Why European Budget Carriers Are Cheaper Than Their US Counterparts

[Music] for anyone who's flown low-cost carriers in both europe and the united states have you ever wondered why there's such a huge difference in airfares airlines on both sides of the atlantic use the same aircraft with similar seat densities and an overall similar bare bones level of service and yet travelers in the us seem to be shelling out more for each flight why is this first let's compare the two markets and their routes and a schedule you could depend on remember the low-cost concept began in the u.s market in 1971 with southwest airlines however market deregulation in 1978 really opened up the market and increased competition across the pond europe deregulated its market later than the us with liberalization taking place in the early to mid 90s ryanair was the first budget airline in europe and today is the largest airline on the continent by passenger numbers as of 2019 with million passengers the second largest low-cost airline easyjet trails behind it with 97 million deregulation was and still is part of an experiment to ultimately reduce ticket prices and remove barriers to entry to new airline companies in the us the airline deregulation act of 1978 completely liberalized the u.s market in europe historically air transport was developed under the control of national authorities this meant monopolistic national carriers and publicly owned and managed airports but over the course of about a decade these barriers began to come down this eventually led to the formation of the single aviation market and this opened the door to loads of low-cost airlines just like ryanair to expand across the continent bringing with them lower fares and more competition for the legacy carriers tracking fares isn't easy but let's take a look at some factors as with any airfare low-cost airline tickets vary greatly between routes time of booking and much more european airlines are certainly more aggressive with extremely low fares during promotional periods we occasionally see one euro promotion fares and fares as low as 10 euro are quite common on average though fares in europe work out substantially lower airfare comparison website skyscanner looked at this in 2018 and found that the average one-way flight with southwest airlines cost 149 while the average one-way flight with ryanair was just 60 so where does this discrepancy come from firstly there's a more competitive legislative framework in europe which is a key driver of low fares eu legislation allows airlines from any eu country to operate flights in another country domestic and international in the u.s foreign airlines are not permitted to operate domestic u.s flights indeed the open skies agreement has been a key part of eu aviation regulation for many years regulations have developed further in the 2000s with the agreement of a european common aviation area or ecaa which liberalizes the airspaces of all eu countries plus a number of non-eu states including albania montenegro norway serbia and more this means that airlines not only compete domestically with airlines in that country but also with airlines from other eu states whether or not airlines choose to expand into other countries just the threat is enough to keep fares lower [Music] thanks to open skies airlines can pretty much fly anywhere they want ryanair might be a traditionally irish airline but it has the freedom to operate right across the continent the same goes for uk-based easyjet this means these low-cost carriers are free to compete with many other regional airlines another factor for low affairs in europe is non-airline competition unlike the united states europe has a well-developed and ever-improving passenger rail system there are excellent high-speed connections within and between many countries as well as night trains on longer journeys for an even cheaper mode of transport there is an ever-growing long-distance bus industry with fares just as low or lower than a plane ticket trains and coaches provide strong competition on many routes moving people directly between city centres while further pushing down airfares of course rail and coach competition exists in the us but it is much less utilized apart from a few key routes particularly on the east coast rail travel remains slow and is often inconvenient and more expensive [Music] a third reason for lower european airfares is the fact that europe as a whole has a larger population than the united states providing for more potential passengers and a better chance at filling aircraft the population of europe stands at about 748 million more than doubling the 332 million in the u.s along with a high population is a high population density in europe specifically looking at western europe we have a dense 181 people per square kilometer compared to just 36 people per square kilometer stateside in general this higher population density should translate to better opportunities for shorter and more profitable flights our fourth reason is that european airlines can take advantage of an abundance of smaller airports in fact europe has many smaller underused airports which are sometimes further but not too far away from cities low-cost airlines were quick to realize the potential and offer flights to these smaller and more distant airports which are often well connected to urban centres by rail networks as a result