How the CEO of a Low-Cost Airline Tries to Keep Prices Low

TheStreet talked to Play chief executive Birgir Jónsson about what it’s like to run a new low-cost airline.

When looking to book a flight, how many refresh constantly to find the cheapest possible ticket? Amid the rising cost of air travel and inflation in general, the feeling is totally understandable — it’s also why demand for low-cost airlines has exploded in the last five years. 

Along with more established Spirit  (SAVE) – Get Free Report in the U.S. and EasyJet  (EJTTF) in Europe, there are newcomers such as Breeze and Oslo-based Norse Atlantic Airways that promise to get travelers to their destination at the lowest possible price but with extra charges for add-ons like baggage. 

By 2030, the low-cost airline market is expected to reach $440.46 billion.

Launched in 2019, a new Icelandic airline called Play started out the year by announcing a new route between Toronto and Reykjavik. While it started out running cheap flights between European cities, Play is presently expanding in the North American market with routes from cities like Boston, Baltimore, New York and Washington, D.C.

TheStreet talked to its chief executive Birgid Jónsson about starting a new airline, the rising cost of fuel and the increasingly blurry line between low-cost and full service. This interview has been edited for length and clarity.

TheStreet: How does Play (or any airline) decide which new routes to add?

Jónsson: Looking at the data across North America, Toronto is one of the major aviation markets on the East Coast. It was a very logical step after having expanded to the U.S. last year. We are also going off of past experience from the Icelandic market. 

How will you keep prices down amid the rising cost of fuel?

The price of air travel has gone up to reflect the price of fuel. Our business model is similar to all low-cost airlines in that if you book your ticket long before you travel, you’re able to get good pricing especially if you’re flexible and can travel on less popular days. But we also want to be responsible. We are not coming into the market with some crazy low prices. The cost of traveling and fuel is rising and there is no point coming in and selling a few tickets for $20 to try to make people believe that we have invented a parallel universe. But some travelers know how to play the game and have time and flexibility. In that case, it’s very easy to get a very good price.

A major criticism of low-cost airlines is lack of transparency — you are advertised one price and then often end up paying a much higher bill when you factor in things like luggage. On trips between different continents, the latter is more or less a necessity.

We want to be absolutely transparent in that there’s nothing included. I think it’s more honest to let people have that choice of whether they want baggage or a certain seat or something to eat while many other airlines would basically charge you for stuff that you’re not going to use. It’s like going into a restaurant; if you know that you don’t want ice cream after dinner, you don’t have to pay for it.

Play Airlines

Is booking in advance generally the best way to score a deal? I think many travelers wait until the last minute and refresh aggregators endlessly in the hopes of seeing that “magic price” come up at the last minute.

I would always advise people to do it in advance but the way airlines price their seats is a complete jungle and there’s no secret formula to that. It’s an absolutely dynamic environment and especially now with the introduction of artificial intelligence and bots where everyone’s always monitoring everybody else. There’s no simple golden rule to beat the system; you just simply have to choose a price that that works for you and that you see as fair. But in general, I think that most airlines would start low, increase and then try not to dump their prices when it gets closer to the departure date.

So the market price is generally what you see on the site one to two months in advance?

That’s really where airlines are most comfortable and mirror what the counterpart is doing but, then again, you might get into a price war for a certain date or a certain destination.

Would you say that the line between low-cost airlines and full-service ones is blurring?

Especially when it comes to economy class. We are an all-economy airline and I think those products are basically completely alike. Low-cost airlines are probably pushing the legacy airlines toward a new business model. What you’re referring to is also a tactical thing in how you can be perceived and found online because the lower the price you can advertise, the better you come up on Google (GOOGL) – Get Free Report searches. It actually is better for visibility to add all that stuff [baggage, seat selection] later. This is also like a spiral; it’s not just the decision of the airlines but also about how the market finds you.

What kind of planes does Play use?

We basically have brand-new Airbus 320 and 321 Neos  (EADSF) . These are the latest-generation aircraft, very fuel-efficient and as environmentally-friendly as they can be for aircraft. [Using the same planes no matter the destination] is basically the business model. The aircraft that might come from Toronto will stay there for an hour and then it can go back to Paris, go back-and-forth on a few flights in Europe and then go back to Canada. The key to the network is that basically we can use all our aircraft on all of our routes.

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