order and providing a good service. Many on the Asia forum have taken recent flights with them and quite satisfied.

They do have 'cheap flights' and the almost fly for free, but book a flight when there are few seats left and for example Bangkok to Phuket at $130 return is just a little under what Thai were charging a few years back.

The budget airlines have those amazing offers to attract customers, not everyone gets the very low deal, when they manage though to fill a plan they are on average getting an ok fare. They have so few extra costs to worry about and their costs are just lower all round.

Air Asia X launched budget into Gold Coast Australia, within months increased flights and adding Perth in November ( earlier if they can find aircraft ). Tiger now also operate domestic within Australia as well as their Singapore hub.

I agree with flanneruk that an airline in the market without all that 'financial baggage' is in a better place to survive.

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