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Budget airlines throttle back on expansion.

Budget airlines throttle back on expansion

Ryanair and easyJet, Europe's largest budget airlines, have enjoyed almost continuous double-digit growth since the mid-1990s. But the party - which at its height involved air passengers travelling for as little as €1 a ticket - has come to an end. Both companies have recently announced plans to rein in expansion and return money to shareholders in the form of dividends.

The issue was at the heart of a row between Sir Stelios Haji-Ioannou, founder of easyJet, and his fellow directors and the management. Sir Colin Chandler resigned as chairman at the height of the battle and chief executive Andy Harrison announced his intention to go some months later. His replacement, Guardian Media Group chief executive Carolyn McCall, is believed to back the founder's strategy of growing more slowly after the airline hits a target of 194 aircraft in its fleet next year.

Rival Ryanair, now Europe's largest airline in terms of passenger numbers, has also announced that it will concentrate on returning money to shareholders after 2013, when its current fleet-acquisition programme ends.

The Irish-based carrier plans to add 112 Boeing 737-800s to its fleet over the next three years, but has ended negotiations to buy up to 200 new aircraft after that. Ryanair and Boeing were understood to have agreed the price of the new planes, but the airline's flamboyant chief executive, Michael O'Leary, could not accept the way in which Boeing wanted to change the terms of delivery.

A third airline entrepreneur, David Neeleman, also faces tough decisions regarding growth - at Azul Linhas Aereas Brasileiras, which he set up in 2007 after leaving the hot seat at JetBlue.

That company had grown to be the eighth-largest US domestic carrier by passenger numbers after Neeleman established it in 2000. But vulnerabilities from its rapid growth were revealed when thousands of passengers were stranded on taxiways without enough food or water during severe winter weather at New York's John F. Kennedy airport.

In Business Week's February 2010 issue, Brady and Brasileiro suggest that Neeleman's long-term success at Azul 'will depend partly on how well he has learned from past mistakes and how successful he will be in avoiding the greatest threat - that posed by ambition and the temptation to grow the company beyond its sustainable rate'.

Harris describes how a rigorous approach to business analytics can help firms to avoid such temptation in the March 2010 issue of Computer Weekly. The author argues that, while companies are becoming increasingly clear about the advantages of closely analysing their performance, they can still fail to select the most important targets for improvement.

The article highlights the case of US cruise line Princess Cruises, which stuck to rudimentary revenue-management targets while other travel businesses were managing their revenues more aggressively. As a result, Princess' vessels were losing the opportunity for revenue by sailing with empty cabins on each outing.

Harris believes that firms do best if they choose a single target, and aim to generate true insight about it, rather than simply superficial information.