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A Low Cost Carrier Paradigm Shift  
User currently offlineYXXMIKE From Canada, joined Apr 2008, 310 posts, RR: 0
Posted (6 years 5 days 11 hours ago) and read 3262 times:

Hello All,

The past 4 weeks in aviation has seen our industry quite honestly start to crumble from the once glorious stronghold it had in the low cost transportation of the masses. Zoom, XL, Sky Europe and many more are cracking under the pressure of high oil prices and a global economy that is not willing to lend it's own mother a penny. Time's are tight and for the next 18-24 months they will continue to be even tighter.

Nobody expected anything like this, but for many the writing was on all the wall. For the longest period in the age of oil and transportation the western world had the most under-priced oil to use for over 2 decades. As the early ninties approached there where many national airlines making a lot of money and really just milking the consumers for all they had; a good example is the DUB - LHR route that BA & Aer Lingus ran, two different companies running the same route for the exact same high price. Then came along a company called Ryan Air which broke the monopoly and offered a price that was affordable to the masses, and it worked! We all know how this story turns out, and to be honest for many of us including myself this type of business has allowed me to travel around Europe without it actually costing that much money!

Now times have changed and oil prices are at a level in which it makes it very difficult for the average LCC to make money, their problem now was their advantage at the beginning; offer nothing and pay next to nothing. Now that the prices have gone too high and they don't really have much else to offer than a seat on a plane things are a tad bit more difficult than they had been but how do they fix that? Or for most of the LCC's is it just too late to start trying to fix it?

My big question is that even though as a consumer we are always trying to bargain for the best possible price on everything if every week another LCC goes bankrupt and shuts down will the mentality start to slowly shift to using legacy carriers again because they are less likely to fail? There are of course exceptions to the rule; Alitalia etc.

The other question is for the stronger LCC's will they turn into becoming more like the legacy carriers? Will they change their business model to include more but as a consumer you pay more for knowing that xyz company isn't going to be going under?

My final question will be for the governing bodies in Aviation around the world; is it time to start legislating an open book policy regarding earnings as to be able to monitor what is happening so that passengers don't get stuck having to foot a rather large bill to get home after a holiday or business trip?

Anyway, attack at will and please give me your full thoughts as I've been thinking about this a lot lately.

7 replies: All unread, jump to last
 
User currently offlineRunway23 From US Minor Outlying Islands, joined Jan 2005, 2194 posts, RR: 35
Reply 1, posted (6 years 5 days 9 hours ago) and read 3125 times:



Quoting YXXMIKE (Thread starter):
The past 4 weeks in aviation has seen our industry quite honestly start to crumble from the once glorious stronghold it had in the low cost transportation of the masses. Zoom, XL, Sky Europe and many more are cracking under the pressure of high oil prices and a global economy that is not willing to lend it's own mother a penny. Time's are tight and for the next 18-24 months they will continue to be even tighter.

I think calling the first two LCCs isn't a wise affair. Zoom relied quite extensively on travel agents. However, in Zoom's case high oil price did indeed lead it to bankruptcy.

XL is a different affair. It's the collapse of an entire holiday group (instead of an airline), with debts which had come about for a couple of years now. XL was also a new entrant in the business against its competitors who in the end merged together.

Skyeurope aren't dead yet (officially), although the writing has been on their wall since they started.

Let's not forget that the last 4 weeks weren't that bad, oil fell from its summits to $100 a barrel. What has changed is that people's habits are changing and people no longer travel on unncessary trips like they might have been tempted to before. Add in the fact that most major banks no longer have credit facilities like they used to (and therefore are very tight in their investment) and you see why airlines no longer get extensions they would have gotten a year and a half ago.



Quoting YXXMIKE (Thread starter):
good example is the DUB - LHR route that BA & Aer Lingus ran, two different companies running the same route for the exact same high price. Then came along a company called Ryan Air which broke the monopoly and offered a price that was affordable to the masses, and it worked!

Wrong example. BA and EI have been partners for years on LHR-DUB (incl. BA giving up the route in favour of a JV with EI from LHR). Second ryanair don't fly to LHR, therefore don't address the same type of traveler. Also, ryanair's prices on average on DUB-UK routes are some of the highest on its network, don't be fooled by FR's creative marketing team.

Besides, ryanair are themselves in trouble these days thanks to their shortsighted vision of market conditions. Their route possibilities are slowly drying up and people have caught on to their mumbo-jumbo. Like I said, stuff like FR of flying to cities just for the heck of it is drying up as people start to look at the entire cost rather than just the flight.


User currently offlineTdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 79
Reply 2, posted (6 years 5 days 8 hours ago) and read 3037 times:



Quoting YXXMIKE (Thread starter):
For the longest period in the age of oil and transportation the western world had the most under-priced oil to use for over 2 decades.

