Low Cost Carriers

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Low Cost Carriers (LCCs)

Low Cost Carriers (also known as no-frills, discount or budget carrier or airline or cheap flight) are air lines that generally have lower fares or decreased ticket prices with lower comforts and high seat density. These airlines may additionally charge for food, priority boarding, seat allocating, and baggage etc. which are not usually bundled with the air ticket.



Introduction

LCC capacity share percentage of total seats.
Earlier air transportation (passenger transportation) was considered as a super luxury method of passenger movement which was completely dedicated for the rich people. The extremely high cost of tickets was not affordable for the ordinary people to fly overseas or to fly to other parts of the country for leisure etc.

The term Low Cost Carrier is originated from the airline industry referring the airlines which are having a relatively lower operating cost structure other than the competitors. The first low cost carrier was Southwest Airlines which started flying in 1971 (Low-cost carrier,2012). At the moment there are 122 (List of low-cost airlines,2012)low cost carriers operating around the world and the number of carriers is gradually increasing creating a new dawn for the air transportation industrywhich promotes switching to air transportation by providing more affordable prices to the passengers. It really changed the way people think of air travel. Diagram[1] is a clear evidence to prove the rapid growth of the industry worldwide since 2001.

Characteristics

High Aircraft Utilization

Most of the LCCs are operating with aircrafts setup with a single passenger class and with relatively lower space allocated for a seat or a passenger in order to maximize the number of seats available for sale. Usually LCCs tend to operate with aircraft models such as Airbus A320 and Boeing 737 families with high fuel efficiency or single type aircraft to reduce the training and servicing costs. The crew is also used to perform multiple tasks in a flight in order to reduce the number of workers unlike in a full service carrier.

No Frills

The services provided with no additional fee are called the frills. The services non-essential such as food, priority boarding, seat allocating, baggage,complimentary drinks snacks, in-flight entertainment systems, businessclass seating etc.are removed to keep the ticket price low. Unlike full service carriers, the passengers are additionally charged for the non-essential services.

Basic Amenities

Aircraft cabin interiors are fitted out with minimum comforts. LCCs will not provide reclining mechanism for increased passenger comfort and trays for reading etc. On several airlines such as Ryanair has installed non-reclining seats without seat pockets with the safety manuals stitched to the seat back.

Inside Cabin Advertising

Most airlines choose to carry advertisements inside the cabin to increase the revenue.

Point To Point Service

Usually LLCs are operating point-to-point basis with short distances. They return to the main hub at the end of the day.

Ancillary Revenue

Ancillary revenue is the revenue generated beyond the sale of tickets that are generated by direct sales to the customers or indirectly as a part of the flight. It is also known as À la carte.For example, some airlines may charge a fee for a pillow or blanket or for carry-on baggage or they may also generate ancillary revenue by commission based products.

The basic concept of ancillary revenue was initially developed by the Europe’s largest LCC, Ryanair. Ryanair Chief Executive Michael O'Leary, proposed the pay-per-view entertainment, onboard shopping, internet gaming, car hire and hotel bookings methods for their airline. Today, LCCs such as EasyJet and Ryanair have generated significant profit from ancillary revenue. Usually LCCs may generate ancillary revenue by selling the services such as,

  • Onboard sales of food and beverages
  • Checking of baggage and excess baggage
  • Assigned seats or better seats such as aisle seats
  • Call center support for reservations
  • Fees charged for purchases made with credit cards
  • Early boarding benefits

Also LCCs make ancillary revenue by selling third party commission based products such as,

  • Hotel accommodations
  • Car rentals
  • Travel insurance

Apart from providing additional products and services, LCCs may generate ancillary revenue by advertising. LCCs sale advertising spaces in in-flight magazines and other customer communication channels such as advertising on aircraft interior or exterior, airport lounge facilities, as well as advertising on airlines’ in-flight entertainment service etc.

Pricing

The pricing policy of a low cost carrier is very dynamic due to the promotions and discounts. The advertised price can be really low since it does not include the additional charges and taxes. Several airlines offer dynamic pricing shame for tickets. People who will buy tickets earlier will have to pay a lower price and others will be charged a higher price.

Product Differentiations

Although LCCs are considered as airlines with very lower facilities, some LCCs tend to differentiate their product going beyond the traditional boundaries of LCCs providing more facilities in order to attract more people. Some airlines provide seat allocation and operate more than one aircraft type while still keeping their price lower. Below are several example product differentiations.

  • JetBlue – Provides In-Flight Entertainment (IFE), LiveTV for every seat.
  • Mihin Lanka – Provides complementary meal with beverages.

Short Haul

In order to improve the revenue of LCCs, the time consumed for flight operations is being utilized. With short haul operations they can increase the flight frequency and reduce the airport charges as well. They use very shorter time periods to offload and reload the aircrafts (minimum turnaround) allowing the maximum utilization.

Streamline Operations

Cost cutting is the most essential part of the business. Therefore LCCs make sure that each process is simple as possible in order to cut overheads. For example simple computer reservation systems (CRS) are used which can operate with a lower cost other than maintaining offices around the country.

Operating from Secondary Airports

Usually LCCs fly to smaller, less congested secondary airports in off-peak hours to avoid the traffic delays and to get the advantage of lower landing charges.

How Does a Low Cost Carrier Differ From a Legacy Carrier/Network

Feature Full Service Carrier Low Cost Carrier
Product offering Multiple product attributes fully-bundled with the ticket price. Basic seat, Basic Amenities, Very limited paid add-ons / No frills.
Operating Airports Primary. Secondary.
Customer Expectations High. Low.
Distribution Channel Multi-channel by default. (offices/agents/online) Internet only.
Network connectivity Complex. None. Operates point-to-point
Brand image Polished, Up – market. Down market.
Revenue Package revenue. All product offerings are bundled with the package. Ancillary revenue by selling additional products and services.
Aircraft models used Any. Usually luxurious new jets. Usually operates with single type of aircrafts with high fuel efficiency. (Airbus A320 or Boeing 737 families)




References:

  1. CAPA. 2012. Low Cost Carriers. [ONLINE] Available at: http://www.centreforaviation.com/profiles/hot-issues/low-cost-carriers-lccs#lcc. [Accessed 07 March 12]



--Gishan Chaturanga (talk) 22:06, 12 July 2012 (IST)