LOW COST CARRIERS
SUCCESS AND THE IMPACT
ON COMMERCIAL AVIATION
MAN2148 – AIR TRANSPORT MANAGEMENT
EDEN LAWRENCE
JADE CHAPLIN
22/11/21
Business models
A business model describes the design of the company and how it structures its operations
within the industry
Full Service Network Carriers
Low Cost Carriers
Minimised ‘no frills’ service paying for a Frills included within the service to
base fare enhance the product
(Boloz and Metzler, 2009; Teece 2010)
The 1978
Pre 1940’s
US Airline Deregulation Act
Governments heavily regulated which
airlines were allowed to fly which routes Congress passed a law that enabled US-based airlines
and what fare they can charge to determine their own fares and routes in addition
new operators permitted to enter the market
Airline sector was predominantly national
state-owned carriers Airlines were now permitted to
Market entry and exit was restricted determine the price, quality and variety
of services offered.
1944 1990’s
Chicago Convention European liberalisation
Agreement establishing the core principles The European governments followed with the
authorising international air transportation same deregulations
Formation of the International Civil 1990 eradicated market restriction and and
Aviation Organization (ICAO) granted 5th freedom rights to all European carriers
Which established the 5 freedoms 1997 granted full freedom to all EU-registered
of the air carriers to treat the whole of Europe as a single
market
(Freeman 1979; ICAO, n.d; Lykotrafiti, 2015; Dobson 2007)
Impacts of Deregulation
Existing airlines expanded their services
Formation of new carriers to take advantage of emerging markets
Introduction of Low-cost carriers
The First successful low-cost carrier was Southwest airlines in the United States with their
‘unique business model’ which became a baseline for the industry
(Button, 2012; Schwartz, 2017)
LEADING LOW COST CARRIERS WORLD WIDE IN 2019
Southwest Airlines Ryanair Jetblue Airways EasyJet Spirt Airlines Wizz Air
2,500
2,300
2,000
1,500
1,000
719
569
500 443
335 312
0
Net Profit in million U.S dollars
(Statista, 2021)
1%
2019 Passenger Traffic
10%
>
Full Service Airlines – 2.4 billion
89%
Low Cost Carriers – 1.6 billion 36% 53%
Regional Airlines – 456 million
Charter Airlines – 48 million
Total = 4.5 billion
(O’Connell, 2021)
What are the key differences
that allow Low Cost Carriers
to significantly reduce the
price of their product?
Aircrafts
One Type of Aircraft
Ryanair
Boeing 737
EasyJet
A319
A320CEO
A320NEO
A321NEO
(EasyJet, n.d; Ryanair, n.d)
The aviation industry was in crisis in 2002 after the
September 11 terrorist attack
Ryanair - 150 Boeing 737-800
aircrafts valued at $9.7 billion
Negotiating's is still prevalent in
2021 with Ryanair terminating talks
with Boeing over a failed
agreement on price
(CNN, 2002; Guardian, 2021)
Within the Planes
Ancillary Services
Allocated Seat
Check-in Bag or Large cabin bag
Priority Boarding
Inflight Duty free - Commission
Refreshments or Snacks
Airport Parking
Airport Transfers
Car Hire
Hotels
Travel Insurance
Attraction tickets
(Ryanair, n.d)
Seat Pitch
Easy Jet A320 British Airways A320
29 Inches 30-34 Inches
180 Standard Seats 168 – 171 Standard Seats
Ryanair's seats don’t reclines
The seat design doesn’t include seat back pockets
(Seat guru, n.d)
Staff
Flight Attendants on budget airlines
are typically in the beginning of their
careers
few staff are over the age 35
Flight attendants are expected to clean
the aircrafts between flights and help
passengers check in
Full safety training but minimal
hospitality training
Free uniform first year with a uniform
allowance in year 2
(Barrett, 2004; Ryanair, n.d)
Airports
Heathrow
World 2nd biggest airport for international
passenger traffic
Daily average of 219,450 passengers
2 runways
Oman Air paid France-KLM $75
million dollars for a slot pair
British Airways owns more than
50% of the Heathrow Slot Pairs
(areonews, 2020; Heathrow, n.d; world atlas, 2021)
Regional Airports
Instead Low-cost carriers focus on regional airports
In many cases LLCs are one of a few airlines to fly to and from the airports
These regional airports then experience the Southwest Effect as passenger numbers
dramatically increase
For example, London Stanstead went from:
1995 2004
2.9 million passenger 19.8 million passenger
Long-term Relationships between the airline & airport which can include:
Discounts related to volume of passengers
