Access over 20 million homework & study documents

new trand in business model

Content type
User Generated
Type
Study Guide
Rating
Showing Page:
1/3
A low-cost carrier or low-cost airline (also known as a no-frills or discount carrier / airline) is an
airline that offers generally low fares in exchange for eliminating many traditional passenger
services. The concept originated in the United States before spreading to Europe in the early 1990s
and subsequently to much of the rest of the world. The term originated within the airline industry
referring to airlines with a low - or lower - operating cost structure than their competitors. Through
popular media the term has since come to define any carrier with low ticket prices and limited
services regardless of their operating costs.
·
Business Model
Typical low-cost carrier business model practices include:
· a single passenger class
· a single type of aeroplane (commonly the Airbus A320 or Boeing 737), reducing training and
servicing costs.
· a simple fare scheme, such as charging one-way tickets half that of round-trips (typically fares
increase as the plane fills up, which rewards early reservations)
· unreserved seating (encouraging passengers to board early and quickly)
· flying to cheaper, less congested secondary airports and flying early in the morning or late in the
evening to avoid air traffic delays and take advantage of lower landing fees
· short flights and fast turnaround times (allowing maximum utilization of aircraft)
· simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing
aircraft utilization and eliminating disruption due to delayed passengers or luggage missing
connecting flights)
· emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions
paid to travel agents and computer reservations systems)
· encouraged use and issuance of the electronic ticket or ticketless travel
· employees working in multiple roles, for instance flight attendants also cleaning the aircraft or
working as gate agents (limiting personnel costs)
· "Free" in-flight catering and other "complimentary" services are eliminated, and replaced by
optional paid-for in-flight food and drink (which represent an additional profit source for the airline).
· Aggressive fuel hedging programs.
· "Unbundling" of ancillary charges (showing airport fees, taxes as separate charges rather than as
part of the advertised fare) to make the "headline fare" appear lower.
Not every low-cost carrier implements all of the above points (for example, some try to differentiate
themselves with allocated seating, while others operate more than one aircraft type, still others will
have relatively high operating costs but lower fares). Nonetheless these are general characteristics,
most of which apply to any given low-cost carrier.
Particular characteristics of the United States market
The principal area of competition tends to be the full-coach or "walk-up" fare. Advance purchase
fares tend to be competitive with major carriers but not significantly lower. Most successful LCCs try
to offer a modicum of additional benefits, such as better on-time performance or more leg room.
AirTran Airways and Spirit Airlines have been very successful with their low-fare Business Classes,
while Frontier and JetBlue offer live in-flight television.
History
Boeing 737-700 of UK low cost carrier easyJet waiting for take off at Bristol
The first successful low-cost carrier was Pacific Southwest Airlines in the United States, which
pioneered the concept when their first flight took place on May 6, 1949. Often, this credit has been
incorrectly given to Southwest Airlines which began service in 1971 and has been profitable every
year since 1973. With the advent of aviation deregulation the model spread to Europe as well, the
most notable successes being Ireland's Ryanair, which began low-fares operations in 1991, and
easyJet, formed in 1995. Low cost carriers developed in Asia and Oceania from 2000 led by
operators such as Malaysia's AirAsia, and Australia's Virgin Blue. The low-cost carrier model is
applicable worldwide, although deregulated markets are most suited for its rapid spread. In 2006,
new LCCs were announced in Saudi Arabia and Mexico.
Low-cost carriers pose a serious threat to traditional "full service" airlines, since the high cost
structure of full-service carriers prevents them from competing effectively on price - the most
important factor among most consumers when selecting a carrier. From 2001 to 2003, when the
aviation industry was rocked by terrorism, war and SARS, the large majority of traditional airlines
suffered heavy losses while low-cost carriers generally stayed profitable.
Many carriers opted to launch their own no-frills airlines, such as KLM's Buzz, British Airways' Go,
Air India's Air India-Express and United's Ted, but have found it difficult to avoid cannibalizing their

