This was published 6 years ago

Budget airlines Europe and US: Why are flights so much cheaper in Europe than in the US?

Updated October 16, 2017 — 12.22pm

EasyJet has indicated that it might make huge losses this year.Credit: Bloomberg

In Europe, simply getting to the airport is often more expensive than the flight itself.

Many flights here can be astonishingly cheap, and not only for those who spend hours searching the Internet for the best deals. On a recent day in September, travellers could book $US17 ($A22) flights from London to Berlin on 14 different days in October - or even the next morning. On the same day, the roughly 1000-mile flight to Barcelona typically cost about $A28, and the slightly longer trip to Rome ran about $A43, almost too expensive for European standards.

That doesn't come without risks: Europe's biggest low-cost carrier, RyanAir, is currently cancelling thousands of flights because it mismanaged its pilots' holiday schedules. But the cheap prices still outweigh the disadvantages for many travellers - and American fliers can still only dream of such bargain-basement tickets on their own airlines. On transatlantic flights, some European airlines such as Iceland's Wow Air or Norwegian similarly offer much cheaper deals than their US counterparts.

Ryanair said forward bookings have held up despite the fallout from abruptly canceling thousands of flights over mismanaged pilot leave, with the budget carrier leaving its earnings guidance unchanged.Credit: Aidan Crawley

Europe hardly owns the idea of low-cost air travel. Long before EasyJet and RyanAir, the United States was a pioneer in the industry, with companies like People Express and others offering cheap tickets in the 1970s and early 1980s. At the time, travellers could fly from Boston to New York City for $A24 (comparable to the purchasing power of about $76 today), and tickets could be bought on board as though fliers were boarding a bus. Europe deregulated its airline industry much later than the US which is why the old continent's low-budget airline industry only took off in the early 1990s.

Even today, the US is home to some of the world's largest low-budget carriers, including Southwest Airlines and JetBlue. Almost every third flight in the United States is operated by a low-budget airline, a similar proportion to Europe.

So, why are European tickets so much more affordable?

Although the European industry was deregulated later than in the US, the legislative framework became more expansive and low-budget carriers picked up momentum on the other side of the Atlantic Ocean much more quickly. Airlines like RyanAir refined the US model by cutting costs on board further, investing in efficient but cheap planes and speeding up the boarding process.

Europe's legislative framework gives airlines more leeway

Whereas US laws prohibit foreign airlines from operating domestic flights, the European Union's division into 28 member states appears to be a major advantage for European customers. On top of traditional airlines, regional low-cost carriers also have to compete with their counterparts from other parts of Europe. Germany's airline top dog Lufthansa, for example, might be well advised to not ignore the offerings of Iceland's Wow Air on German territory. The fact that no country is safe from international competition is driving prices for customers downward.

The EU has long pressured the US to adopt a similar legislative framework, arguing that it would save customers billions of dollars per year and make airlines more efficient. So far, American protectionism has prevailed over those efforts.

Europe has a geographical advantage

Simply opening up its market would still not be sufficient to bring Europe's cheap airfare to the US, though.

US and European carriers initially had a somehow similar history: By initially relying on relatively remote airports further away from popular destinations, low-budget airlines were able to offer prices that attracted millions of new passengers within years.

However, Europe's much higher density of cities and smaller - previously underused- airports were a natural advantage for the low-budget carriers. They can offer tickets to smaller airports at much lower cost because landing fees there are usually less expensive. Airlines can also reportedly get paid by some smaller airports for drawing customers to their shops and cities, which gives the airlines incentives to fill vacant seats with tickets priced below the profitability margins.

The less central airports are mostly not considered an alternative by business travellers, however, who rely on connecting flights or a quick ride to the city centres. And some are always willing to pay extra for comfort and convenience.

Europeans have gotten used to the shortcomings of low-budget travelling

Americans may frequently complain about the customer service offered by US airlines, but they might never have been on a European low-budget carrier. Until a couple of years ago, the majority of RyanAir passengers flew without seat reservations which frequently led to travellers running toward their planes on the tarmac as soon as boarding started.

The misery of passengers sometimes continued on board, even though RyanAir boss Michael O'Leary was neither able to achieve his goal of selling standing places on planes to maximise their capacity, nor to make passengers pay to use the toilet. The airline's pilots reportedly had to make dozens of emergency landings because they didn't take on enough fuel, in a bid to reduce weight and to cut costs.

Most European travellers have likely made at least one awful experience on board a low-budget plane, but to many the benefits of cheap airfare still outweigh the disadvantages.

There's a bigger base of potential customers

Between 2014 and 2015, passenger numbers of all airlines increased by about 5 per cent on both sides of the Atlantic.

Still, there are more than twice as many passengers in Europe than in the US overall. That's also partially due to Europe's successful low-budget airlines which initially attracted a large number of people who previously had not considered to take planes, and had instead mostly relied on buses or trains. The growing numbers of overall passengers explain why low-budget airlines and higher-class carriers were able to coexist at first, largely without interfering too much with each other's businesses.

That has changed in recent years, however, as low-budget carriers have expanded their routes. Many now fly from airports usually used by traditional airlines, taking away one key incentive to book the latter. Low-budget airlines have also made attempts to appeal to business travellers by stopping some of the practices which filled online complaints websites en masse. As a result, traditional carriers have seen themselves forced to launch their own low-budget subsidiaries or have been forced to drop their ticket prices.

The future of low-budget European air travel?

Operating more like traditional airlines has also come at a cost for the leading low-budget providers, however, as recent financial losses indicate. Low-budget carrier AirBerlin filed for bankruptcy in August, and EasyJet has indicated that it might make huge losses this year although some of them are due to exchange rate fluctuations. Significantly, German stalwart Lufthansa announced it will buy up large parts of AirBerlin.

In the long run, it could drive up prices of plane tickets at least in some European countries - possibly ending a long period in which airlines raced to undercut each other.

The Washington

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