Will service become the selling point for low-cost airlines?

Enter alt description text hereRyanair took the idea of low-cost flying to a new level when it announced last week that passengers will now have to pay to take bags on flights. The introduction of baggage charges for items over 10kg will, for many passengers, add another layer to the cost of flying, but it should enable Ryanair to keep ticket prices down for those without suitcases.

Baggage-handling charges contribute significantly to an airline’s costs, so by reducing the baggage the airline reduces its outlays. Ryanair has consistently sold flights on price, but some observers feel that the days of cheap flights may be numbered, with passengers already adding costs such as airport taxes and fuel levies to the ticket price.

There is also an increasing demand for higher taxes on aviation fuel to help counteract the environmental impact of flying. Last November, Travelzest chief executive Chris Mottershead told an ABTA convention: “I believe taxes on aviation will be so high in ten years’ time that there will no longer be such a thing as low-cost flying.”

He also says that Ryanair stands “head and shoulders” above all other airlines in terms of operating an airline with minimal costs. As a result, many of the 60 budget airlines in Europe are now marketing their brands as much as they are flight prices.

EasyJet admitted as much by calling off its pan-European advertising pitch (MW last week). In looking for local advertising hothouses around Europe, the airline’s new commercial director Saad Hammad indicated that he wanted to use the power of easyJet’s brand in local markets to drive sales.

Tim Jeans, managing director of Monarch Airlines and a former Ryanair commercial director, says: “Our brand values are essential to what we do.” He adds that although the airline has become more cost-efficient there is no way to prevent the spike in fuel prices filtering through to ticket costs at some stage.

Yet he also believes that the low-cost market will survive, pointing out it has only been around for eight years. “The business model has proven sufficiently robust to survive fuel price increases, and that will be bigger than any proposed environmental tax,” he says.

Jeans believes the cheapest tickets that are purchased well in advance will remain cheap, but adds that short-notice tickets will rise in price. In that situation, he believes, people will buy according to the brand and its associated service levels.

Travel analyst Michael East of Eastcastle Management Group believes that brands will become more important as routes open up and the market matures. He says people will no longer fly to places because they can do it cheaply, but will consider the destination and carrier, and weigh the relative benefits of both against the price.

As more airlines fly to similar areas, some customers will gladly pay higher fares for a better experience. However, Ryanair says it remains committed to marketing on price. Marketing manager Caroline Baldwin says although the airline carried more than 33 million passengers last year it will operate with a marketing team of just 12. “The brand is simple and well-recognised. The message is about the lowest fares, and beyond that, it’s about reminding people about our punctuality.”

Seen by many as a cost-cutter par excellence, Ryanair can afford to operate differently to its rivals, for now. But branding is becoming an important point of difference in a crowded and pressured market.

Jonathan Harwood


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