It wasn't underpriced...oil is a commodity. It's priced by whatever the market is demanding at the time. It cost less than it does *now*, yes, but that doesn't mean it was underpriced before.

Tea cost way less too...that doesn't mean it's been underpriced for 20 years.

Tom.


User currently offlineFrmrCAPCADET From United States of America, joined May 2008, 1718 posts, RR: 1
Reply 3, posted (6 years 4 days 16 hours ago) and read 2752 times:

I am not sure that LCC are in any more trouble than legacy airlines as a group. And certainly with add on fees it, and limited pitch in Y on legacies it is harder and harder to distinguish the two groups.


Buffet: the airline business...has eaten up capital...like..no other (business)
User currently offlineYXXMIKE From Canada, joined Apr 2008, 310 posts, RR: 0
Reply 4, posted (6 years 4 days 9 hours ago) and read 2614 times:

LHR and STN/LGW are apples and oranges. Ultimately these are the airports that make up the greater London city region. BA & Aer Lingus both gouged that route for years and it wasn't until FR came in that a trip to London was affordable.

Oil maybe a commodity but that's a very gray area. How is the value of a barrel of oil only worth $101.18 (NYMEX Crude Future) and the actual cost at the pumps is over $1.50/L? And don't say hurricane Ike! I say that oil was under priced because there is no guarentees or exact known amount of how much we have left but as consumers we continue to plow through it like it's always going to be there.

I would also debate that XL, Zoom, Sky Europe and the many more are LCC's because for the most part they are almost all Y class (yes Zoom had a premium class but it wasn't much). The goal of these airlines was to transport people from A - B at the lowest possible cost, which they did but they built a business around $70 - $80 oil with little further thinking.



Quoting FrmrCAPCADET (Reply 3):
I am not sure that LCC are in any more trouble than legacy airlines as a group. And certainly with add on fees it, and limited pitch in Y on legacies it is harder and harder to distinguish the two groups.

100% right, Air Canada is a fine example of that! I wonder when WS will become a legacy carrier as they certainly don't offer low cost pricing! Many times I book Air Canada for better pricing for domestic flights.

People need to be moved, since the beginning of time people have had a requirement to travel; be it for food, work, see the in laws or whatever it was there has always been a requirement to move people around. I just want to know that in these unstable times will people start to look at going back to using legacy carriers again for peace of mind?


User currently offlineSilentbob From United States of America, joined Aug 2006, 2095 posts, RR: 1
Reply 5, posted (6 years 4 days 8 hours ago) and read 2547 times:



Quoting YXXMIKE (Reply 4):
How is the value of a barrel of oil only worth $101.18 (NYMEX Crude Future) and the actual cost at the pumps is over $1.50/L? And don't say hurricane Ike!

Taxes, refining capacity, etc...


User currently offlineTango-Bravo From United States of America, joined Jun 2001, 3805 posts, RR: 29
Reply 6, posted (6 years 4 days 4 hours ago) and read 2452 times:



Quoting YXXMIKE (Thread starter):
The other question is for the stronger LCC's will they turn into becoming more like the legacy carriers?

If anything it is the legacies who have become more like the LCCs in the area of "no frills" even as the legacies retain the high cost features they invented that are relevant to no more than a small number of their pax. The legacies, if anything have reinvented themselves as HCLW (High Cost Low Wage) carriers trying to be all things to all people while pleasing few of the people most of the time.


User currently offlineMutu From United Kingdom, joined Mar 2006, 538 posts, RR: 0
Reply 7, posted (6 years 3 days 15 hours ago) and read 2286 times:



Quoting YXXMIKE (Thread starter):
As the early ninties approached there where many national airlines making a lot of money and really just milking the consumers for all they had; a good example is the DUB - LHR route that BA & Aer Lingus ran, two different companies running the same route for the exact same high price.

Sadly a bad example (and I wonder why you picked it?)
For BA a large proportion of seats were transfer pax from /to DUB connecting with BA long haul (and shorthaul) network at LHR. As such in the 1980s and 1990s these tag on sectors were often priced at a very low fare, typicaly £69 or I£ equivalent . As a consequence the genuine O&D traveller would invariably fnd the cheap fare buckets pretty well sold out all the time hence booking up a bucket or 2.

Quoting YXXMIKE (Reply 4):
LHR and STN/LGW are apples and oranges. Ultimately these are the airports that make up the greater London city region. BA & Aer Lingus both gouged that route for years and it wasn't until FR came in that a trip to London was affordable.

Again not strictly true. A very large proportion of O&D use ferries and express trains, or coaches, or car ferries for their travel plans. Flights were as above, the second largest group being the day return business traveller. BMI were also on the route to LHR and if I was a betting man charged the same fare?

FR fares to STN are often dearer than EI to LHR and BA to LGW

Your language is quite harsh.


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