Fly the frugal skies: how low-cost airlines have transformed Europe—and what it means for America

Reason, Jan, 2005 by Matt Welch

There are now 10 SkyEurope flights a day out of Budapest (where it competes with the energetic new entrant Wizz Air); two new regional hub airports, probably in Poland and the former Yugoslavia, will be selected sometime soon. Meanwhile, Austrian Airlines and Lufthansa recently have moved into Stefanik, and Slovaks who rarely used credit cards or the Internet are getting a crash course in both.

"Part of our everyday work is the revolutionizing of the local market," Saling says. "To tell people what are low-cost airlines, how they can bring value to their lives, and change the way they travel."

When Good Markets Go Bad

The financial pages on Fleet Street were filled all last spring with ominous talk of a low-cost market collapse. Fuel prices, already one of the largest fixed costs in the airline business, are going through the roof, just as the price-slashing "bloodbath" RyanAir's O'Leary warns of drives tickets ever closer to free. A competitive shakeout, predicted by the experience in North America, has long been forecast. But there is a new threat on the horizon: the E.U.'s stifling bureaucracy.

Early last year, the E.U.'s Airline Commission, after bearing complaints about suddenly canceled flights, thin compensation, and poor customer service, passed regulations forcing all European airlines, low-cost or otherwise, to compensate stranded passengers with up to 250 euros per canceled flight, in addition to providing hotel, meals, drinks, and taxi service. The rule, currently scheduled to take effect in February 2005, is being challenged at the U.K. High Court in London. "This would be a disaster for the industry and for consumers," warns Wolfgang Kurth, president of the new European Low Fares Airline Association, a group that includes RyanAir, Sky Europe, and Wizz. "The prerequisite of our business model--namely, low operating costs--is at risk." Mike Ambrose, director general of the European Regions Airline Association, estimated that the ruling "will add 1.5 billion [euros] a year to air fares,' EasyJet estimated its damage alone would amount to 120 million British pounds a year.

This is not the only threat facing Europe's most dynamic sector. Residents near the booming low-cost hub of Stansted, England, are hopping mad about a major planned airport expansion, and similar protests are being heard in communities that 10 years ago would have begged for the problem of overcapacity. Complaints of noise and air pollution abound, putting more draft regulations on the table in national capitals and in Brussels. "The skies above Europe," Newsweek warned in May, "are getting dangerously congested," and all it takes is one major crash (see ValuJet) for a "hot" airline or sector to go cold overnight. EasyJet and RyanAir are constantly battling state-owned airports to privatize and/or reduce fees, while attempting with limited success to protest the preferential treatment some regional airports give national airlines (especially in strike-addled France). On the other side of the coin, staggering flag carriers like Italy's Alitalia continue to be propped up by taxpayers' money instead of being left to die in the wilderness. "It is high time," International Air Transport Association Director General Giovanni Bisignani said at the organization's annual meeting in Singapore last June, "that European Union regulators took the trouble to learn about the industry they are busy misregulating."