Fly the Frugal Skies

How low-cost airlines have transformed Europe--and what it means for America.

Every Friday afternoon at a Heathrow Airport bar, there is an informal gathering of the "Pojkv�n Club"--a group of London men who jet off every weekend to visit their far-flung girlfriends. (Pojkv�n is Swedish for "boyfriend.") "Of my six closest friends from Glasgow University, four of us now have European partners," Pojkv�n Club member Fraser Nelson wrote in The Scotsman last April. "The low-cost airline revolution has changed lives."

In Prague, where just about the only foreign languages spoken 15 years ago were German and bad Russian, there are English-language signs in the windows of bars all over town warning: "No stag parties." In Bratislava, where traveling to next-door Vienna was verboten until 1989, Slovaks who still can't afford the 200-mile train trip to Salzburg are now excitedly comparing notes on their recent weekend forays to Venice and Mallorca. In the lovely southwest France region of Dordogne, locals now refer to the area as "the Dordogne-shire," due to all the Brits buying up local vacation homes. Every summer, Spanish golfers swarm the Welsh countryside to enjoy their sport away from the hometown heat. Dreary industrialized corners of Europe--Stansted, England; St. Etienne, France; Hahn, Germany--have become improbable boomtowns, while secondary travel destinations such as Edinburgh and Cardiff have been transformed into sizzling tourist magnets, with boutique hotels, Irish pubs, and youthful commerce galore.

In less than a decade, the Southwest Airlines revolution has swept through sclerotic Europe like a capitalist hurricane, leaving a fundamentally altered continent in its wake. Low-cost airlines have grown from zero to 60 since 1994 by taking Southwest's no-frills, short-haul business model and grafting on infinitely variable pricing, aggressive savings from the contemporaneous Internet revolution, and the ripe, Wild West opportunities of a rapidly deregulating and expanding market. Europeans, fed up with costly train tickets, annoying motorway tolls, and Concorde-style prices from national "flag carriers" such as Air France and Lufthansa, have defected to the short-hoppers in droves--200 million, nearly 45 percent of the entire E.U. population, took a low-cost flight in 2003 alone.

These airline upstarts are run by swaggering young CEOs whom the European press treat like rock stars, living up (or down) to the billing by issuing manly predictions of price war "bloodbaths" and pulling off daring publicity stunts, such as Irish carrier RyanAir's post�September 11 sale of 1 million tickets for "free" (before taxes). Their companies have been rewarded with dot-com-bubble-like stock valuations--and the volatility that comes with them--while their long-haul counterparts dodder toward cutbacks, bankruptcy, and worse. (Switzerland became the first European country to lose its national airline when Swiss Air and Sabena folded in 2001.) In less than a generation, one of the Western world's most notoriously regulated and distorted markets has become a poster child for unified Europe's 21st century �lan.

In the process, Europeans have changed not only their travel choices but the way they behave. "We aren't just teaching our customers about our brand," says Stanislav Saling, the twentysomething Slovak public relations director of SkyEurope, a new Bratislava-based low-cost carrier. "We're selling tickets to people who have never flown before, and showing them how to use the Internet." Brits, who have led the low-cost charge with RyanAir and easyJet, are now the world's biggest owners of foreign second homes as a percentage of population. Across the 25-country, 458-million-resident European Union, marriage between different nationalities is at an all-time high. Residents of post-communist countries, who not long ago were more than happy to take any handouts from their far richer Western neighbors, are now leveraging the low-cost revolution to compete with them instead. Old Europe's postwar business culture, in which CEOs of highly regulated "National Champions" were virtually interchangeable with their schoolboy pals in government, has been battered by entrepreneurial mavericks of hard-to-define provenance, such as easyJet's 37-year-old founder Stelios Haji-Ioannou, who was born in Greece, owns houses in four countries, and (as The New York Times put it in April) "feels Greek when he is in London, English when he is in Greece, and European when he is in America."

Amazing what a little deregulation can do. And as Europe's low-cost flood reaches what analysts are predicting will be a high-water mark in 2004, it's worth marking how dynamically even statist societies can react when given the chance--and wondering how the United States, with its 19-year head start, has squandered its lead in airline innovation.

Set My Prices Free

The U.S. airline market was deregulated in 1978. The virtues of the move, though long debated, had become more than self-evident by the mid-1990s: With the government no longer dictating ticket prices and in-flight menus, airfares dropped 40 percent in real terms between 1978 and 1997, saving travelers an estimated $20 billion a year and more than doubling the total number of passengers. (Accident rates, meanwhile, were cut in half.) Hundreds of new entrants flooded the market, and though most eventually failed (or were bought out), one folksy little Texas operation called Southwest Airlines became emblematic of the deregulation era.

Southwest--which actually jumped the gun on deregulation by seven years, taking advantage of Texas' enormous size to avoid onerous interstate commerce regulations--ushered in the low-cost revolution with four revolutionary insights:

1) Flying just one type of aircraft will save a company millions on maintenance and bulk purchasing.

2) Point-to-point flights between smaller airports, rather than hub-and-spoke operations centered on a single large airport, allow each airplane to be used for several more flights a day, and more cheaply.

3) Passengers will appreciate the elimination of perks such as business lounges and free meals if the savings are passed on directly to them (and with a smile).

4) Air travelers will flock to the lowest prices, period.

By the late 1990s, Southwest was the world's richest and most profitable major airline, inspiring successful copycats (such as JetBlue) and even forcing money-bleeding behemoths like United Airlines to launch low-cost hopefuls like TED.

Despite these two decades of happy evidence, it took Europe until 1997 to deregulate its own air travel. Countries much smaller than the U.S., with single, dominant, state-owned airlines (not to mention a more statist version of capitalism), had a much harder time visualizing the benefits of exposing their National Champions to the cruel winds of competition. As in just about every other major European industry, it took the creation of the European Union in November 1993 to pry loose the stranglehold of government interference and introduce the radical new concept that National Champions can, and sometimes should, fail.

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