The Decline of Budget Airlines?

We live in an era of budget airlines, where its cheaper to ‘jump’ on the plane to Barcelona than it is to get a return train into London: crazy stuff. But are we nearing a time where such cheap flights are on the out? With oil prices hitting a record high of $100 per barrel, compared to $30 – $40 a number of years ago, airlines, especially those ones focused on the ‘budget boom’, are going to suffer, and the business model that once seemed unbreakable may be at an end.

It was suggested today that the airline industry is soon to go through a drastic restructuring, with a spate of Mergers & Acquisitions, where those smaller airlines that cannot afford to adsorb the rising fuel costs will join the more established, so-called ‘luxury’ airlines. Is this a good idea? When one looks at the business models of these airlines, it is clear that the strategies for customer creation and retention are very different. On the one hand we have airlines, like British Airways, that market themselves as ‘executive’ travel, whilst the budget airlines like Ryanair and Easyjet play a completely different ball game.

In fact, although very different, are the ultimate costs being paid for each not the same? Let me pose this question to you: how ‘budget’ are these so-called budget airlines? When you take into account the additional tax charges, the flat fees for baggage and the obscure airports that many of these budget airlines fly to, adding yet more travel expenses, the are not what the label says they are. What we are in fact seeing is a clever corporate marketing ploy/ business strategy. Unlike non-budget airlines, where you log on, search and are given prices for your journey that include everything, the budget airlines entice their customers by offering 1p seats, but then adding multiple additional costs, culminating in a ticket that is not all that much cheaper, and where the overall flying experience is by no means top class.

So we seem to be at a cross-roads. Is the airline industry going to see a change where budget airlines play no part (due to the rising fuel prices), or are we going to see large conglomerates of smaller airlines forming just to stay afloat. I think it is the latter. But my concern is this: which business model is going to survive? If, for example, British Airways and Ryanair were to merge, which business model, if either, would prosper. Perhaps more importantly, if you had a choice, which one would you chose to fly with?

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