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Squeezing the lemon

As growth in mature markets falters, the low-fare sector needs to look again at its costs. But are there any further savings to be made? Ian Putzger reports

In October, Spirit Airlines elicited a collective gasp from passengers and observers alike with the announcement that it would charge an eye-watering $100 for a carry-on bag if a traveller had not paid a fee for it before arriving at the gate. That marked an increase of more than 100% from the painful $45 it levied before – a juicy margin by anyone’s standard. However, according to its own explanation, this is not what the carrier is after.


“Spirit doesn’t want customers to pay $100 for a bag at the gate,” its press release was headed. It went on to explain that the fee was set deliberately high to encourage passengers to pay for their carry-on items earlier in the process and thereby avoid slowing down aircraft boarding.


“It is fascinating how they pitched that. They said, ‘we don’t want the additional revenue, and here is how you can avoid paying it’,” remarks Michael Smith, managing partner at Airline Information.


After years of cutting costs, carriers are still streamlining all facets of their business, trying to wring out more efficiencies and costs, belying claims that there are no further cost savings to be had.


“The lemon has not been squeezed dry,” is the verdict of John Strickland, director of JLS Consulting. He points to the latest results published by Ryanair and easyJet, which show strong gains in profitability.


“Cost control is not some beautifully named campaign. It has got to be going on the whole time. Cost containment has got to be part of the DNA, not a special campaign,” he adds.


However, Ben Jacques, commercial manager at IBA Group, cautions against a narrow focus on cost-curbing efforts. “Pinpointing one cost optimisation is often a false economy. You can bring down the cost of X, but what impact does this have on other aspects? You can save $100,000 here and shoot yourself in the foot,” he warns.


Given the painful impact of fuel costs on the bottom line, this aspect has produced some strenuous efforts, remarks George Hamlin, president of Hamlin Transportation Consulting. “Delta’s decision to buy a refinery is an interesting step, but I doubt it will find many followers,” he quips.


Ryanair’s CEO Michael O’Leary has been making noises – this time about a major aircraft deal – but not at any price, as he put it. On top of competitive aircraft prices, this would bring in better fuel economies to boot, but few operators are ready for this option. Maintenance cycles, inspections and re-deliveries, on the other hand, offer more ubiquitous opportunities to optimise costs, observes Jacques, adding that engine maintenance management can also generate significant savings.

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