European airlines are the ugly ducks of the world. While the global airline industry has made â€‹â€‹a profit of about $ 3 billion in 2012, European airlines recorded a total loss of $1.1 billion last year (source = * IATA). And without the proper performance of the European budget airlines like EasyJet and Ryanair the losses of European companies would be much higher. The key question is: why are European Airliners performing so poor? And how come budget airlines are able to beat their competition and operate profitable?
The main reasons airlines cite is ‘aging’. The cost carriers have newer aircraft that require less maintenance and are more efficient in flying. The staff is on average younger and enjoys poorer working agreements. This ensures that the cost level is generally lower. In addition, budget airlines can flexible delete unprofitable lines without major implications for their services and/or obligations. KLM cannot delete some unprofitable lines because they are members of international airline alliances or because destinations are part of transit routes.
Old fashioned cost savings
According to Mikolaj Fiksinski, advisor at Scenter, these arguments are only part of the explanation. According to him, the established airlines focus too much on old-fashioned savings. The older airliners focus on cutting costs, without much cleverness behind it. They also rely too much on the principle that scaling yields a competitive advantage, which, especially in the non-core areas of practice does not appear to be so.
Fiksinski bases its conclusions on a survey he conducted among dozens of airlines. The consultant looked at the profits and sales per employee, as ultimately the most important criteria for the success of airlines. The figures showed a clear picture: price fighters score significantly better than the incumbents on both performance criteria. Moreover, the emerging airliner Emirates proves that even with a global network it is possible to make more money per employee.
When asked what the big difference is between the two groups the Scenter consultant was clear: established airlines are losing ground particularly in non-core services. "The success of Ryanair comes from the fact that they have collaborated with other companies to create products, where each company uses its own specialty. With the exception of the flight every product is provided by a specialized company".
"Take the catering as an example" says Fiksinski. "Do you think an airliner can do it more efficient than a company that specializes in catering for all airlines”?
* IATA = international trade association of airlines.