Analysis of Low-cost Carriers

Analysis of Low-cost carriers.
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Q1
The main factors that have contributed to the success of low-cost carriers (LCC) are successful mergers, meeting the demand for low-ticket prices, and low cost of operations.
* Mergers and acquisitions have made it easier for the execution of the LCC business model. As a result, airlines have enhanced interline and codeshare networks consequently being capable of providing to growing markets. LCC’s incorporate smaller and more efficient aircraft to handle routes with longer distance, but thinner demand. The short-haul flights (usually point-to-point among secondary destinations) are accompanied by a flat and straightforward fare and class structure, no partnerships, direct sales, and use of new, single-model aircraft fleets. This is in stark contrast to the traditional business model, full-service carriers (FSC) which use a hub-and-spoke network, have complex fare structures, price discrimination in multiple service classes, partnerships with other airlines such as code sharing, multiple sales channels, and mixed aircraft fleets. The two different business models attract different types of travelers, such as infrequent or leisure travelers traveling mostly domestically or regionally for the LCC and business travelers and long-haul travelers for the FSC. The LCC business model has been attributed to the growth of such airlines in the Asian market. The LCC capacity share (percentage of total seats in the market) has risen from 3.3% in 2001 to 57.6% in October 2013 CITATION Bua15 \l 1033 (Buaphiban, 2015).
Below is a table that shows the difference in operation between full-service carriers (FSC) and low-cost carriers (LCC).

Full-service Carriers.

Low-Cost Carriers.

Business model

Global strategy and high cost

Niche strategy and low cost

Network

Global alliances

Point to point between secondary airports.

Fleet

Different types of planes

Standardization on similar models.

Product

Full service

Self-service

Sales Policy

Sales department
Distribution by GDS

Direct Sales
Call centers/Internet.

* Low-cost of operation is the main aim of the LCC business model which sees the use of a single manufacturer fleet type in its operation. As a result, there is a reduction in the number of pilot classes and smaller and manageable parts bin. This approach enables LCC’s to operate in airports that have lower landing slots and gate leasing costs. Low-cost airlines typically prefer the use of n high-density configuration aircraft to maximize their potential seat sales and profitability of the airline. For instance, Philippine Airlines a non-low-cost carrier can configure the Airbus A320 with 156 seat total, with 12 in first-class and A321s with 199 seats with 12 in first class. Cebu Pacific a low-carrier in the region can run the A320 with i80 seats total and A321s up to 230 seats. With such configurations, the low-cost carriers sell approximately 15% more seats in both the A320 and A321aircraft models CITATION Con18 \l 1033 (Slocum, 2018). Assuming the cost for fuel, crew and aircraft remain constant, an airline can increase their revenue if they sell seats in a similar price range as opposed to the less dense seat price. Pilots and crews operating in such airlines receive lower pay as they are hired on a contract basis. Many low-cost carriers avoid operating airport lounges further reducing the operation cost of renting or leasing a space. Another strategy utilized by the low-cost carrier is the leasing of aircraft which reduces the capital cost which would have been astronomical if the aircraft were purchased outright. These reductions in costs help the airlines to fill seats and accommodate customers who could not previously afford to fly.
* The LCC business model has seen Low-cost carriers manage to meet ticket demands and reduce ticket prices below their competitors. This is accomplished by strategies such as fuel efficiency, careful management of revenue, and yield management. Yield management strategies impact ticket pricing by achieving higher load factors and achieving earning targets CITATION Bua15 \l 1033 (Buaphiban, 2015). The reduction in ticket cost however is the introduction of different goods and services packages different to traditional carriers. This includes a single service class, Charging the in-air amenities, and reduction of service grounds. These strategies reduce the operational cost thus enabling the airlines to pass this onto the consumers in the form of cheaper tickets. The popularity of LCC has increased and rightly so as it gives passengers the freedom to choose between low ticket pricing and a higher level of service.
Q2
Abstract
Attempts by full-service networks to venture into low fare carriers has recorded an underwhelming level of success. Most notably is the competition between Delta Airlines and Southwest airlines for the LCC market in America. Delta airlines along with other carriers failed to notice the impact of the growing southwest airline and its business model until it was too late. Once they did, plans to buyout Southwest airlines to mitigate the damage was floated around but it proved to be more difficult than anticipated. The alternative course of action for Delta was directly competing with Southwest airlines and leveraging its financial might to strongarm southwest airlines out of the market. Consequently, Delta airways study what made Southwest successful and in 1996 they introduced Delta express, a low-cost airline within the network. As a rival to Southwest airlines, it shared the same routed and provided the same low-cost services. Despite this, the airline failed and in 2003, the airline announced ceasing all operations. The fall of Delta’s low-cost carrier can be attributed to its failure to fully integrating its operations of the airline in the LCC business model.
Strengths
A full-service network has financial advantages over low-cost carriers was the case with Delta airways against Southwest airlines. As such, the resources made it easier for Delta airways to start Express which would provide competition for Southwest airlines. While starting another airline is easy, keeping it profitable is did not depend on the financial might rather on consu...