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LCC Rapid Expansion Go Wrong?  
User currently offlineBritannia191A From United Kingdom, joined Nov 2004, 262 posts, RR: 0
Posted (8 years 2 months 6 days 14 hours ago) and read 2438 times:

The LCC market seems to be booming and there is a rapid expansion going on to beat other LCC carriers to a have a new destination, even to places some people have never heard of. Also the need to create hubs all over europe.
However if though its great to have a choice and cheap flights etc etc. my concern is this could backfire some day on the LCC. The LCC's are on tight profit margins and intensense pressure however like we have seen with other industries such as retail whereby rapid expansion in shops has suddenly backfired on a retail company. Whats your thoughts on getting to a peak and then there either being too much competition and only so many people to spread across the airlines or suddenly something changes in the economy which results in lower passenger numbers but the LCC's are still carrying the costs. Are they potentially setting themselves up to eventually fail?

8 replies: All unread, jump to last
 
User currently offlineHPRamper From United States of America, joined May 2005, 4036 posts, RR: 8
Reply 1, posted (8 years 2 months 6 days 14 hours ago) and read 2427 times:

Rapid expansion is a bugaboo that has faced LCCs before and will in the future. I don't know much about the European carriers, but America West put themselves into bankruptcy once due to expanding too fast, and JetBlue, while not bankrupt, certainly stung themselves with the same kind of thing more recently.

User currently offlineSevenair From United Kingdom, joined Feb 2001, 1728 posts, RR: 0
Reply 2, posted (8 years 2 months 6 days 12 hours ago) and read 2358 times:

EUJet, well, it didin't neccerssarily expand too quickly, it started too big, and thus didn't last very long.

User currently offlineGkirk From UK - Scotland, joined Jun 2000, 24901 posts, RR: 56
Reply 3, posted (8 years 2 months 6 days 12 hours ago) and read 2354 times:

Quoting Sevenair (Reply 2):
EUJet, well, it didin't neccerssarily expand too quickly, it started too big, and thus didn't last very long.

I think it started from the wrong airport to be honest



When you hear the noise of the Tartan Army Boys, we'll be coming down the road!
User currently offlineSevenair From United Kingdom, joined Feb 2001, 1728 posts, RR: 0
Reply 4, posted (8 years 2 months 6 days 12 hours ago) and read 2332 times:

Quoting Gkirk (Reply 3):
I think it started from the wrong airport to be honest

I totally agree that it was one of the reasons, but if they took the sustained development philosophy, there was a chance that they could have made it through.


User currently offlineRJ100 From Switzerland, joined Nov 2000, 4118 posts, RR: 29
Reply 5, posted (8 years 2 months 6 days 12 hours ago) and read 2332 times:

While, of course, an airline needs to find good routes, they also need to grow, especially in the current market conditions. If you grow you can save costs.

That's also why Ryanair and easyJet will be better off in the future. With their growing they can reduce costs while other carriers (which do not grow) are directly hit by rising fuel costs.

Regards,
RJ100



none
User currently offlineAADC10 From United States of America, joined Nov 2004, 2061 posts, RR: 0
Reply 6, posted (8 years 2 months 6 days 9 hours ago) and read 2235 times:

Overexpansion has hit every airline (except perhaps WN) at some point. The demand => overexpansion => overcapacity => decline/collapse => demand cycle has dogged commerical aviation since the beginning. Airlines tend to lag behind the economy so when there is an economic boom, airlines order planes. By the time they are delivered, the economy levels off or declines and there is overcapacity. Airlines dump their older planes and lose money and hopefully survive until the next boom. Regulation had prevented the cycles from going out of control from the 1930s to 1970s.

The obvious poster child for LCC overexpansion is the late, lamented People Express. They swallowed the old Frontier, choked on it and got swallowed by CO and the king of the sharks, Frank Lorenzo.


User currently offlineRichierich From United States of America, joined Nov 2000, 4233 posts, RR: 6
Reply 7, posted (8 years 2 months 6 days 9 hours ago) and read 2229 times:

Quoting HPRamper (Reply 1):
Rapid expansion is a bugaboo that has faced LCCs before and will in the future. I don't know much about the European carriers, but America West put themselves into bankruptcy once due to expanding too fast, and JetBlue, while not bankrupt, certainly stung themselves with the same kind of thing more recently.

Its a tough situation to be in: growing too fast or not growing fast enough. Its usually either one or the other. It is especially tough because there is such a lead time necessary on placing orders for new aircraft - these decisions have to be made at the right time but we all know that times and fortunes can change quickly in this industry!

The only way most major carriers in the USA can return to health is by dumping capacity and excess aircraft. They have all done it. The downside is that they come out smaller, although more efficient. US did that - of course, merging with America West helped a ton too!



None shall pass!!!!
User currently offlineMidway2AirTran From United States of America, joined Jul 2003, 864 posts, RR: 2
Reply 8, posted (8 years 2 months 6 days 8 hours ago) and read 2163 times:

Quoting AADC10 (Reply 6):
Overexpansion has hit every airline (except perhaps WN) at some point.

The fact that WN caps the amount of growth each year is one of the many reasons it has been the most successful LCC so far for the US. Just look at the huge cash reserves and loyal employees it has gained over the years.



"Life is short, but your delay in ATL is not."
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