Cantillon: Ryanair’s cheap-fare route paying off

It may be a feature of the recession but the only European airlines now planning to expand their fleets are the low-cost carriers such as Ryanair, EasyJet and Norwegian Air Shuttle.

The flag-carriers that once dominated the skies are retrenching and focusing on long-haul business, while the low-cost operators are building their businesses around short-haul, muscling on the space deserted by their established rivals and developing their own markets.

This trend looks like it is going to continue for several years, and it has to a certain extent already left us with a “two-tier” airline industry, with budget airlines offering shorter trips while the old guard and recently-emerged Gulf carriers provide long-haul services.

One impact of this is that airline tickets have in some ways become commoditised. Price is increasingly influential when people are deciding to fly, particularly for holidays or shorter breaks, where they are going to focus on affordability as much as any other factor.

As a result, and while there will always be people who have to, or want to, fly from A to B, when it comes to discretionary spending, or where there is a choice of carriers to a particular destination, price is going to loom large in their decision.

It follows then that the airlines with the biggest range of destinations and the cheapest prices are going go fare best in this environment. Ryanair clearly knows this. It recently began taking delivery of the first of a new batch of Boeing 737s, valued at around $12 billion.

The airline intends following this with orders for up to 200 737 Max craft, which 99.93 per cent of shareholders approved yesterday. This will leave it with around 520 aircraft by 2024, and see it flying 150 million passengers a year.

Its new craft will carry more people while burning less fuel, cutting its unit costs, and allow it to compete on price, the idea being that it maintains its position at the top of the low-cost tree.