ch-aviation: Ryanair, IndiGo and other large Low Cost Carriers fly ahead of others thanks to unique fleet strategy

Chur, 11.07.2013 – In recent years, Low Cost Carriers like Ireland’s Ryanair or India’s IndiGo, have been able to grow at a spectacular pace. One of the key success factors for their profitable expansion strategies is their choice of aircraft type and the financing obtained for their fleets as shown in the most recent study by Swiss airline industry intelligence provider ch-aviation.

Similar to new cars bought from your local dealership around the corner, new aircraft lose a significant percentage of their market value in the first year after delivery from the manufacturer, despite typically being operated for at least two to three decades if not longer. Airlines like easyJet or Ryanair in Europe or for example India’s largest low-cost carrier IndiGo have made use of this aspect and built their fleet strategies on this.

“These well financed low-cost carriers can almost completely compensate the loss in current market value thanks to the discounts they receive for major aircraft orders from manufacturers placed at the right time. Then some years later, they are able to sell the aircraft again at an attractive price, either close or even above the initial price paid to Boeing or Airbus. This puts them in a unique position relative to their competitors as they can finance young aircraft at low capital costs.“ said Thomas Jaeger, ch-aviation’s Managing Director.

Industry experts are even assuming that Ryanair, India’s IndiGo and others have managed to almost eliminate their capital expenditures for their fleets using this approach. It is key to this fleet strategy that older used aircraft (preferably aircraft types that have become “commodities” like B737-800s or A320-200s) are constantly being sold to other operators or sold and leased back as opportunities come up with a stream of new aircraft acquired at highly discounted rates being delivered.

This leads to the situation that a constantly young fleet is one of the key differentiators for successful Low Cost Carriers. The average age of easyJet’s fleet is currently 4.7 years; Ryanair’s aircraft have been delivered just 4.6 years ago on average (based on ch-aviation fleet data from April 2013).

Smaller Low Cost Carriers that do not have the financial strength to get financing for such major aircraft orders so do not have this option available to them. And so many of them are operating older aircraft, i.e. Iberia Express (14.8 years) or Jet2 (21.7 years average fleet age).

Legacy carriers like Lufthansa (12.3 years) or British Airways (13.3 years) also do not seem to have switched to this new type of fleet strategy yet. They continue to fly most of their aircraft for 15-20 years and secure financing accordingly, and so are much more exposed to the loss of market value for new aircraft.