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/3
core business. Exceptions to this have been bmi's bmibaby, germanwings which is controlled 49%
by Lufthansa and Qantas's Jetstar all of which successfully operate alongside their full-service
counterparts.
For holiday destinations, low cost airlines also compete with seat-only charter sales. However, the
inflexibility of charters (particularly as regards length of stay) makes them unpopular with many
travelers.
The entry of new nations into the European Union from Eastern Europe and moves towards
compliance with EU legislation by those who have not yet joined, has led to an extension of open
skies arrangements. This has led to the establishment of low-cost routes by existing and new
operators such as Hungarian Wizz Air which took its first flight on 19th May 2004. From 2004 to
2006 routes have been established into Bulgaria, Slovenia, Poland, Hungary and the Czech
Republic. Low cost airlines are also now starting to fly into Turkey.
In Canada, Air Canada has found it difficult to compete with new low-cost rivals such as Westjet,
Canjet, and Jetsgo despite its previously dominant position in the market: Air Canada entered a
period of bankruptcy protection in 2003, but emerged from protection in September 2004. Air
Canada operated two low-fare subsidiaries, Tango and Zip, but both were discontinued. (Jetsgo
itself ceased operations on March 11, 2005 and Canjet announced that it will discontinued scheduled
air services on September 10, 2006.)
India's first low-cost airline, Air Deccan started service on August 25, 2003. The airline's fares for
the Delhi-Bangalore route were 30% less than those offered by its rivals such as Indian Airlines, Air
Sahara and Jet Airways on the same route. The success of Air Deccan has spurred the entry of more
than a dozen low-cost airlines in India. Air Deccan now faces stiff competition from other low-cost
Indian carriers such as SpiceJet, GoAir and Paramount Airways. IndiGo Airlines recently placed an
order for 100 Airbus A320s worth 6 billion USD during the Paris Air Show, the highest by any Asian
domestic carrier. After a year of operation, in 2006, Kingfisher Airlines changed its business model
from low-cost to value airlines.
In Finland the competition went in a different direction, as the national carrier Finnair lowered prices
so that the low-cost competitor Flying Finn was forced to cease its operations. Three months after
Flying Finn's bankruptcy, the other operator Blue1 began flights to three of Flying Finn's most
profitable destinations.
A Jazeera Airways Airbus A320, a low-cost airline of Kuwait.
In Norway the first low cost carrier was ColorAir in 1998. Their low prices were matched by
competitors SAS and Braathens, and Color Air folded in 1999. The next low cost carrier, Norwegian
Air Shuttle (or Norwegian), starting their Boeing 737 operations in September 2002, provided
tougher competition for the merged Norwegian part of SAS and Braathens. Although Norwegian
started with domestic routes, today their international operations are larger than their domestic
service. By launching nonstop flights from cities like Stavanger, Bergen, Trondheim in addition to
Oslo, they soon became very popular. Norwegians are amongst the most frequent fliers in the
world, mostly due to the geography of the country but also due to the high level of income.
Australia's first low cost airline was Compass which launched operations in 1990 but was short lived.
In 2000 Impulse and Virgin Blue commenced low cost operations bringing fierce competition to
Australian cities. Virgin Blue has become the nation's second largest airline, whilst Qantas
purchased Impulse and operated it in a 'wet leasing' arrangement before transforming it into its
new low cost carrier Jetstar. Qantas has launched two low cost carriers: JetStar competes with
Virgin Blue in the Australian domestic market, while Australian Airlines operated internationally to
Asian destinations. In 2006 Qantas began operating the Australian Airlines operation in a 'wet
leasing' arrangement which essentially means Australian Airlines crew and aircraft operate services
under the Qantas brand. As at 2006, Qantas intends to continue developing a sole low-cost brand
around Jetstar which will include international destinations.
In 1995, Air New Zealand established a low-fare subsidiary, Freedom Air, in response to the
commencement of discount trans-tasman services by the upstart Kiwi Airlines. Fierce competition
on trans-Tasman routes lead to the collapse of Kiwi Airlines in 1996. Freedom Air continues to
provide discount services between Australia and New Zealand. Wholly owned Qantas subsidiary
Jetconnect was set up as a low cost New Zealand arm of Qantas, with Jetconnect operating all New
Zealand domestic services and several trans tasman services in a 'wet leasing' arrangement, using
the Qantas brand. Qantas has also launched trans-Tasman Jetstar flights .
On Feb 3, 2003, Air Arabia was established on and started operations on October 29, 2003. Air
Arabia can be safely said to be the first budget airline in the Middle East region
On May 5, 2004, Singapore's first low-cost carrier, Valuair was launched, prompting dominant
carrier Singapore Airlines to invest in a new low-cost startup, Tiger Airways, to beat the

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/3

Sign up to view the full document!

lock_open Sign Up
Unformatted Attachment Preview
A low-cost carrier or low-cost airline (also known as a no-frills or discount carrier / airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The concept originated in the United States before spreading to Europe in the early 1990s and subsequently to much of the rest of the world. The term originated within the airline industry referring to airlines with a low - or lower - operating cost structure than their competitors. Through popular media the term has since come to define any carrier with low ticket prices and limited services regardless of their operating costs. · Business Model Typical low-cost carrier business model practices include: · a single passenger class · a single type of aeroplane (commonly the Airbus A320 or Boeing 737), reducing training and servicing costs. · a simple fare scheme, such as char ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Great study resource, helped me a lot.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4