Britannia191A From United Kingdom, joined Nov 2004, 262 posts, RR: 0 Posted (8 years 9 months 3 weeks 3 days 18 hours ago) and read 2596 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?
HPRamper From United States of America, joined May 2005, 4280 posts, RR: 8
Reply 1, posted (8 years 9 months 3 weeks 3 days 17 hours ago) and read 2585 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.
AADC10 From United States of America, joined Nov 2004, 2104 posts, RR: 0
Reply 6, posted (8 years 9 months 3 weeks 3 days 13 hours ago) and read 2393 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.
Richierich From United States of America, joined Nov 2000, 4330 posts, RR: 6
Reply 7, posted (8 years 9 months 3 weeks 3 days 13 hours ago) and read 2387 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!
Midway2AirTran From United States of America, joined Jul 2003, 864 posts, RR: 2
Reply 8, posted (8 years 9 months 3 weeks 3 days 12 hours ago) and read 2321 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.