Low cost Airlines business model
OVER THE PAST DECADE, LOW-COST AIRLINES REVOLUTIONISED the way the industry thought about air services. Before them there had been vertically integrated low-priced operations, notably in Europe, but the concept of a standalone, short-haul, seat-only, no-frills service was not a serious alternative to the good-ole-ways. Even as late as 1999, US analysts did not see the “Southwest model” as a broader option; it was OK for a niche, but its weakness was that it could not provide the range of city pair service a network carrier could. There was a simple reason: the dominant full service airlines were still able to attract yields which well exceeded their constantly inflating costs. They were setting themselves up to fail.
This was already becoming evident when, in 2000, the tech bubble burst, abruptly curtailing careless corporate spending. For US legacy airlines, the troubles were further aggravated the following year, in the wake of the twin tower attacks. Now LCCs were ready to flourish – cheap aircraft and money and cost conscious travellers opened a gaping hole in the market and the new breed surged through.
Today, things are changing again. A combination of more mature LCC competition, high fuel prices, the growing power of global alliances and the opportunities for higher yielding traffic has forced many formerly “pure” LCCs to evolve. This is not always easy. The very nature of the LCC was that it was simple and standalone. That allowed it to make many cost savings. The quest for higher yields brings an array of additional cost, all in the name of connectivity and product alignment and creating seamless transfers. Some of these costs are technology-related, allowing different systems to talk to each other, as well as providing platforms for better handling of information, such as for new frequent flyer programmes.
And a lot of it is simply absorbing – hopefully more efficiently than the full service airlines before them – the expenses involved in providing a more passenger-intensive service.
Looking across the deep, fast flowing river to the greener pastures of higher yields where it wants to be is an easy thing for an LCC to do. Getting from here to there is, like most problem solving, the hard bit. This is nowhere more true than adapting the standalone reservation and distribution system to one which can communicate on a much more complex, multilateral level. For this there was inevitably no road map.