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Budget airlines
| When: 1971 | |
| Where: USA and Europe | |
| Why: Budget airlines transformed the airline industry, substantially growing passenger volumes | |
| How: Entrepreneurs overcame the old, vested interests of government and its flag-bearing carriers. Where Southwest Airlines' Herb Kelleher led, others followed | |
| Who: Southwest Airlines | |
| Fact: The aerospace industry accounts for 8% of global GDP |
Budget airlines seem to be loved and hated in equal measure. Loved by many consumers because they offer less-affluent travellers a cheap and fast route to destinations that were previously out of their reach. But hated by environmentalists and customers who dislike the poor service delivered by some, or who didn't appreciate the small print and got stung by hidden charges or extras.
Budget airlines have a reputation as a rebellious, sometimes cocky bunch that seem to be in near-constant battles with regulators, competitors and whomever they have rubbed up the wrong way this week. But the no-frills sector is now a considerable, profitable and growing part of air travel and looks set to remain so for some time to come.
The background
Domestic air travel began in earnest after World War II and jet engines for civil use were being deployed by the 1950s. Throughout the 1960s and into the 1970s, the majority of airline companies were 'flag carriers', often sponsored or owned by their respective governments. Some of them retained a rather patriotic, if not regal, disposition. Pilots were often former military flyers, and this only added to the sense that airlines were part of the establishment.
For many, British Airways epitomised this exclusive approach to air travel. Those who travelled by air during the early years of the industry were generally at the wealthy end of the scale, and the actual flight was seen as an outing in itself; passengers would dress smartly for the occasion and would expect a meal and a drink as part of the experience. High fares were generally accepted as an inevitable consequence of this luxury method of travel. But it was not long before entrepreneurs outside the industry began to see potential gaps in the market for a new type of service.
Coinciding with the increased sense of emancipation prevalent in the late 1960s was the growth of the 'package holiday', where tour operators would charter entire planes to fly their customers as part of an all-in-one deal. One of the first such operators was Euravia, which began flights from Manchester in 1961. Other tour operators, such as Thomas Cook, soon followed. The industry really took off in the early 1970s, and with it, tourism to previously seldom-visited destinations such as Crete and the Algarve.
Coinciding with the increased sense of emancipation prevalent in the late 1960s was the growth of the 'package holiday' .
But it was in the USA that a true revolution unfolded in airlines: a model that emphasised lower cost over luxury by cutting down on extras, using smaller airports to save costs and abolishing seat booking. The world saw the rise of the budget airline, starting at a small airfield in Texas, a phenomenon that was to change the way passengers viewed travel and that would open up aviation to the masses for the first time.
Southwest Airlines was the world's first no-frills budget airline, and pioneered the business model that brought it and others that followed so much success. It was established in 1967 by a group of investors headed by Herb Kelleher, and planned to operate business flights within the state of Texas, between Houston, Dallas and San Antonio. However, because of protracted legal challenges by the state's major airline companies, Southwest did not actually open for business until 1971. Initially offering flights between Dallas and Houston, the airline made the decision to drive down fares by stripping away the extraneous luxuries that beforehand had been considered part and parcel of flying. There was no free meal or drink, the airline launched with a single passenger class and there were no reserved seats, meaning it could fill more planes and drive down costs. It also flew from 'secondary' airports rather than the more expensive, higher-profile main airports, further cutting costs. Initially, a one-way ticket cost just $20 and the airline offered flights on the hour between Dallas and Houston, making the service both cheap and convenient for business travellers.
Southwest Airlines flight attendants sported hot pants in the 70s.
And the company was keen not to present itself as a staid, puritanical airline, which would seemingly have been in keeping with a 'no-frills' service – indeed it was quite the opposite. In reference to its home base, Love Field in Dallas, the company began cultivating a corporate image of 'love' – stewardesses were hand-picked for their perceived attractiveness and were attired in hot pants and go-go boots, appealing to Southwest's client base of mostly male business people (this practice stopped in 1980, when the stewardesses won the right not to wear hot pants on the job). Southwest also decked its planes out in recognisable red, blue and orange paint, providing instant brand recognition even when thousands of feet in the air – a practice followed by many budget airlines today, such as easyJet, with its distinctive orange livery.
Soon, other airlines in Texas caught on to the budget model and in 1983 Southwest became embroiled in a price war with rival Texas operator Braniff. This resulted in customers seeing return fares from Houston to Dallas drop to as little as $13, as well as being offered extras like free liquor and ice buckets in return for their custom. The budget airline was well on its way to being big business.
