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Economics Of Low Cost Carriers  
User currently offlineChicago From United States of America, joined Jul 2001, 27 posts, RR: 0
Posted (11 years 8 months 3 weeks 3 days 12 hours ago) and read 3394 times:

Can someone explain the economics behind these new low cost carriers? How can they offer a higher grade of service (leather seats, tv's etc.) than the 'full service' carriers at a lower fare and still be more profitable?

6 replies: All unread, jump to last
 
User currently offlineDonder10 From Canada, joined Oct 2001, 6660 posts, RR: 21
Reply 1, posted (11 years 8 months 3 weeks 3 days 11 hours ago) and read 3388 times:

The key is their higher producitivity levels as a crude explanation.

User currently offlineDoug_Or From United States of America, joined Mar 2000, 3435 posts, RR: 3
Reply 2, posted (11 years 8 months 3 weeks 3 days 11 hours ago) and read 3360 times:

perhpas its easier to break it into subgroups-

No Frills- WN, cut costs where feasaible
Full serivce, low fare- B6 good finnanceing(?)
F*** You!- Ahhh. Ryan air. nothing is free. pax pay surcharges for everything from baggage to coffee

This is increadibly simplified, and all benfit from high productivity (as donder10 said) due to their simple fleets, lack of hubbing, and genraly lower labor costs.



When in doubt, one B pump off
User currently offlineCloudy From , joined Dec 1969, posts, RR:
Reply 3, posted (11 years 8 months 3 weeks 3 days 9 hours ago) and read 3327 times:

One key thing to remember is that not all low cost carriers are created equal.
Their are some common trends, however. In general, SIMPLICITY is how sucessfull lo-co's drive down costs. FAIRNESS and CONSISTENCY towards employees and customers is how they win business. It really is that simple. IMHO these are the core aspects of the model....

-they tend to go for simpler fares, rules and yield management.
-They tend to not have meals and other "frills" that drive up costs.
-Also in the name of simplicity, they have only one class of service. Airtran is the only exception I can think of.
- They tend to value commonality - they operate one or at most two aircraft types. The exceptions tend to be carriers in transition, like ATA or Frontier.
- They tend to emphasize providing consistent, reliable service to ALL customers. They don't get obsessed with treating their frequent fliers as kings - only to drive them away when there is a labor slowdown, etc.
- They tend to outsource more than traditional airlines do. However, the degree and kind of outsourcing will vary.

Some things that most people think of as low-cost carrier characteristics are not really so. People will look at their local lo-co and overgeneralize. To correct some misperceptions....

- Some LCC's have more or less industry standard wages, some are lower, some are actually higher. This can vary ammong employee groups. Some gain a cost advantage through low wages(Airtran?) and some through high productivity(WN) and some through a combination of the two(Jetblue, so far).

- Some LCC's are heavily unionized and some are not.

- Not every lo-co prefers secondary airports. This is a characteristic of Southwest and Ryanair, and since these two are so big - people think that all lo-co's prefer secondary airports. Most don't.

- LCC's are as a general rule just as hub based as the majors are. Southwest is an exception - it does operate mostly point to point route structure. Since WN is so big, people think this is the general rule with Lo-co's in the US. It is not. In fact, the opposite is the case. Even with WN, some stations grown so much that they have become defacto hubs.

- Some LCC's like WN aim for a varied crowd. Some, like Airtran, focus more on the business traveler. Some, like ATA, focus more on vacationers. But the key is to aim to give reliable and consistent service to all travelers, regardless of why they are traveling.

- Not all lo-co's succeed. There have been some pretty spectacular failures. Most fail soon after starting up.

- There seem to be significant differences between American and European Lo-cos. Someone else would probably be more qualified to elaborate.

- Taken as a whole, Lo-co's have as good or better safety record than the majors. Perhaps one of the ways simplicity pays off in is safety.

- Not every smaller airline that flies large jets is properly classified as a low-co. Midwest Express is not a lo-co by traditional definitions. Alaska has some lo-co characteristics, but it varies enough from the core model that I would not call it one. Ditto for America West. These two are "hybrid" airlines - in many ways they are more like the majors than the lo-co's. In Europe - BMI (British Midland) is not a lo-co.

- Not all lo-co's like to provide the kind of high-frequency service Southwest provides. Airtran, WestJet and many other Lo-Co's have as many thin, low-frequency routes as the majors do.

-Many of the larger Lo-Co's don't have assigned seating. Yet Jetblue does and so do many others. There are enough exceptions that I would not call the lack of assigned seating a defining characteristic of a low-co.

- Some non-aviation people will think of all low-co's as small startups. There are a handfull that have been arround for a long time, are very large, or both.




User currently offlineDonder10 From Canada, joined Oct 2001, 6660 posts, RR: 21
Reply 4, posted (11 years 8 months 3 weeks 2 days 17 hours ago) and read 3228 times:

Simplicity is also a key:simple fleets equal small number of different pilot pools.Is is just 1 at WN?It will soon be 2 at Easyjet though!-

Not all lo-co's succeed. There have been some pretty spectacular failures. Most fail soon after starting up.
-Fantastic point.I would say the vast majority don't and they don't get too much press coverage!


Ryanair have managed to get a crazy deal on the 738s they ordered because:
1)they bought at the bottom of the cycle-they got a good deal so Boeing could keep production going
2)they bought en massive bulk-around 250ordered now I believe.


Too many traditional airlines who are cuttign their flab off their operations are not calling themselves low-cost carriers ie FlyBe etc.
Also,too many traditional airlines are forming a 'low cost branch' which is basically the same point as above but is more conspicuous than just rebranding.bmiBaby in the UK is a good example of this.Give a way of bunch of promotional free tickets and call yourself a LCC.Errr no.


User currently offlineTango-Bravo From United States of America, joined Jun 2001, 3806 posts, RR: 29
Reply 5, posted (11 years 8 months 3 weeks 2 days 17 hours ago) and read 3214 times:

Cloudy's reply says it well. In short, LCCs offer what most customers really want -- and are willing to pay for -- and cut out the layers upon layers upon layers of costly, convoluted, extraneous nonsense the "traditional" airlines who, by their actions, insist is necessary -- in spite of overwhelming evidence that has been "out on the table for all to see" long enough for there to be no more excuses for the high cost airlines to carry on with their "we have always done it that way" mentality that creates costs that are neither necessary nor sustainable.

User currently offlineLowfareair From , joined Dec 1969, posts, RR:
Reply 6, posted (11 years 8 months 3 weeks 2 days 12 hours ago) and read 3154 times:

>>Alaska has some lo-co characteristics, but it varies enough from the core model that I would not call it one. Ditto for America West. These two are "hybrid" airlines - in many ways they are more like the majors than the lo-co<<

Actually, AmWest's CASM is within 10ths of a cent of WN right now, and lower than FL.

>>Not all lo-co's like to provide the kind of high-frequency service Southwest provides. Airtran, WestJet and many other Lo-Co's have as many thin, low-frequency routes as the majors do.<<

So does WN. There are many routes that operate once daily or even once a week.


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