The world’s two biggest and most well known low-cost carriers are Southwest Airlines and Ryanair. Both operate a no-frills, low-cost service and in many ways are very similar. However, there are some striking differences in their low-cost models too, so which is better?
Yesterday I discussed the way in which Southwest had pioneered the LCC model, and had become a template for the LCC market the world over. Southwest remains the biggest low-cost carrier in the world today but is only slightly larger than European rival, Ryanair.
Over the course of 2018, Ryanair flew 139.2m passengers and Southwest just over 134m, so in terms of passenger traffic, the two airlines are very similar. However, there are some marked differences in how they deliver their low-cost strategy too; so which does it better?
Ryanair has unbeatable prices, literally. They’ve frequently been criticized for irresponsibly low fares, often flying people short-haul for EUR 10 or less. As Martin Gauss, airBaltic CEO, recently pointed out to Simple Flying, this is not representative of the cost of operating the flight.
Quite often, Ryanair fares will not even cover the airport tax cost to the airline. Ryanair is literally hanging everything on passengers paying for ancillary services like checked bags, buy onboard food and drink or seat selection. But it seems to be working for them.
Their recent earnings call saw a posted profit of $270m, which although down year on year is still a healthy margin. It seems that, thorough the low ticketing prices, Ryanair has succeeded in encouraging passengers to pay for ancillary services often enough to make their flights profitable.
Southwest, on the other hand, while still undercutting the competition significantly are managing to make their flights pay for themselves. While you’re unlikely to find a $10 flight on Southwest, they still come in far cheaper than competitors. Picking a date around two weeks away, for example, a return from Seattle (SEA) to San Jose (SJC) will cost from $207 on SWA, compared to $228 with Alaska and $261 on Delta.
Although Southwest is absolutely competing on price, they are not doing away with every single frill in the way Ryanair does. Their lowest ‘Wanna Get Away’ fare includes two free checked bags, complimentary snacks and drinks as well as free live TV on this particular service.
Clearly, Southwest is all about striking a balance between lower fares and good customer service, whereas Ryanair is happy to make a loss on the fare itself as they’re banking on you buying some of their other services to actually pay for the trip.
For the passenger, the Southwest experience is probably more hassle-free, but if you can beat the system and buy nothing from Ryanair, you’re going to get a bargain flight. However, what we’re talking about here is low-cost strategy, and in my opinion, making the fares a loss leader is not a sustainable strategy by Ryanair; I prefer the Southwest way.
Both airlines have the same low-cost strategy of using a single fleet type. Both rely on the Boeing 737 as their workhorse of choice.
Southwest has a fleet of Boeing 737-800s numbering 207, as well as 513 737-700s, some of which are over 20 years old. These were due start being retired this year, to be replaced by the 737 MAX 8, of which SWA has 241 on order. However, due to the grounding of the MAX, the airline is still operating many of these older airframes for the time being.
Ryanair has a fleet of 419 737-800s and one 737-700. Some of their 737-800s are getting on a bit, with the oldest coming in at just over 16 years. They too were expecting to receive the 737 MAX this year, possibly using some to replace older 737-800s, but have had to shelve those plans in light of the current grounding.
Southwest Airlines runs a very employee-focused environment. Its mission, as advertised on its website, is “dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.”
SWA does this by keeping staff happy and rewarding them well. Employees are entitled to unlimited travel for themselves and their dependents and are enrolled into a profit-sharing scheme which is noted to be the largest in the US. Last year, employees received a bonus equivalent to 10.8% of their income.
As well as this, they reward employees with wellness programs, medical cover, mechanisms for retirement savings and access to training and development opportunities too. Their Glassdoor reviews give the airline 4.3 out of five stars from staff, and a 90% approval rating of the CEO, Gary Kelly.
Ryanair, conversely, is infamous for not keeping their staff happy. Last year hundreds of flights were canceled due to strikes by pilots, and it looks like the same thing will happen again this year too. They’ve been berated for charging cabin crew for water, and then they sacked a team of crew for faking a photo showing them sleeping on the floor of an airport.
Ryanair pays by the hour, which means crew only get paid for the time that the aircraft is in flight. This means that, despite advertised high wages for pilots and crew, in reality, they’ll often struggle to make more than EUR 11 per hour, and sometimes much less (the Sun claim as little as £3.75 / EUR 4.10 an hour).
Cabin crew have also complained of not being fed, not being paid for overnight accommodation in the event of a delay and having immense pressure to ‘upsell’ to passengers, often being berated for not reaching daily targets. As a result, Ryanair’s Glassdoor ratings are just 2.9 out of 5, with just 44% approval for the CEO O’Leary.
So, it seems that, despite the cheery, clown-like demeanor of their CEO, Ryanair is a company very much focused on profits over people.
Both Ryanair and Southwest Airlines have a solid low-cost model that works well for them. Both carriers are profitable, and both maintain a consistently high load factor. However, Southwest does this by offering low but sustainable fares and ensuring a great customer experience, whereas Ryanair does it by offering unbeatably low fares and then doing everything they can to get passengers to pay for ancillary purchases.
In terms of low-cost models, I much prefer Southwest. They have an ethical approach to low fares, reflecting what the actual flight costs to operate while still undercutting the competition. Their staff are well looked after and passengers enjoy flying with them.
Ryanair’s management team are a shrewd bunch, even registering aircraft and employees in tax havens to avoid adding costs to the airline. If you ever needed an example of a carrier operating on a shoestring, this is it, and it shows in their profits.
While I respect Ryanair for their business acumen and sharp eye for detail, they would quickly come unstuck if every passenger aimed to beat the system by purchasing zero ancillaries. Southwest Airlines have a more sustainable business model and have earned the trust of both their passengers and their crew as a result, so in this case, I believe they simply do it better.
What do you think? Let us know in the comments.