Are low-cost airlines finished? How Ryanair, EasyJet and Wizz Air are making more profits and teaching the US giants new tricks

Today, budget airlines are looking to expand further, but the way they operate differs enormously on both sides of the Atlantic, looking for new revenue streams in different ways.

Europe has a long way to go

Extras are the hallmark of European budget airlines. Easyjet has been selling fast-track boarding and all the extras like extra legroom for years, and these extras can sometimes be more than 50% off the original ticket price.

Its rival Ryanair, which once made headlines for announcing plans to charge travelers for bathroom use, earned an average of €24 per passenger from surcharges in the second quarter of 2023, up 10% (traffic its average plane fare is just over 40 euros in Europe).

Read more: Michael O’Leary questions Britain’s 5am airport drinking culture as Ryanair boss continues battle with pubs

A big difference between Europe and the US is that in the US the low-cost carriers generally operate from the same airports as the legacy carriers, so there is less of a cost difference between the two, say 20 to 30% Less. In Europe, costs can sometimes be up to 50% lower when budget airlines operate from smaller, lower-cost airports.

There is also a larger market to explore in Europe, especially for new African cities. As airplanes become more efficient, airlines can seat passengers in different configurations at lower costs. And the range is growing too. Low-cost airline Wizz Air plans to launch the Airbus A321XLR in 2025, which can fly the seven-hour flight from Gatwick to Jeddah or Abu Dhabi for just over €160 one-way. It’s not entirely long-haul, but it will help an airline’s cost efficiency if a previously parked plane is now traveling overnight full of passengers to its destination.

Read more: Wizz Air proposes 300% bonus for its CEO following ‘black swan parade’

Both Ryanair and Easyjet have successfully expanded their reach into the package travel market. Easyjet Holidays, which offers a combination of a budget flight ticket, a hotel room and sightseeing travel, was launched in 2022 and expects a profit of £180m in 2024. Ryanair has signed deals with 12 tour operators in the last 12 months, where the existing package holiday providers such as Tui and Expedia add a budget airline ticket. It’s a no-brainer for budget travelers who have greater financial protection by booking through a guaranteed supplier should any part of their holiday be cancelled.

US budget carriers are imitating legacy airlines

The standard model for low-cost carriers is to offer customers a cheaper seat than full-service airlines and then offer additional paid options, such as choosing where to sit. In the US, major carriers used to copy low-cost airlines, but after the pandemic, things have changed.

Budget airlines are now promoting bundled fares, allowing passengers to board with heavier and larger carry-on bags and seat selection included.

Spirit Airlines has an option, for example, that includes drinks, snacks and wifi while sitting at the front of the plane. Customers traveling with Frontier Airlines can now choose to keep the middle seat free. Southwest Airlines, which has had an open-seat option for years, recently announced it will bring paid assigned seating and offer more expensive seat options with extra legroom on more than a third of the plane.

Conformable Bloombergthe three largest US carriers, United, American, and Delta, make a lot of money by persuading their passengers to “buy” into the next higher category. For American Airlines, 10% of its revenue in the first half of 2023 came from customers doing just that.

People might be a little more willing now to pay more for all-inclusive fares on budget airlines. On the one hand, a large number of people retired during the pandemic and want to travel in better conditions. On the other hand, Generation Z and Millennials are ready to pay more for better quality and experiences.

Industry experts believe airlines are looking for the right mix of basic economy and more expensive premium options on the same flight — something for everyone, say. United, American and Delta can decide how many low-cost seats they sell on a flight and price them accordingly based on the number of other seats they’ve sold, which is harder for the budget model to do.

Legacy airlines also have an advantage over low-cost carriers when offering seats on par with budget airlines, as travelers can easily benefit from better loyalty programs and can enjoy snacks and drinks free of charge.

Ultimately, however, US low-cost airlines have no choice but to offer advanced seat assignments. John Grant of OAG, a company that provides global travel data, says shareholders are demanding more revenue and the market is too mature to do anything else. US budget carriers can’t grow any further, Grant says, because airlines have explored every city and need new ways to create revenue streams.

The revenge journey meets the cost of living crisis

In today’s financial climate, families are looking for more insurance against the unexpected. Headlines suggest the skies are full of people on “revenge trips” making up for lost travel time since the pandemic, but the cost-of-living crisis felt acutely by many families may have eroded expected airline profits.

OAG’s John Grant believes 2024 results will still show a strong year for many airlines, albeit less profitable than 2023. For 2025, Grant predicts a softer decline than might have been due to optimism about fuel prices, provided airlines can control capacity.

In addition, airlines must address other risks, not just those related to fuel and climate change. Due to a lack of investment, infrastructure is creaking in the EU and the US and there is a shortage of pilots and air traffic controllers.

That said, it’s clear that the public hasn’t yet fallen in love with flying, and low-cost airlines aren’t done; they are just transforming their business models to meet changing customer needs.