Anatomy of a budget flight 
On today's EasyJet flight from Luton to Nice, some people will have paid only £20 for their seats. Yet the airline still makes a profit while established carriers nosedive. This article explains where every penny goes 
Wednesday August 20, 2003
The Guardian 
It's the question everyone who's ever flown with a low cost airline has asked: how do they do it? Some of the passengers travelling on today's 10.45 EasyJet flight from Luton to Nice, a popular route at this time of the year, will be paying just £20 for their seats. A flight of nearly 700 miles for less than the price of a couple of CDs. 
Admittedly, others - the late bookers - may be charged closer to £140 but that still represents a revolution in travel. The average price for all EasyJet flights is £48.70. In the bad old days before no-frills airlines, you would struggle to get a seat to Nice for £200, however early you booked. 
But low fares still equate to very healthy profits for the low-cost airlines. Ryanair is the only European carrier to make profits in each of the past 13 years, while the detail in EasyJet's accounts enables some simple calculations to be made about the how the economics of the low-cost game work. 
The basic fact is that every time an EasyJet flight takes off, the company receives, on average, £6,136 in fares and makes £545 profit. 
That might not sound much, but it represents good business when you are carrying almost 20 million passengers on 156,000 flights, as EasyJet will this year. It also works out as a profit margin of 8.9%, after paying all taxes, which compares well with other consumer industries. Tesco, the country's biggest and most efficient supermarket chain, made profits of just 3.6p in the pound last year after tax. 
The breakdown below explains the costs involved for firms such as EasyJet - how much of that £6,136 goes on fuel, how much on crew and so on - but there is a broad philosophy behind the low-cost airline game and how to beat the bigger established airlines. 
It was set out 30 years ago by Herb Kelleher, founder of Southwest airlines of Texas, the world's first budget airline and still the biggest. Stelios Haji-Ioannou, founder of EasyJet, and Michael O'Leary, the driving force behind Ryanair, both cite Southwest as an inspiration and both studied its business model in detail. 
Kelleher's philosophy runs to just four rules: 
Rule 1: Only fly one type of plane. The idea is to allow any aircraft in the fleet to operate any route. It also makes life easier for the maintenance engineers and enables fewer spare parts to be stocked. The plane of choice for low-cost airlines is the Boeing 737 - Southwest, EasyJet and Ryanair all use it. 
EasyJet, though, has now decided to break the rule and mix its planes. It ran a year-long competition between Boeing and Airbus and opted to order 120 new Airbus 319s. Its justification was price - Airbus was desperate to break Boeing's domination of the booming low-cost industry and made a knock-down offer. EasyJet reckons it will lower its costs by 10% as a result and, given that both models hold about 150 passengers, it will not have to abandon the "any plane, any route" idea. 
Rule 2: Drive down costs every year. As it grows, EasyJet aims to cut its unit costs by 8-10% a year by reaping economies of scale. It means demanding better terms from the insurer, the fuel supplier and all the other suppliers. The internet is also the friend of the low-cost carriers: it cuts out the commission for the travel agents. The likes of British Airways still have to deal with them. 
Rule 3: Turn around your aircraft as quickly as possible. Aircraft make money by going from A to B, not by standing around on the Tarmac. That's why budget airlines don't bother with seat numbers - a sit-anywhere policy gets the passengers loaded more quickly. 
A single plane may be making eight flights a day - for example, Luton to Nice and back four times - and it is only possible if it spends little more than 30 minutes standing still at each end. This is also the reason why the in-flight trolleys don't sell peanuts: they take too long to clear up when the bags split. 
Rule 4: Don't try to sell anything apart from seats on a plane. In other words, don't mess about with complicated and fiddly things such as Air Miles and loyalty schemes. "Price is the best form of loyalty," is O'Leary's philosophy. 

The cost of a single flight

£542: Ground handling charges
This is the cost of check-in staff, the luggage handlers and the people who refuel the plane. These staff usually work for an outside agency. Only at Luton and Geneva airports are the check-in staff employed directly by EasyJet 

£817: Airport charges 
These are paid per passenger. At Luton, the rate is £5.50 per passenger 

£101: Credit card charges 
Charges made by the credit card company for passengers booking online - more than 90% of EasyJet and Ryanair customers do so. For those that book by phone, there is a 95p-per-booking incentive payment to the call centre staff and that cost is also included here 

£728: Administration 
The main items are the lease on the head office, IT costs and the salaries of the management and operational staff. There is also a small element to cover refunds etc. This is the key area where low-cost carriers aim to beat British Airways and its peers by extending the low-cost mentality to the head office 

£614: Fuel 
Fuel prices can move sharply - for example, the oil price rose steadily in the build-up to the war in Iraq. There is also a currency risk: airline fuel is bought in dollars, whereas most of EasyJet's passengers are paying in sterling and euros. But at the moment, there is little to worry about: oil has been comparatively steady for several months and the dollar is weak 

£420: Navigation 
Part of this goes to the air-traffic control tower at the airport at each end. The rest goes to the national air-traffic control organisation for the countries that the plane flies over 

£215: Advertising 
In EasyJet's case, it is mostly newspapers, billboards, bus shelters and the tube 

£676: Cost of the aircraft 
Almost all of EasyJet's planes are on long leasehold arrangements with financing companies such as GE Capital. Prices have fallen sharply in recent years because there are a few hundred mothballed in the deserts of California. Also included here is the small amount that EasyJet made in interest on its cash at the bank 

£251: Tax 
Like every company that makes profits, EasyJet pays tax to the Treasury 

£643: Crew salaries and training 
The captain earns about £80k a year; the first officer £50-55k; the senior crew member about £17k; and two junior crew about £14k each 

£584: Maintenance and servicing 
Including the cost of owning spare engines and parts 

How it adds up 

Ticket sales: £6,136 
Outgoings: £5,591 
Profit: £545