Low-cost airlines herald golden age

Herb Kelleher sounds like the kind of company chairman others would look up to - in some extraordinary world. He lists as his proudest achievements "projectile vomiting", and the fact that "I've never had a really serious venereal disease". He regularly turns up at parties dressed as Elvis and he told a group of graduates that he never knowingly hires anyone with an MBA.

But not only is Mr Kelleher the best thing that has happened to the travelling public in years, his US company, Southwest Airlines, with its laid-back style and humour, is the model for every low-cost carrier on both sides of the Atlantic. Ryanair openly copies Southwest, right down to its executives rolling up their sleeves at busy times to help shift the baggage.

The year after Mr Kelleher co-founded Southwest in 1971, it made money. It has done so every year since, including 1991 and 1992 when virtually every other airline in the world was losing in spades.

The basic philosophy of Southwest, and all those who have followed in its slipstream, is to provide low-cost, no-frills, point-to-point travel, says Mr Philip Molloy, an airline industry analyst at ABN-Amro.

Now, with full deregulation of Europe's skies complete and the main economies gaining strength, the consumer can look forward to five or 10 years of genuine competition - and far cheaper flights.

Most of Europe's low-cost airlines are based in Britain, which was one of the first countries to privatise its national carrier and deregulate the market. Mr Molloy says that while Southwest has managed to keep its cost advantage for 20 years, the challenge now for Europe's low-cost airlines is to maintain a similar differential against their larger rivals.

Low-cost airlines keep their costs down in a number of ways. First, they regard the established airlines' product as too complex, preferring themselves to offer simple, point-to-point service and to focus all energy on achieving lower costs.

The airlines also save by out-sourcing many functions, such as maintenance, and by often exerting pressure on suppliers to lower their costs.

Most low-cost airlines consider it important to have a homogenous fleet, says Mr Molloy, because this reduces pilot training costs and makes it easier to obtain spare parts and maintenance on favourable terms.

He points out that they also squeeze more passengers on board each plane. For example, on a Boeing 737-200, Ryanair can accommodate 130 seats, while British Airways has around 110. The "no-free-drinks" policy on Ryanair and EasyJet saves not only on catering bills, it also allows the companies to operate with fewer cabin crew.

Low-cost airlines typically put a lot of effort into reducing "turn-around", the time it takes to land, off-load passengers, pick up new customers and take off again.

Aside from the fact that - as Southwest continues to prove - there are still quite a few costs to be wrung out of the industry in Europe; there are particular reasons why European consumers can look forward to a golden age of travel.

One of the main driving forces of low-cost airlines in Europe has been the availability of landing slots. Pushed out by price or congestion at some of the continent's larger airports, they have turned to secondary airports with cheaper landing charges.

Many such secondary airports across Europe are controlled by local government, and these are now, for the first time, trying hard to attract customers.

"Gradually, secondary airports are realising that this is a way they can drive passenger volumes," says Mr Molloy. "They are becoming much more business-oriented, marketing themselves aggressively."

As well as assisting current carriers to expand their routes - Ryanair added five new destinations this year and plans the same number next year - this trend will help new low-cost carriers to get off the ground, and stay in the air.

Into this mix will come increased use of the Internet, which will cut out travel agents and help drive down costs. Already, it is possible to choose, book and pay for a ticket on Southwest, through any computer.

"The current rate of Internet booking in Europe is less than 1 per cent," says Mr Tim Jeans, Ryanair's head of marketing, "but it is growing at the most phenomenal rate. It will become 2 per cent, then all of a sudden 6, then 20 per cent. The Internet is certainly going to be a very important part of the distribution of air tickets in the future".

At the moment, he adds, Ryanair doesn't have an Internet site, but "we're working on that".

The one factor that could stop a rapid and major expansion of low-cost air travel in Europe is recession. But while Britain is clearly headed for an economic slow-down, the rest of the continent is pulling out of the doldrums, and likely to show considerable growth for the next two or three years.

Also, recent experience shows that while larger, established airlines tend to suffer losses during economic downturns, low-cost airlines maintain their turnover when travellers turn to them to save money.

In all of this, Irish consumers can count themselves lucky on two fronts. First, that as a major tourist destination, airlines can rely on a steady flow of other Europeans wanting to come here, easily doubling the size of the market for our routes. Second, although Ryanair appears to be using London's Stansted airport more and more, it remains an Irish company, and is likely to maintain a low-cost link to its Stansted flights.

To make matters even sweeter, Virgin Express has already decided to establish a base in Ireland, probably at Shannon. Irish customers, therefore, should soon be able to witness competition between two well-established, low-cost airlines for their euros.

The future for Aer Lingus is less rosy, however, as the State-owned airline steps up its search for a larger partner. Analysts say one of the most attractive things about Aer Lingus at the moment is its much-coveted landing slots at Heathrow Airport. But with the low-cost airlines diverting more and more passengers to secondary airports, and a recession looming on the horizon in Britain, the company's woes may be set to increase.