How Budget Airlines Like Ryanair Make Money

CNBC

CNBC

15 min, 51 sec

The video discusses the business practices of budget airlines, their growth, challenges, and the experience of flying with them.

Summary

  • Budget airlines like Ryanair and Spirit have changed air travel with humor and cost-cutting strategies, gaining significant market share.
  • Low-cost carriers keep operational costs low by minimizing amenities, charging for add-ons, and utilizing tax benefits from unbundling services.
  • Ryanair's business model and cost-saving measures include flying to secondary airports, maintaining a single aircraft model fleet, and having high load factors.
  • A firsthand experience with Ryanair highlights the low base fares, additional fees for extra services, and the practical challenges during travel.
  • While European budget airlines reported growth, U.S. counterparts faced losses due to higher operational costs and competitive challenges.

Chapter 1

Budget Airlines Rise and Humor as Branding

0:01 - 23 sec

Budget airlines are often the subject of jokes, but they have embraced humor as part of their branding, particularly companies like Ryanair.

Budget airlines are often the subject of jokes, but they have embraced humor as part of their branding, particularly companies like Ryanair.

  • Jokes about budget airlines are common due to their minimalistic service approach.
  • Ryanair has turned its low-cost image into a humorous brand aspect.
  • Despite the humor, the business of budget airlines is significant, with a large global market share.

Chapter 2

Market Share and Profitability of Low-Cost Carriers

0:35 - 48 sec

Low-cost carriers have been gaining market share annually and have shown notable profitability, with companies like Ryanair reporting record profits.

Low-cost carriers have been gaining market share annually and have shown notable profitability, with companies like Ryanair reporting record profits.

  • Budget airlines are consistently gaining market share, now making up almost a third of global airline capacity.
  • Ryanair's shares increased by 8.5%, and the company forecasts a record annual profit.
  • The low-cost model has proliferated globally, stimulating markets and populations that previously did not fly.

Chapter 3

Ryanair's Business Model and Flight Experience

1:26 - 36 sec

CNBC explores Ryanair's operations and customer experience by flying with Europe's largest low-cost airline.

CNBC explores Ryanair's operations and customer experience by flying with Europe's largest low-cost airline.

  • CNBC decided to try Ryanair to understand how budget airlines work and why they offer cheaper fares than U.S. airlines.
  • Ryanair's cost-saving measures include not providing paper safety cards and having seats with safety instructions.
  • The CNBC team experienced Ryanair's flight service, noting the minimal amenities and efficiency in boarding.

Chapter 4

The Low-Cost Airline Business Model

1:57 - 54 sec

The low-cost business model focuses on operational efficiency, reducing amenities, and charging for additional services.

The low-cost business model focuses on operational efficiency, reducing amenities, and charging for additional services.

  • The concept of low-cost does not only refer to cheap fares but also to how airlines manage expenses.
  • Pacific Southwest Airlines first implemented the model in 1949, and Southwest Airlines later perfected it.
  • Budget airlines minimize amenities and charge for extras, creating savings that they pass on to passengers.

Chapter 5

Tax Benefits and Competitive Strategies in the U.S.

3:03 - 1 min, 21 sec

U.S. budget airlines benefit from tax advantages due to service unbundling and face competition from full-service airlines adopting similar strategies.

U.S. budget airlines benefit from tax advantages due to service unbundling and face competition from full-service airlines adopting similar strategies.

  • Unbundling services allows airlines to avoid a federal excise tax on add-on fees, providing a tax benefit.
  • Full-service airlines have started to offer basic economy fares to directly compete with low-cost carriers.
  • Budget airlines focus on minimizing operational costs by maximizing in-air time and passenger volume.

Chapter 6

Operational Efficiency and Fleet Management

4:26 - 1 min, 1 sec

Budget airlines maintain operational efficiency through a single-class system, a uniform fleet, and flying out of smaller airports.

Budget airlines maintain operational efficiency through a single-class system, a uniform fleet, and flying out of smaller airports.

  • Budget airlines operate single-class planes, optimize load factors, and prefer to use one model of aircraft for simplicity.
  • They often fly out of secondary airports to negotiate better rates and control expenses like fuel and labor.
  • Pilot pay on budget airlines is typically lower than on full-service airlines.

Chapter 7

Travel Experience on Ryanair

5:34 - 5 min, 46 sec

The CNBC team documents their travel experience on Ryanair, encountering challenges and noting the airline's efficiency.

The CNBC team documents their travel experience on Ryanair, encountering challenges and noting the airline's efficiency.

  • The team flies from Oslo to Milan via London, experiencing Ryanair's service directly.
  • They encounter issues with bag sizes and check-in processes, leading to additional costs.
  • Despite the hiccups, the flights are on time and efficient, showcasing the practicality of budget airlines.

Chapter 8

Comparing US and European Budget Airlines

11:22 - 2 min, 44 sec

European budget airlines offer cheaper fares compared to U.S. budget airlines due to more competition and a higher density of large cities.

European budget airlines offer cheaper fares compared to U.S. budget airlines due to more competition and a higher density of large cities.

  • European budget airlines like Ryanair have cheaper fares per mile than their U.S. counterparts due to more secondary airports and competition.
  • The high density of cities in Europe and competition with other modes of transportation like trains make budget airlines more viable.
  • Ryanair's ticket prices are consistently lower, with a strong emphasis on secondary airports and robust airline competition.

Chapter 9

Financial Performance of Budget Airlines

12:01 - 2 min, 6 sec

Budget airlines face mixed financial outcomes, with European airlines thriving while U.S. airlines report losses.

Budget airlines face mixed financial outcomes, with European airlines thriving while U.S. airlines report losses.

  • U.S. budget airlines like Spirit, Frontier, and Allegiant reported losses in the third quarter of 2023.
  • European budget airlines like Easyjet and Ryanair reported record numbers for the same quarter.
  • The difference in performance may be due to supply and demand dynamics, with Europe having lower capacity and higher demand.

Chapter 10

Challenges and Future of Budget Airlines

14:34 - 1 min, 3 sec

Budget airlines face challenges related to economic conditions, operational costs, and industry regulations, but the model is expected to persist.

Budget airlines face challenges related to economic conditions, operational costs, and industry regulations, but the model is expected to persist.

  • Budget airlines are affected by potential recessions, higher costs, and congested U.S. airspace.
  • EU regulations on carbon emissions will increase operational costs for European airlines.
  • Despite challenges, the budget airline model is likely to continue due to consumer demand for low fares and the trend toward add-on fees.

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