Little leg room, crowded aircraft and crammed lockers: Why budget airlines need to do more to survive

by Admin
May 2, 2024

Dragging your painstakingly weighed luggage through endless airport corridors to find a faraway gate.

Being herded like cattle onto a packed plane, passengers cramming bags into overhead lockers in a collective show of savagery.

Knowing you’ll sit awkwardly shoulder-to-shoulder with a stranger for the next two hours, wishing the cabin crew would just offer you a glass of water.

For better or worse, we’ve become accustomed to no-frills flying as a necessary alternative to forking out big bucks for shorter flights.

But, as the fall of Bonza has proven, the budget business model isn’t as simple as we may think.

Several strategic issues have been flagged as the reasons for the low-cost carrier (LCC) entering voluntary administration on Tuesday.

But some analysts argue it never stood a chance in the first place.

So, is there still a future where new budget airlines in Australia could thrive?

What are the biggest costs?

Budget airlines need to focus on minimising costs across various aspects of their operations to offer cheaper fares to passengers.

Rico Merkert, professor and chair of transport and supply chain management at Sydney University Business School, says there’s a lot at play to get the balance right.

“The economics of operating a no-frills airline is more complex than many people think, as it is not just about having the lowest cost base in the market,” he told the ABC.

The aircraft

One of Bonza’s biggest failings has been blamed on its choice to operate a small fleet of large Boeing B737 jet aircraft, which it leased through US company 777 Partners.

Most LCCs will opt to order large quantities in one go and receive substantial discounts.

Greg Bamber from Monash University’s Business School, who has studied low-cost airlines around the world, said it would have made more sense to use smaller planes as it only operated on regional routes.

“It would have been better for such a budget airline to have leased less expensive and smaller planes,” he said.

“It’s very ambitious to try to always fill a relatively big plane on all Bonza’s regional routes that fly directly between small towns or cities.”

Bonza operated a small fleet of large, expensive planes.(Supplied: Bonza)

Fuel

Fuel costs are a significant expense for any airline.

But Professor Bamber says costs can be higher for budget airlines than established carriers who have long-term contracts for fuel and local flight-handling services.

It may also be more expensive to refuel in the regions due to supply and less competition, he added.

Budget airlines can also be more exposed to fuel and foreign exchange fluctuations.

Professor Merkert said LCCs often don’t have the resources or expertise to financially hedge against such risks.

And if they “sweat out each and every little cost-saving potential,” they have little room to move.

Full-service carriers can still potentially cut costs elsewhere during such periods.

Labour and fees

Employee salaries, including for pilots, flight attendants, ground crew, and administrative staff, make up a significant portion of any airline’s operating expenses.

Often airlines will cut costs by not hiring cleaners to clean the plane between flights and instead get cabin crew to collect rubbish.

Airport fees, such as landing fees, gate fees, and other charges imposed by airports also contribute to the cost of operating flights.

This is why budget airlines often fly at off-peak times or use cheaper airports.

Often airlines will get cabin crew to clean planes between flights to save labour costs.(AAP Image: James Gourley)

How can costs be cut?

Most budget airlines will focus on cost reduction strategies by:

Operating point-to-point routes (direct that don’t pass through a major hub) to and from lower-cost small regional airports
Maintaining high aircraft utilisation rates with rapid turnaround times at airports
Using fuel-efficient aircraft
Offering minimal in-flight amenities

Professor Merkert says turnaround times of less than 20 minutes are needed to keep the aircraft at maximum utilisation.

So having ultra-efficient processes, which often means not offering booking classes or a business section, is important.

But many unforeseeable circumstances can impact smooth turnarounds.

“LCCs want nothing more than reliable flight operations both for their cost structures and passengers,” Professor Merkert said.

“A lot of the recent cancellations and flight delays in Australia were due to supply chain issues and weather events.”

Many flight delays and cancellations will be due to issues out of the control of airlines. (ABC News)

What models have been successful?

Professor Bamber says several low-cost airlines have achieved significant success globally.

“These budget airlines have demonstrated that a focus on cost efficiency, streamlined operations, and customer satisfaction can lead to success in the highly competitive airline industry,” he said.

Southwest Airlines (US)

Southwest has a strong focus on domestic routes within the United States and is known for its efficient operations, treating workers well, and a business model that prioritises customer service.

Ryanair (Ireland)

Ryanair is Europe’s largest budget airline and one of the world’s largest international airlines by passenger numbers. It has become synonymous with ultra-low fares and a no-frills approach to air travel, but has a reputation for not treating its customers or workers well. It often flies to secondary airports that have lower fees than the majors.

EasyJet (UK)

EasyJet is another major player in the European budget airline market. It operates a large network of domestic and international routes, primarily within Europe, and is known for its affordable fares, user-friendly website, and strong brand.

AirAsia (Malaysia)

AirAsia is a leading budget airline in South-East Asia. It offers a wide range of domestic and international flights and is known for its competitive pricing and extensive route network.

Ryanair operates a vast network of routes across Europe.(Ryanair)

Professor Merkert says some of the more successful budget airlines like Southwest have upgraded their service offerings, but have started charging more.

Other airlines survive by setting up under the roof of a parent or holding company, which helps share some of the costs with the full-service carrier arm of the holding.

But the crucial factor in success is demand for what the carrier is offering.

Bonza didn’t have access to the larger hubs like Sydney, which Professor Merkert says was hard to overcome.

But Tim Harcourt, airport economist and professor at UTS, said it could have had more regional traction with a model that incorporated a degree of business travel.

Similar to Rex, which has seen success with regional services which mix services for business and leisure.

He added that, in general, skimping on services for passengers only makes a difference at the margin.

Can budget airlines compete in Australia?

It is difficult for new budget airlines to compete on the most lucrative routes in Australia where established airlines already have a tight hold.

“Qantas and to some extent Virgin and Rex very much control the market,” Professor Merkert said.

“So getting in is very difficult and will require something quite innovative that cannot easily be copied by the incumbents.”

The established airlines have locked in their best customers with frequent flyer schemes and airport lounge access.

Travel writer Geoffrey Thomas told ABC News Channel there’s no way Bonza would have survived trying to get on the “golden triangle” routes that connect Sydney, Melbourne and Brisbane.

“Qantas, Jetstar and Virgin Australia have so much power on that route it would be suicide to get onto that route,” he said.

Even on some regional routes, Professor Bamber says Qantas will muscle out new competition by offering cheap airfares to those locations.

“And then after the competition’s gone, the fares get raised again,” he said.

There’s also the issue of limited landing and take-off slots.

Slots are determined by an independent authority and most of the “best slots” at the major cities have been booked by the established airlines.

Professor Bamber says Bonza could have been more successful if it had more planes, which would have allowed it to offer more reliable and frequent services with fewer flight cancellations.

And if it is investors, including 777 Partners were more patient — Bonza had only been in the skies since January 2023.

But for any new no-frills player to succeed, there would need to be government intervention.

“To facilitate the success of budget airlines in Australia, it would be necessary for the federal government to level the playing field by regulating more effectively the market dominance of the Qantas Group in particular,” he said.