In a recent report, Statec highlights that plane ticket prices soared by 19% in May 2024 compared to April. For package travel, the increase is 9%. The cause is delays in aircraft delivery forcing certain companies to compensate for a loss of passengers, but also forced maintenance operations, such as for the company Wizz Air, which had to immobilize 20% of its fleet. For other companies, such as Air France-KLM, the difficulties lie in the supply of spare parts.
More than the price increases, it is the price differences between traditional companies and those qualified as low cost which are rather striking. Let’s take some concrete examples. A Luxembourg-Lisbon flight in the middle of July: it is priced at €339 with TAP Portugal and €452 with Luxair. For a Luxembourg-Berlin flight, the price can go from single to double: €64 with Ryanair, €116 with Luxair. For a Luxembourg-Barcelona flight, it will cost €113 with Ryanair and €262 with Luxair, but not on the same days. Finally, another example with a Luxembourg-Milan, set at €32 by Ryanair, €40 by Easyjet and €91 by Luxair. Price differences which are largely justified according to the business model of each company.
Almost half of the price of a ticket represents what we call the “base fare”, understand the “cost of the operation”, that is to say the base price, not counting taxes and other additional costs, according to the International Air Transport Association (Iata), which specifies: “It is the part of the price which covers the costs of operation of the airline, such as the salaries of pilots, cabin crew, aircraft maintenance costs and other operational costs. This can represent around 50% to 60% of the ticket price. In its report entitled “World Air Transport Statistics”, the international agency mentions the other major cost for a company when it flies its planes: “fuels and oil”, which represents 15 to 30% of the ticket price – on average 29.7% in 2023 taking into account oil prices. The document also highlights that this distribution of costs varies considerably depending on the regions from which the companies originate. For example, “in Latin America and the Caribbean, aircraft fuel represents 36.3% of total airline costs, compared to 25.5% in North America.” In Europe, the rate is similar to Asia Pacific at around 20% of the ticket price. Regardless, “the cost of fuel is typically one of the largest, if not the largest, component of an airline’s operating costs.”
Come next “taxes and fees, which can represent 25 to 35% of the ticket price”, explains Luxair. The only one who agreed to answer us and detail these costs, in part. Among these taxes, the airport tax collected by airports for the use of their infrastructure and which includes in particular landing fees, aircraft parking and use of terminals; the security tax, which covers security costs, such as passenger and baggage security checks; and the passage tax, often used to finance airport infrastructure.
Luxair adds: “Reservation fees, such as commissions for credit card payments, can be 10% of the cost of tickets.» So what about the airline’s profit after that? The Luxembourg company did not wish to provide us with further details on this point: “For commercial reasons, we will not share further details regarding personnel costs or profit.” According to Iata, “this margin can vary widely, but it is often low, ranging from 1% to 5% of the ticket price.
Low-cost airlines remain discreet
Also contacted for more details on their pricing policy in order to understand the disparities from one operator to another, the low-cost airlines Ryanair and Easyjet did not respond to our requests. The second simply replied: “EasyJet offers competitive prices and good value for money compared to the competition thanks to our cost control model on our network of main airports.”
And in the face of low-cost models, Luxair says it wants to express “its concern about the pricing practices of certain airlines which offer tickets at extremely low prices, often lower even than the cost of airport taxes. This pricing strategy fails to adequately cover essential costs such as personnel, fuel and maintenance, thereby compromising the sustainability and quality of flight operations. These underpricing practices can mislead consumers, giving them the impression that air travel is exceptionally economical. It is crucial to recognize that these offers are often aggressive sales tactics intended to eliminate competition. These tactics not only harm the industry by creating a false impression of the economic reality of air transport, but they also harm companies like Luxair,” comments the Luxembourg company.
But what explains the price difference between a traditional airline and a low-cost airline lies primarily in the cost structure and its business model. “Low cost” companies manage to minimize their costs in several ways to be able to offer tickets with a more competitive base price. If fuel costs are more difficult to reduce, depending on their business model, low cost companies can for example “play” on the cost of the operation (fare basis).
This depends on their remuneration policy for example, but also on aircraft maintenance costs. In this regard, low-cost airlines often have standardized fleets, to reduce maintenance costs and the training of pilots on other aircraft. Thus, Ryanair mainly flies with Boeing planes, while the British Easyjet has opted for the competitor Airbus. To reduce the amount of taxes, Ryanair favors secondary airports, where airport taxes are usually lower. It rotates its planes, which also helps reduce its parking costs. Unlike Ryanair, Easyjet favors main airports, but it uses the same strategy to generate additional income by offering optional services that are less and less free.
Use of incidental income
A key aspect of the pricing strategy of low-cost airlines is the use of ancillary revenue. They charge extra for almost any service beyond purchasing the plane ticket. Sometimes, the accumulation of all these additional services doubles the initial price and the difference with the price of a ticket sold by a traditional company is reduced. For example, at Ryanair, to be able to choose your seat, the additional cost can range from €4.50 for a standard seat to €33 for a seat “with more legroom”. Other services are almost imposed. For example, “at least one adult traveling with children under 12 (except infants) must purchase a reserved seat and sit next to them.” Count 6 to 10€ more.
Ryanair also charges for the reissue of the boarding pass at the airport (20€), but also the check-in fee on site (55€). Sports or music enthusiasts must also put their hand in their pocket, once again, to transport, for example, a fairly large musical instrument (€50), golf equipment (€30) or ski equipment (€45). ). Then comes the baggage that is more difficult to do without, from €6 for cabin baggage to €60 for 20kg baggage in the hold.
If Luxair blames the cost reduction model of low-cost airlines, the latter also have their pet peeve. And this still affects the price paid by the customer. In a recent communication, Ryanair castigated the online travel agency eDreams, which notably sells flights and stays on its site. The operator also offers a Prime subscription which promises “discounts for every flight”. According to Ryanair, in one of its publications dated June 11, eDreams, via this Prime program, like other operators qualified as “OTA pirates” (Online Travel Agency), “overcharges users with an additional cost of 38% per ticket”. The study published by Ryanair accuses these OTAs of selling, for example, Easyjet flights for €44, which the latter only sold for €31.99, or even Wizz Air flights for €60, whereas on the Wizz Air website, the same flight cost 38€.
This time, in its latest global passenger survey, the results of which were published at the end of 2023, Iata indicates that 52% of consumers however prefer to buy their ticket directly from the company. Enough to avoid “false reductions” from operators such as eDreams.
Price is no longer the main concern for customers
Regarding consumer expectations, Iata also indicates in this report that price is no longer the consumer’s priority, who places more importance on speed and convenience. “Passengers have made it clear: they want to spend less time on booking formalities and speed up travel to the airport. And they are increasingly willing to use biometric data to carry out tasks outside the airport,” explained Iata vice-president Nick Careen. Proximity to the airport was passengers’ top priority (71%). More than the price of the ticket (31%).
