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COST IS CRUCIAL IN THE BUDGET AIRLINE BATTLE; Cheap flights may soon come to end.

Byline: NEIL HODGSON Industry Reporter

LIVERPOOL John Lennon Airport bosses are celebrating a new route - to Rome with Ryanair.

But despite increasing capacity from its Merseyside base, the Irish airline is warning the cheap flights bonanza cannot go on forever.

Ryanair boss Michael O'Leary warned scores of European no frills operations could go to the wall in the next few years as they compete in an increasingly crowded sector.

He said: ``Fares will get lower and airlines will struggle to fill seats. ''

Mr O'Leary even included the scheduled operators in his dire warning: ``The high-fare airlines will be forced to match prices and, with their costs bases, they are going to struggle. ''

When Ryanair arch-rival easy Jet set up its Liverpool hub in Liverpool John Lennon airport in 1997 there were just two main players - themselves and Dublinbased Ryanair.

Today there are almost 50. But the good times can't roll on for ever and easy Jet chief executive Ray Webster also predicts plenty of casualties - with, eventually, as few as five budget airlines left on the scene.

``The market will determine how many airlines it can sustain, but with its low cost base, well established route network and strong financial position, easy Jet can reassure consumers that it will survive and prosper. ''

So, cost is crucial to maintain an efficient operation and withstand commercial pressures from rivals trying to undercut each other on routes.

Most people know low-cost airlines can offer low fares by having a low-cost base - but what does that actually mean and what does it look like in real terms?

One of the sector leaders, easy Jet, has revealed to the ECHO just how they walk the fine line of being able to make flights pay for themselves.

The airline has illustrated its cost structure by breaking down the figures from its latest annual results to show how much an individual flight costs to operate and, therefore, show how much profit the airline makes per flight.

It explains in clear details just how tight the margins are in the industry.

According to easy Jet's figures, during the past financial year it generated pounds 5, 660 in revenue for each flight it operated.

From that total, the following costs have to be subtracted, per flight: airport charges - pounds 993; fuel - pounds 762; crew - pounds 658; ownership - pounds 600; ground handling - pounds 577; maintenance - pounds 529; navigation charges - pounds 455; overheads - pounds 382; advertising - pounds 158; insurance - pounds 103. That leaves a profit of pounds 443 on each flight easy Jet operates.

Ray Webster believes that the cost structure is behind the stability that easy Jet can base its business model on.

When he announced the results recently he said: ``They reflect the resilience of the easy Jet business model and have strengthened our position in the European airline market.

``Both financially and operationally we are stronger than we have ever been before.

``There are good opportunities for us in 2005. We expect to grow our sales through further enhancing our network. ''

Ryanair also expects to remain a leading player in the sector at the expense of less robust airlines.

UK regional sales manager Cathy Timlin said: ``Unless airlines can replicate the cost base we have it will be difficult for them to stay above water. ''
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Copyright 2005 Gale, Cengage Learning. All rights reserved.

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Publication:Liverpool Echo (Liverpool, England)
Date:Jan 29, 2005
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