european budget airlines can avoid intense slot competition and higher airport fees found at busy main airports this makes a big cost difference this hasn't happened to the same extent in the us where low-cost airlines often use large hub airports just like their full-service counterparts this phenomenon has gone even further in some parts of europe with airlines being paid by local regions to bring in passengers early on this was quite common but has decreased over the years uk group airport watch looked at the use of subsidies in 2014 it showed in the years leading up to then around 20 percent of ryanair's revenue came from airport subsidies or reduced taxes and ground handling rates this practice has changed somewhat over the years but a 2019 report by the european federation for transport and environment showed that up to 52 ryanair airports were receiving subsidies with around half of these in france if you like in this video so far why not click subscribe and hit the like button oh and be sure to click that notification bell too [Music] more acceptance of low cost in europe so this is a bit of a generalization but largely here in europe we're more accustomed to a bit of a piecemeal approach to air travel we've come to expect that everything will add cost from our seat selection to checked-in bags and for some low-cost airlines even our carry-on we know there'll be something to pay whereas in the us passengers tend to expect a certain level of inclusivity the expectations are that all the basics should come with the ticket with even the low costs providing some of these things for free next up is the topic of fuel taxes indeed a big cost difference enjoyed by european airlines is untaxed fuel airlines in the us pay tax on aviation fuel which varies from state to state aviation fuel has long enjoyed a special status over other fuels since the 1940s many countries including those in europe have not levied attacks on it this originated with a chicago convention which prohibited the taxation of aviation fuel however the european federation for transport and environment points out that this only prohibits the taxation of fuel already on board an aircraft when it arrives in another country not the taxation of fuel loaded onto the aircraft since then many countries have introduced aviation fuel taxation but this still hasn't been the case in europe over the years there have been moves to introduce taxation in europe from various parties including environmental groups new regulation was introduced in 2003 allowing eu countries to tax aviation fuel through bilateral agreements however as of 2019 only the netherlands norway and switzerland had introduced taxes and only for domestic flights we can't expect this lack of taxation to last long though especially with a growing focus on carbon emissions this may lead to a rise in european airfares in fact elite eu reports suggested that a tax of 33 cents per litre would lead to a 10 rise in ticket prices consequently reducing passenger numbers by 11 percent change could be in the air for europe's budget airline sector coming out of the catastrophic events of 2020 and as aviation starts to recover some airlines will be better placed to expand and fill gaps left by bankrupt carriers this consolidation of the industry may ultimately lead to higher airfares in europe of course consolidation could happen in the united states as well leading to higher airfares in this market too in the short term we may see a lowering of airfares as the industry recovers from the pandemic if the anticipated pent-up demand fails to materialize airlines may want to drop their fares to lure passengers on board and revive air travel in an interview in november 2020 ryanair ceo michael o'leary predicted a return to up to 80 percent of capacity during 2021 boosted in large part by even lower fares but longer term any consolidation and lessening of competition would indeed drive up prices europe seems more at risk of high affairs particularly due to upcoming shifts in local subsidies and the taxation of aviation fuel both of these have supported airlines low fares for many years but may not continue as they have before so the impact of the pandemic it really does threaten to disrupt the low-cost model all over the world we've got airlines taking on huge amounts of debt to survive the crisis whether this is through loans or sale and lease-backed transactions or other means these debts will need to be serviced ongoing and this means that the basic cost of providing their service will become inflated this will hamper their ability to offer the lowest affairs how that will play out in the long run remains to be seen what's your experience of how u.s and european budget airfares differ do you think anything will change in the future let us know your thoughts in the comments did you know that we publish over 175 stories every single week on simpleflying.com be sure to check the link in the description for more great stories just like this thanks for watching and be sure to like and subscribe before you go

Channel: Long Haul by Simple Flying

Views: 297,107

Keywords: aviation, flying, flight, boeing, airbus, planes, aircraft, 737, 747, 757, 767, 777, 777x, a320, a321, airbus a380, a380, airports, american airlines, united airlines, delta airlines, british airways

Id: nwFCmbP90G4

Length: 11min 32sec (692 seconds)

Published: Tue Jan 19 2021