By Tim Rose
The airline industry has similarities to motor retail, in that the ability to sweat high-cost assets and manage customer expectation is crucial. So explained David Bryon, former managing director of low-cost airline BMI Baby, during the recent meeting of the AM Executive Breakfast Club.
Bryon was in the senior team at airline British Midland that set up BMI Baby in 2002 as a rival to EasyJet and Ryanair in the low-cost flights sector. It carried 4.5 million passengers a year until BMI was bought in 2012 by IAG, which closed BMI Baby.
Bryon said profitability is a challenge for airlines. Collectively, the airline industry has never made a profit, he said, although certain individual airlines are profitable. Fuel is a huge cost for airlines, so they hedge their exposure to changes in the price.
However, airlines are cash-positive, because the customer must pay for a seat in advance, and the aviation industry has grown by offering low-cost fares.
Like all businesses, the low-cost operators require strategic planning and innovative, tactical initiatives.
For example, low-cost airlines know there are 20% of seats they can never sell, so they offer these first, well ahead of the flight, for rock-bottom prices, tempting the leisure traveller. The customer who needs flexibility, who has to book a flight at the latest possible point, will pay the highest price possible.
These airlines are also known for their ancillary revenue streams, adding charges if the traveller requires luggage, refreshments or other conveniences.
They can do so successfully because they set customer expectations very low, they define the expectations, and then over-deliver. They also put the customer in charge of their own buying decisions, with good use of digital booking. The average number of complaints is 22 per 10,000 passengers.
“You need to define where you want your company to sit,” Bryon said.
Low-cost airlines such as Ryanair also manage their overheads carefully, chipping away at the cost base, maximising utilisation of their assets and keeping headcount efficient – the pilots are self-employed contractors, and there are more trained pilots and cabin crew than jobs in the industry, which keeps pay competitive.