Which? Holiday compared the prices of four of the UK’s largest no-frills airlines on flights from East Midlands airport to four different destinations and found found that checking a bag into the hold and using a credit card could add almost 30% onto the advertised price of some "budget" airline tickets.

European low-cost carriers face a tough winter, mainly because of the drop of passengers demand. Furthermore, recent outlook announcements made by market leaders, Ryanair and easyJet, and market analysts are not really good. Hence, 2010 will still be a difficult year for carriers. And what about in 5 years, what are the main threats to low-cost airlines by that time? As I’ve previously analyzed, I believe the European Union's emissions trading scheme (ETS) will bring new costs to carriers. But, in the medium term, trains network throughout Europe is the biggest threat to low-cost airlines. Let’s take the French market as an example.

bmi has announced restructuring of its mainline and regional operations, including cost saving and revenue enhancement initiatives.

The move takes place against a background where the airline industry is facing the challenges of a downturn in demand and the worst recession in the UK since records began.

The airline announced it will be reducing the number of aircraft in operation from 39 to 30, by suspending non-core and unprofitable services. This will result with a loss of approximately 600 jobs, which follows a recent announcement of 158 job losses at its low cost arm, bmibaby.

Last week, Ryanair released its results for the first and second quarters of 2009. Its profits surged by 80% to 387 million Euros thanks to a 42% fall in fuel costs. Despite these good results, Ryanair is careful for 2010, expecting a loss for the third and fourth quarters. We believe that Ryanair, along with other low-cost carriers, is at a turning point in its strategy and its business model. In fact, the same successful business model of Ryanair now appears to narrow its room for maneuver.

Narrow room for maneuver for Ryanair

Let's take the reasoning from the beginning. Due the economic downturn, Ryanair faces a fall in its traffic of passengers. But because of its business model, Ryanair must keep growing at all costs, as it is the way to reduce its unit costs. Volume of routes and volumes of passengers are the strategy of Ryanair, which is different from easyJet for instance, like Stelios Hadji-Ioannou reminded it at the last World Low Cost Airlines Congress. Ryanair also needs passengers for two other reasons: first to reach quotas set with airports and to receive subsidies from them, and second to maintain revenues from ancillary revenues which account for 20% of the carrier's revenues. Indeed, fewer passengers mean less ancillary revenues generated.

Therefore the strategy of Ryanair is to maintain its load factor at all costs. To do so, the carrier cut prices of its tickets, but then has seen its yield falling by 17%. Therefore, the carrier must find new sources of revenues to balance this drop of revenues. Ryanair only has 4 options to explore and to combine in order to gain some revenues and to maintain the model: