Ryanair Is A Good Operating Model For Southwest To Emulate

Southwest Airlines has been dealing with their Christmas-time meltdown for over a month now. Their Chief Operating Officer, Andrew Watterson, testified to Congress that the airline “messed up” and was working to restore reliability. This is both an IT issue and a scheduling issue, and by scheduling this means both aircraft and crew. No one knows this better than Watterson, who has long been considered one of industries’ brightest and most creative thinkers in this area. Many believe that is why he was the perfect choice to be Southwest’s next COO.

Copying success in this industry has always been a hallmark of competition. American created the first airline loyalty program, and within a few years this became a standard for all airlines. More recently, Spirit started unbundling and bag fees and other fees became more commonplace. For Southwest, an obvious comparator is Ryanair in Europe. They are similar in size to Southwest, even fly the same airplanes, and cover a geography similar to the domestic U.S. But Ryanair has not had a meltdown of the kind Southwest faced, even though weather is no more kind in Europe than in the U.S. So, maybe it is time to copy success in this area too.

What Goes Around, Comes Around

Ryanair started out as a small, money-losing airline. Knowing they needed a new business model, they came to the U.S. to watch Southwest operate. This was especially true at airports, where Southwest pioneered the “quick turn.” Turning an airplane refers to time it take an airplane to be parked on a gate while it gets refueled, bags are removed and added, people deplane and board, etc. Southwest could do this in under 30 minutes, sometimes with a goal as fast as 10 minutes, while then industry averages were 45 minutes or longer. Ryanair was inspired, and this helped to change them into the powerhouse they have been for decades. When I first joined Spirit, I spoke to Ryanair CEO Michael O’Leary about coming to Europe to learn from his operation. He told me not to waste time and money to do that, just go watch Southwest and you’ll know everything we do.

So now it’s time for Ryanair to pay Southwest back for that piece of their success. No one expects Southwest to adopt Ryanair’s use of unbundled pricing, but operationally Ryanair schedules very differently from Southwest. I wrote about Southwest’s linear scheduling approach recently. Ryanair did not copy this from Southwest, even as they copied their airport procedures.

Bases Versus Hubs

Ryanair, and other low-cost airlines in Europe like Wizz Air, create bases for both airplanes and crew. At a single station, they will base a certain number of airplanes and the flight, cabin, and maintenance crews to operate those planes efficiently. Some bases are large, like at London’s Stanstead airport. Some have only two or three airplanes. But common to each base is that the planes fly out and back to all destinations served from that city.

A base is not a hub. A hub, by definition, is scheduled to create connections. This means needing a lot of gates to accommodate aircraft from many destinations, and long aircraft turn times to allow time for people and bags to connect. Hubs are efficient for creating a lot of connections, but operationally they are real estate hogs, inefficient and costly. Bases are the opposite. They are local O&D spots, where customers fly to and from. If a connection is created, of course the airline will sell that option. But the base is not built to create that by design. A base allows quick turns, and is highly efficient.

Base Efficiency Lowers Costs, Too

A big advantage of quick turns is that the expensive aircraft asset can be used for more flights per day. Consider an airline with five flights per day from a gate, using 50-minute turns. Now change this to an airline operating that gate with 25-minute turns. It’s getting 25 minutes time five, or two hours a day back to fly the airplane. This efficiency increases aircraft utilization, or the number of hours each airplane flies per day. It also creates more ASMs, the industry’s metric of capacity, allowing fixed costs to be spread over a larger base.

Bases are also is highly crew efficient. At airlines like Ryanair, they spend very little money on crew hotels. Crews are back at their base, or home, every night. Southwest’s model requires a lot of crew hotels, and this both raises costs and creates pilot fatigue. Southwest has claimed that during their meltdown, their system lost track of where all the crews were. This wouldn’t happen in a Ryanair base-style system, or at least would make for more much simpler IT needs. As airlines need to find ways to offset cost increases from pilot wage increases, spending less while improving reliability would be smart to consider.

U.S. Geography Works For This Approach

One may argue that Europe isn’t the U.S., and in many ways that is true. But geographically, Continental Europe and the U.S. have a similar expanse and distribution of cities. Southwest has naturally strong stations in Baltimore, Chicago, Houston, Dallas, Orlando, and Los Angeles to name just a few. Each of these could be scheduled as a base with a fixed number of planes and crews. It would be a dramatic change from what Southwest does now, but it would work and would need buy-in from a lot of stakeholders to make it work well.

It would be relatively easy to model this to determine the changes that are created in total ASM production, aircraft utilization, crew utilization, and O&Ds served. I wouldn’t expect that Southwest could replicate their exact system in this new Ryanair-inspired approach, but isn’t change from the current system needed?

Not A Full Solution

Airlines, especially large airlines like Southwest, serve a lot of destinations and connect these in ways that closely match customer demand. By converting their largest stations into out-and back bases, they will naturally lower their costs and improve their reliability, but likely lose some services that work well for them today. Converting to a base structure does not need need to be a 100% solution. They may find other uses for aircraft in the way they are currently scheduled, or to fill some holes created when the chain-like scheduling lines are changed to base-centered out–and-backs.

It will be interesting to watch as Southwest evaluates ways to improve their overall reliability. Most appealing of this Ryanair approach is that it is founded on what Southwest is great at — airport operations. After all, Ryanair got that idea from them!