britannia191a
Posts: 229
Joined: Tue Nov 02, 2004 2:31 am

LCC Rapid Expansion Go Wrong?

Wed May 10, 2006 9:46 pm

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
Posts: 4595
Joined: Sat May 14, 2005 4:22 am

RE: LCC Rapid Expansion Go Wrong?

Wed May 10, 2006 9:54 pm

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.
 
sevenair
Posts: 1491
Joined: Sun Feb 04, 2001 7:18 am

RE: LCC Rapid Expansion Go Wrong?

Wed May 10, 2006 11:17 pm

EUJet, well, it didin't neccerssarily expand too quickly, it started too big, and thus didn't last very long.
 
gkirk
Posts: 23346
Joined: Thu Jun 15, 2000 3:29 am

RE: LCC Rapid Expansion Go Wrong?

Wed May 10, 2006 11:19 pm

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!
 
sevenair
Posts: 1491
Joined: Sun Feb 04, 2001 7:18 am

RE: LCC Rapid Expansion Go Wrong?

Wed May 10, 2006 11:26 pm

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.
 
RJ100
Posts: 3895
Joined: Wed Nov 22, 2000 1:37 am

RE: LCC Rapid Expansion Go Wrong?

Wed May 10, 2006 11:26 pm

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
 
AADC10
Posts: 1507
Joined: Sat Nov 13, 2004 7:40 am

RE: LCC Rapid Expansion Go Wrong?

Thu May 11, 2006 2:16 am

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
Posts: 3288
Joined: Sat Nov 04, 2000 5:49 am

RE: LCC Rapid Expansion Go Wrong?

Thu May 11, 2006 2:19 am

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!!!!
 
Midway2AirTran
Posts: 847
Joined: Wed Jul 16, 2003 7:34 am

RE: LCC Rapid Expansion Go Wrong?

Thu May 11, 2006 3:21 am

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."