When Congress deregulated US airlines in 1978, Southwest became free to expand its operations outside of the state, and immediately set about purchasing other domestic flight carriers to extend its reach across the USA, starting with the purchase of Midway Airlines in Chicago in 1978.
The first no-frills airline to cross the Atlantic was established by a British entrepreneur called Freddie Laker (later Sir Freddie). Laker Airways was set up in 1966, initially as a charter airline. However, Laker conceived of a fast and stripped-down service that would fly from London to New York on a daily basis. Seats would be sold on a 'first come, first served' basis because there would be no booking, and tickets would be just £30. Laker called his plane the 'Sky Train', and applied for a licence to run it in 1971. However, the British authorities just weren't ready for Laker's plan and constantly put up barriers and restrictions on his business. People were concerned about the number of flights taking off from Heathrow because of the safety issues involved, as well as the pollution and noise they could cause.
The first no-frills airline to cross the Atlantic was established by a British entrepreneur called Freddie Laker ... Laker called his plane the 'Sky Train' .
The Sky Train did eventually get off the ground, although it did not fly as often as Laker wanted and had to take off from Stansted rather than Heathrow. Other transatlantic operators also played rough by dropping prices in an attempt to put Laker out of business. Throughout its duration, Laker Airlines was caught up in disputes with the Civil Aviation Authority (CAA) and government. Laker's vision was not compatible with the uncompetitive, closed-market approach of the day. In 1982, after a mixed history, Laker Airways went bust, although its founder had won the affection of many as a result of his efforts.
Commercial Impact
The main carriers might have seen Laker go out of business, but new entrants were lining up for a stake in the growing sector. At the start of the 1980s, the air travel market was still dominated by a few big players and almost half of all flights took place within the USA. However, a number of crucial changes paved the way for the booming industry we have today. These changes had broader commercial implications for the tourist industry.
For one thing, legislative changes, such as deregulation of the airline industry in the late 1970s and the privatisation of many formerly state-owned carriers, such as British Airways, into the 1980s made it far easier for new entrants to get into the sector and challenge the existing order. In the past, governments had controlled factors such as the numbers of flights, air fares and destinations, but in the USA, Europe, Australia, Japan and parts of South America, these restrictions gave way to market forces.
Secondly, business cycles finally began to work in the favour of new entrants. The recessions of the late 1970s, the early 1980s and again in the early 1990s meant that start-ups could obtain aircraft hangar space at a much cheaper price and could also find experienced staff to work for them who had been victims of the economic slowdown.
The political landscape of Europe changed dramatically with the collapse of Communism in Eastern Europe in the early 1990s. This opened up a host of new destinations to travellers and expanded the need for new airports and planes. Further business deregulation, especially the Single Market, created by the European Economic Community (EEC) in 1992, added further to the sense of freedom and openness, and destinations such as Prague – previously virtually inaccessible – experienced a huge and sustained boost in tourism.
During the 1980s and 1990s, the cheap flights and no-frills business models were picked up by many providers across the world. One of the most successful was Ryanair, founded in Dublin in 1985. The company began by offering flights from Waterford, Ireland to London. Ryanair soon started to grow, but was not particularly profitable. However, this changed in 1988 with the arrival of CEO Michael O'Leary. O'Leary had learnt of the low-cost model adopted by Southwest Airlines and was convinced that it could work for Ryanair. He was proved right and, by 1997, was ready to take the company public and to use the money to make a major challenge to the airline industry. By 2003, revenues were in excess of £1bn and the company was highly profitable.
The 1990s also saw the growth of Stelios Haji-Ioannou's easyJet airline. Founded in 1995 and initially offering domestic services to London and Scotland, it won over many passengers with its commitment to making air travel 'the cost of a pair of jeans' and gained exposure in the early years by simply displaying a huge phone number on the side of its planes. In 2003, it acquired rival budget operator Go Travel for £374m, almost doubling the number of planes in its fleet. easyJet grew to carry more passengers than any other UK-based airline and the distinctive orange planes can now be spotted at some 118 airports around the globe.
Nowadays, Southwest is the USA's biggest airline and runs 3,400 flights a day to destinations all over the country, reporting revenues of $12bn in 2010.
What happened next?
Over the last 60 years, air travel has grown and grown. It is now a major part of the world economy, directly employing over five million people. There are currently roughly 900 airlines in operation, and between them they have approximately 22,000 planes. It is hard to measure the impact of air transport on the global economy, but groups such as the Air Transport Action Group believe it to be 8% of the world's GDP, or $2.9bn. Budget airlines have played a massive part in this growth and have, themselves, become major companies. Ryanair, now Europe's biggest budget airline, carried 33 million passengers during 2008 and currently has revenues of about £360m per year.