My name is Owen Mulholland, I am one of the partners in the Aviation Finance team at Norton Rose LLP and I would like to talk to you today about some of the key factors behind the success of low cost airlines in Europe.
I will make particular reference to easyJet, a client that Norton Rose LLP has acted for for many years but the points made in this short presentation apply, to some extent, to the other major European low cost carriers.
The first point I would like to touch on is Open Skies.
One of the key things that all of the European low cost carriers have done is to maximise the opportunities offered to them by the EU Open Skies Agreement and the underlying principle that any EU registered airline should be able to fly to any airport, as often as it wishes, for whatever price it may agree with the target destination under a bilateral air services agreement.
This single market for all European air carriers has given the leading low cost operators the platform from which they have achieved their remarkable growth.
On the operational side, while competition for slots remains fierce, it has allowed an airline like easyJet to compete head to head with legacy flag carriers out of key airports across Europe and open up new markets to destinations such as Morocco, Turkey and Jordan.
Mutliple Operational Bases
A second key element to easyJet’s expansion has been the establishment of operational bases in key markets across Europe.
More than 60 per cent of easyJet’s business originates outside of the UK and the airline is now a genuinely pan-European carrier.
It has major operational bases across France, Germany, Italy, Spain and other European countries and those bases are key to driving the airline’s growth and helping it to achieve its stated aim of “turning Europe orange”.
Any Aircraft, Any Route
Open Skies and multiple operational bases work with another key principle for most low cost carriers which is that any aircraft within their fleet should be capable of flying on any route within their network.
The traditional model of aircraft leaving their habitual base in the morning and returning to that same location after a day’s worth of operations is not something which holds true for most low cost carriers. Aircraft will regularly be moving around the network and will very often start the day in one location, fly on multiple routes in the course of that day’s operations and end the day at a completely different operational base from the one they left in the morning.
In order to assist with that type of flexible operation, the low cost carriers have typically operated fleets of aircraft of a single common type. Ryannair has operated a Boeing 737 fleet since it started operations and easyJet now operates only Airbus A319s or A320s.
It is easy to see how a single aircraft variant fits with a network involving multiple operational hubs and maximum route flexibility.
The aircraft themselves with typically be operated at higher levels of utilization when compared to a traditional carrier and turnaround times are tightly controlled.
Most of the low cost carriers will be aiming to get their aircraft turned around after arriving at one airport and back into operational service within no more than 30 minutes.
Ancillary Revenue and Transparency
There are two final points I would like to highlight as being key to the European low cost carriers’ success.
The first of these is the importance of ancillary revenues to every low cost carrier’s business model. From the hotel, car hire and insurance deals that their customers can access when booking flights through to the franchised coffee and food served on-board, these are massively important revenue streams for this type of airline.
The last point I would like to highlight is transparency.
A simplified business structure, smart use of the internet and the data they gather through internet bookings, expansion on specific routes in carefully targeted markets and common aircraft type all mean that the low cost carriers typically have much greater visibility on the cost of their operations when compared to legacy carriers.
This, in combination with the other factors I have outlined, allows them to drive cost down and maximize profit helping to make some of the low cost carriers, such as easyJet among the fastest growing and most profitable airlines in the world today.
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