In Europe, budget airlines thrive. Why not the US?

By Alexandra Skores, CNN

(CNN) — At the top of one of Ryanair’s European website’s reads “fly “FROM 24.99€.”

The Irish-based airline is one of the most profitable low-cost carriers in the world with a network that crisscrosses Europe. The success lies in its commitment to its business model, which cuts airline costs to the bone while charging passengers for everything.

Travelers pay for baggage, seat reservations, in-person check-in or using a credit card. Ryanair even floated the idea of charging to use the bathroom or getting rid of seats and having passengers stand, though neither took flight.

The low-cost carrier business model dominates short-haul flying in Europe, which analysts say account for over 40% of available seats. Many passengers have come to accept no frills flying, paying for every extra beyond a seat.

Last year, Ryanair flew more than 200 million passengers. English low-cost carrier easyJet flew nearly 100 million passengers, Hungary’s Wizz Air nearly 70 million, and Spanish airline Vueling carried 38 million.

That same business model, however, has struggled to take hold in the United States. The largest US budget airline, Frontier, only flew 33 million passengers during the same time frame.

Part of that is cultural — Americans have a lower tolerance for bare-bones service and don’t love paying extra for flight add-ons. But there are geographic reasons, like shorter distances for flights, as well as economic ones, like inflationary pressures and rising airfares.

Low-cost carriers are run differently in Europe

Ryanair has a strong balance sheet, reporting passenger growth each quarter over the last year.

But that success took “30 years of decision-making, where operational cost is the No. 1 driver,” according to Mike Arnot, an airline industry consultant.

The low-cost carrier model, he said, is built around removing as much expense as possible from an airline operation, like flying a single type of aircraft, minimizing maintenance costs or using stairs instead of jet bridges to save on airport fees.

Garth Lund, who worked in leadership at low-cost airline group Wizz Air for nearly eight years, said European budget carriers are “unwavering in their commitment to low costs.”

“They have really stuck to the original business model and not allowed themselves to get distracted, and as a result, they’ve maintained their cost structure better than the US airlines have,” Lund said.

One example, he said, is that the European airlines design schedules so that crews don’t spend nights in cities away from home, saving hotel costs.

He also points to the hours that airline crews can work. In Europe, there are fewer unions limiting shifts.

“That efficiency has a big knock-on effect on the cost structure,” Lund said.

European airports are different

Some airports in Europe have been designed to keep the budget carriers moving quickly and affordably.

“In Europe, airports nowadays are really designed for low-cost airlines,” Lund said.

Compare turn times, for example, or how long it takes to deplane passengers, service an aircraft and load it for the next departure. The longer it takes, the fewer flights an aircraft can fly in one day and less money the airline earns.

US airports can sometimes log 45 minutes to one hour. Many European airports are down to 25 to 30 minutes, he said.

That’s because boarding in Europe can happen in the front and back of the aircraft, depending on the airport, and don’t always use jet bridges like most American carriers do.

In Europe, there are also many secondary airports in large cities. This makes it easier, and cheaper, to open new routes.

For example, Munich International Airport is a major hub for Germany, but a low-cost alternative is a little over an hour away at Memmingen Airport. Wizz Air and Ryanair both fly there instead of directly to Munich.

London’s Heathrow Airport also has alternatives popular with low-cost carriers, London Stansted and London Luton Airport.

“In Europe, the secondary airports have become quite large airports in their own right,” Lund said.

Secondary airports also exist in the US, like Dallas Love Field near DFW International Airport, or Chicago-Midway Airport, the smaller airport to Chicago’s O’Hare International Airport. However, there aren’t always multiple options like in Europe, and many of these secondary airports are dominated by carriers like Southwest.

Not many low-fare airlines survive in the US

American low-cost carriers have not found the same success as those in Europe.

That’s partly because US consumers have trouble making the distinction between low costs and low fares, Arnot said. They assume “low-cost” refers to the price of a ticket, but it’s really about keeping operating costs low.

Sometimes budget airlines do have the lowest fares. But if those low fares don’t exceed the cost base over the medium term, the airlines will fail, he said.

“Not many low-fare airlines have survived, but there are good examples of low-cost airlines that have thrived,” Arnot said. “Especially at the low-cost, low-fare end of the market, the demand is highly elastic, which is a fancy marketing word for consumers can take the bus, or just not go, if the fare is not what they want to pay.”

And because US discount carriers cater to those price-sensitive leisure travelers, they have a harder time raising fares. That’s difficult when increased costs squeeze their already thin margins, like rising fuel prices related to the conflict in the Middle East.

Southwest and JetBlue were once the leading low-cost carriers in the US. But Southwest had a tumultuous few years following an activist investor campaign to increase profitability. JetBlue had a slow financial recovery following impacts from the pandemic.

The airlines both now operate a more hybrid model between a low-cost carrier and a traditional airline.

Spirit Airlines, one of the most prominent ultra-low-cost airlines in the US, collapsed earlier this year. It also had been unprofitable since the pandemic, declaring bankruptcy twice before the spike in jet fuel prices this year derailed its plan to emerge from its latest bankruptcy.

Today, five low-cost carriers remain in the US — Frontier, Allegiant Air, Breeze Airways, Sun Country Airlines and Avelo Air.

American legacy carriers experimented with the low-cost carrier business, with Delta Air Lines launching Song in 2003 and United creating Ted in 2004.

Both carriers failed to gain traction and were shut down within several years after fuel prices spiked. But the parent airlines adopted some lessons from the ventures, like faster turnaround times.

Europeans like budget carriers. American make jokes about them

Europeans also don’t have a negative image associated with low-cost carriers, analysts say, while Americans often expect them to be poor quality or come with bad customer service.

“In the US, I feel like there’s almost a stigma attached to flying with a low-cost airline, so Spirit was famously the butt of many jokes,” Lund said.

That’s much less the case in Europe, he said, where passengers might be flying business class on British Airways one week and then not hesitate to take a coach seat on easyJet the next.

The collapse of Spirit also taught American legacy airlines like Delta and United how to fend off low-cost carriers, according to Shye Gilad, former airline captain and business professor at Georgetown University.

That includes matching airfare prices or offering deals, as well as introducing basic economy fares that directly compete with low-cost airlines.

“They were about lowest possible fares, and of course, low frills associated with that,” Gilad said. “But I think the contrast was more stark because they’re often going head-to-head with the large legacy carriers, which do provide a pretty big contrast.”

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