Randy's Journal: Archives

25 February 2005

Luck 'o the Irish

St. Patrick's Day may still be a couple of weeks away, but we've already found our four leaf clover - some really fantastic news coming out of one of the world's leading low-cost airlines.

Ryanair Chief Executive Michael OLeary with brand new 737-800 last October in Seattle photo

Ryanair Chief Executive Michael O’Leary was all smiles when he took delivery of a brand new 737-800 last October in Seattle. Check out his t-shirt.

Ryanair, based in Dublin, Ireland, has agreed to purchase up to 140 Next-Generation 737s, one of the largest orders ever for this airplane. We happen to think the 737 has played a big part in Ryanair's success in Europe. And this agreement means that this remarkable airplane will continue to be a lucky charm for Ryanair long into the future.

This news just reconfirms two things for me:

  • The history of successful low-cost operators starts with the 737.
  • The most successful airlines in this segment continue to prefer the 737.

You may have read that Airbus is claiming that they're the new standard in this market segment. Let's put that into perspective. Take a look at the top-20 successful low-cost carriers around the world as of the end of 2004. Out of those, 14 are all-Boeing 737 operators. Only 3 are exclusively A320 operators.

Boeing and Airbus use by low cost carriers Chart

The 737 is preferred by the large, successful low-cost carriers. This is a snapshot of the market at the end of 2004. All-737 operators shown in blue. All-A320 operators shown in red. The others operate mixed fleets or have indicated that they will.

You'll see that of all the airplanes operated by the top-20 low-cost carriers, 86% of them are Boeing 737s. And even if all the airplanes on order by these 20 carriers at the end of 2004 were delivered today, the 737 would still have about 73% of the share of the low-cost market. And that doesn't even include the exciting order from Ryanair this week.

What's interesting about this story is that the A320 was not designed specifically for the needs of the low-cost model. A320s are heavier, have higher operating and maintenance costs, and have slower turn times than 737s. And because the A320s don't have the value that the low-cost market demands, Airbus has had to discount their prices significantly.

On the other hand, since Southwest Airlines helped Boeing design the Next Generation 737 family, all of these airplanes have been designed with the low-cost carrier in mind.

That's why I like to say that in reality, the low-cost business model is the 737. And the 737 is the low-cost model.