Reduction in airport & passenger fees
Huge negotiating rights
(Starkie, 2012; Dennis 2007; Graham 2013)
Paris Beauvais
55 miles away from the heart of Paris
Operated by:
Ryanair
Air Moldova
Blue Air
Hisky
Laudamotion
SkyUP
Volotea
Wizz Air
Ryanair is the only airline to fly from
the UK to this airport
(Aeroport Paris Beauvais, n.d)
As of November 2021, EasyJet serves;
19 domestic destinations
158 international destinations in 38
countries
(Flightconnections, n.d)
Ryanair EI-EBF 15th November
2021
(Flighttracker24, nd)
Aircraft Utilization
Low Cost carriers operate all day non-stop
The turnaround time is the duration in which a landed aircraft is enabled to take-off for a new flight
& budget airlines will schedule only 30-45 minutes between landing and take-off
No priority seats so passengers want to arrive early and this speeds up take off and landing
This means the aircraft is always making money
(Scardaoni et al, 2021)
Sales Network
Full Service carriers sell their tickets
down multiple different channel
Low cost carriers do not use
intermediaries to achieve
additional saving
Tickets must be bought
online from the suppliers
*Commission roughly 7-9% from travel agencies
(Vidovic, Stimac & Vince 2013; Guardian 2007)
low-cost carriers (LCC)
‘no frills’ service with the offering of catering, luggage and quality facilities
chargeable and request only:
One type of aircraft with single cabin class and high seat
density
Point to point flights with no transfers
Use of secondary airports
< 30 minute turnaround times
Ticket sales through internet for reduced distribution costs
(Boloz and Metzler, 2009)
What are the Key
differences?
Low Cost Carriers Full service airlines
Point-to-Point Hub-and-Spoke
(flight connectsions, n.d; emirites, n.d; Alderighi, Cento, Nijkamp and Rietveld, 2007)
Aircrafts
Low Cost Carriers Full Service Scheduled Airlines
One type of aircraft Wide & Narrow body aircrafts depending on
the popularity of the route
One universal class of Travel Multiple classes of travel
Economy
Premium Economy
Business
First class
Quick Turn-around times with high aircraft Lower Aircraft utilization
utilization
Food & drinks, checked Luggage & seat Food & drinks, checked Luggage & seat
selection is an Additional Cost to the selection is Included in the ticket price
ticket price
Aircraft seats are tightly packed and don’t Airline seats have a wider pitch and do
recline recline
Ancillary Services
“Euro Traveller”
Complimentary Refreshments & Snack
WIFI on-board
Checked- luggage
Magazines and newspapers
Full moveable headrest and in-seat power
Personal protection kit
Hand-luggage which must fit under
the seat Infront of you
(British Airways, n.d; Ryanair, n.d)
Full Service Scheduled
Airlines
Highly competitive hub airports with expensive landing
and passenger fees
Airports
Follow Demand
Low Cost Carriers
Domination at regional airports with incentives to
keep & increase their operations
Create Demand
Full Service Scheduled
Airlines
Tickets can be purchased on multiple different
platforms in person or online
Tickets
Airport check in is with a person
Low Cost Carriers
Tickets can only be purchased from the official
website
Airport check – in is done online with no human
contact
FSNC response
Different levels of economy
Higher product differentiation
Establishing a low-cost carrier subsidiary
Change in revenue streams
Alliances
British Airways
Early 2000’s, British airways introduced one
Offering different levels of the worlds first fully lie-flat bed in business
class
Economy Basic Premium Economy
No checked luggage Increased legroom
No seat allocation Smaller cabin
Additional Luggage
Enhanced dining
experience
(British Airways, n.d; London Air travel, n.d)
Questions?
(British airways, n.d; Oneworld, n.d)
Air France-KLM Group
Air France KLM Martin air
Cargo
391 cargo destinations in 158 countries
1.1 million tons of cargo transported in 2019
81% of freight transported in the bellies of
passenger aircrafts
Air France KLM Group 2019
Air France Industries & KLM Engineering
& Maintenance Transavia
Number 2 in the aeronautics maintenance market 2003 horizontally integrated
200 customer airlines with Air France KLM group
3000 aircrafts handled Operates the same LCC business model
Operates only Boeing 737’s in a single cabin
configuration travelling point-to-point
(Transavia, n.d; Airfranceklm, n.d)
References
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