Burkhard From Germany, joined Nov 2006, 4501 posts, RR: 2 Posted (5 years 7 months 1 week 6 days 20 hours ago) and read 2823 times:
I'm thinking about the problems of the full network carriers since a while, they keep us busy discussing their reductions in service in order to not loose too much market to the Low Cost Carriers, and doing so loose their best costumers too sometimes.
The following idea is around me for some days now, and I neither found it to be discussed nor that it has been tried, so my questions are: could it work, and has it be tried already. In the discussion I will use LH as example, but you can replace with any network carrier, and when I say A321 and A319 you can replace by other models.
Current situation. Lufthansa is a network carrier. It sells long range tickets, often with connecting flights inside Europe, inner European tickets, inner German tickets and... all of them with a certain level of service including free luggage as example, re-booking options, etc.... We all wish these services could be improved, knowing that service costs money.
Since these full paying passengers do not fill all the planes, Lufthansa sells cheap ticket for fixed dates under their own brand inside Europe for O/D connections, for 99€ or 149€ two way ticket. These prices are not covering costs of a full service flight, but are better than to have the seats empty. This leads to LH having to reduce service, also for their full paying Y passengers, these get unhappy, the brand suffers. Can it be done in a better way?
LH has a LCC daughter, Germanwings, flying with own material on selected routes. Now my idea would be the following: LH sells the last rows on their flights ( those that are not full anyways ) to Germanwings. This can be done dynamically, if LH sells a certain flight better than expected they cut not yet booked Germanwing rows, and if a flights sells bad Germanwing gets a row more.
Germanwing could sell these seats to their rules, not to LH rules, and these rows would get a service as defined by Germanwings, not by LH. I would even go so far to put the curtain that currently separates C from Y by to the separation between LH ( C, Y who pay fiull, Y who connect ) and GW. Strongly simplified, LH would use an A321 in a way that they fill the A319 in its front themselves with Lufthansa quality service and Lufthansa prices, and the remaining seats in the rear with LCC serivice and LCC prices. Dpending on the airport and turn around times, they could even go so far to handle the Germanwings passengers at other check in, collect them in another waiting room, and drive them by bus to the rear door ( so filling the A321 much faster ).
Advantage: LH can differentiate the service, high service for high prices and low service for low prices. Operation costs of an A321 are not so much bigger than an A319, so if LH flies the A319 on the route with profit, the rear rows can be sold for a price that keeps even MoL away. But they don't have to go to real dumping prices, passengers know they fliy in an LH plane and will be willing to pay reasonable LCC prices on the LCC rows. LH does not have to give their own product away for a bargain. GW would have an enormous frequency ( for aLCC ) on these routes, keeping competitors away.
Has something like this be tried, or why do you expect it not to work?
MEA-707 From Netherlands, joined Nov 1999, 4439 posts, RR: 34
Reply 1, posted (5 years 7 months 1 week 6 days 19 hours ago) and read 2749 times:
I am not sure. It might still water down the Lufthansa image as people would still see these flights as "lufthansa" and the beancounters would be tempted to give the same (lowered) service to anyone not paying full Y or Y+ rates in the end. Look at SAS and Iberia who basically provide an 'economy minus' product and their image and satisfaction scores are not high. LX and OS already turned back to full service as their image and cost structure didn't go well with their low cost product in the back, with angry passengers who couldn't even get water for free while they expected that with a brand like Swiss.
Probably LH can cut costs a bit, but Air Berlin as main competitor on many European markets also still offers free food, so maintaining drinks and 1-2 euro sandwiches will work out probably as a cheaper option for LH then the backlash in the press and on consumer website about LH having worse service then Air Berlin and most other competitors.
Germanwings should remain separate, so with own branded airplanes, not to make Lufthansa's product unclear.
nobody has ever died from hard work, but why take the risk?
Myt332 From Australia, joined Sep 2003, 9114 posts, RR: 69
Reply 3, posted (5 years 7 months 1 week 6 days 19 hours ago) and read 2650 times:
Quoting AirNZ (Reply 2): (or at least by the way I'm reading what you're saying).
I read it as selling a proportion of the seats under an LCC brand and segregate that cabin from the regular 'full service' cabins.(This assumes you are struggling to fill the plane at the moment unless you sell off reduced price seats.) In doing this you could sell fewer cheap seats under the full service brand as you'd still be filling the plane albeit now you're selling your cheap seats with lower costs as you don't give the guys down the back much. I think that is the jist of it? What a ripoff!
YYZALA From Canada, joined Nov 2009, 155 posts, RR: 0
Reply 4, posted (5 years 7 months 1 week 6 days 19 hours ago) and read 2650 times:
The problem with this theory are the margin profits. I mean LH will have to sell its service to 4U so obviously LH has to make more than just break even and on top of that 4U as well has to make a profit from LH's sold seats. This scheme regardless of how many seats sold will be barely profitable for a low cost carrier. It would be much easier for 4U to simply have its own plane with its own customers. Don't forget that just cause an airplane is not full it is not making money - cargo can always compensate. Lastly, the profits are so tiny why would Lufthansa want to lower its "image" and associate its self with a low cost airline.
Joost From Netherlands, joined Apr 2005, 3216 posts, RR: 4
Reply 5, posted (5 years 7 months 1 week 6 days 19 hours ago) and read 2625 times:
Quoting Burkhard (Thread starter): Since these full paying passengers do not fill all the planes, Lufthansa sells cheap ticket for fixed dates under their own brand inside Europe for O/D connections, for 99€ or 149€ two way ticket.
Actually, the revenue from this kind of tickets is not that bad. The revenue from connecting flights can be way lower. For example, for someone who booked on TXL-FRA-SFO for EUR 700 on UA (with FRA-SFO operated by UA and TXL-FRA by LH), the revenue for LH will probably be lower than EUR 99.
SAS tried it with Snowflake. First they had their own aircraft on Snowflake, later they dedicated the last rows of the aircraft to Snowflake. They abandoned the concept quickly. Stepwise, though. Quickly it became just a name for a booking class and then they dropped the name. And then they introduced BOB for all Y-pax.
I do not expect it to work. Simply, the concept adds a lot of complexity, and IMO these costs are way higher than the savings for these few sandwiches.
The cost savings for LCCs don't come from the sandwiches. The prime reason why they can be cheaper, is because they don't need to align schedules for connection purposes. Thereby, they have more scheduling freedom and they can use their planes at way higher utilization rates. Also, they don't have the re-booking costs for missed connections (as they don't connect). They can also use cheaper terminals and operate lower frequencies than LH can.
By this idea, the only LCC-aspect that is copied, is the on-board service. But this alone doesn't make a LCC. (SK nor IB can be considered LCCs, despite BOB).
LH can better just sell tickets for EUR 99 the way they do.