Turbulence ahead for low cost carriers

Low cost carriers like Ryanair and easyJet can expect to experience turbulent skies ahead, as the record price of fuel slowly forces them to do what their unique business model strongly discourages: namely, to raise ticket prices. A study appearing in the Guardian noted how an entire generation of travellers has become accustomed to cheap tickets when it comes to flying on short-haul routes within Europe, and this has even encouraged some Britons, for example, to purchase homes on the continent and travel to them on a regular basis. Yet while full-service flag carriers have much more latitude in terms of raising ticket prices, there is an inherent expectation that low-cost airlines will offer very attractive, discounted rates. If these carriers are no longer able to offer this due to the high price of fuel, then some industry analysts have suggested that their business and the entire no-frills model might be in jeopardy.

The Guardian is already asking whether or not the current oil prices spell “the end” of budget airlines. If this indeed becomes the case, then these carriers and passengers raised on inexpensive tickets are hardly the only ones to suffer. Regional airports in the UK have benefited greatly from the growth of the budget airline industry, and some have expanded their traffic by as much as 200 percent over the years.

Credit Suisse has suggested that it will be impossible for any budget airline to remain profitable over the course of the year, without significantly raising ticket prices. Ryanair specifically will be in danger of generating losses once oil reaches the $140 per barrel mark, which it is widely expected to do this summer. An additional problem is that low cost carriers rely very heavily on leisurely, rather than business passengers, yet some studies indicate that consumers are getting ready to cut back on their personal travels and vacations if air ticket prices rise, or if the credit crunch continues.

www.ryanair.com