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Low cost Airlines business model

Low-cost airlines, hybridisation and the rocky path to profits

Today many formerly basic low-cost airlines are undergoing a metamorphosis towards models that require greater expense and complexity.

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.

Elsevier Incompatibilities of the low-cost and network carrier business models within the same airline grouping [An article from: Journal of Air Transport Management]
Book (Elsevier)

Europe has done it the right way.

by Van_Helsing

By deregulating the market and letting airlines compete or go out of business.
It's revolutionized the way Europeans travel.
In less than a decade, the Southwest Airlines revolution has swept through sclerotic Europe like a capitalist hurricane, leaving a fundamentally altered continent in its wake. Low-cost airlines have grown from zero to 60 since 1994 by taking Southwest's no-frills, short-haul business model and grafting on infinitely variable pricing, aggressive savings from the contemporaneous Internet revolution, and the ripe, Wild West opportunities of a rapidly deregulating and expanding market

Part two

by Bartleby_the_Scriv

The purpose of Chapter 11, and a reason why Europe is moving to adopt a version of it, is that it encourages risk-taking by providing firms a safe haven to survive a temporary financial crisis, and a way for creditors to avoid heavy losses through the distress sale of assets. But in the airline industry Chapter 11 is being abused simply to keep in place inefficient surplus capacity. America's airlines have lost $23 billion since 2001, and they look like losing a further $4 billion this year. Unless some airlines are allowed to go out of business, so reducing the over-capacity that is causing carriers to slash prices, the entire industry is endangered by financial failure

Part 8

by crax1983

Technology too may place some constraints on offshoring. Irving Wladawsky-Berger of IBM argues that some of the tasks currently going to low-cost centres may eventually return because their underlying technologies will evolve in a way that makes economic sense of putting them back in rich countries. At the moment, for instance, customer-service call centres are very labour-intensive. McKinsey says that wages account for 70% of the costs of a call centre in America. That is why they are rapidly shifting to Bangalore, Hyderabad and other Indian cities.
But firms such as AT&T are working on speech-recognition software that might, says Hossein Eslambolchi, AT&T's chief technology officer, soon be good enough to replace a lot of the routine inquiries currently handled in call centres

Physica The Airline Industry: Challenges in the 21st Century (Contributions to Economics)
Book (Physica)
Fasten your seatbelts: cutting costs, TAM Airlines follows low-cost Gol's model to cater to Brazil's growing airline business.: An article from: Latin Trade
Book (Thomson Gale)
Elsevier When being the lowest cost is not enough: Building a successful low-fare airline business model in Asia [An article from: Journal of Air Transport Management]
Book (Elsevier)
Elsevier Investigating business traveller heterogeneity: Low-cost vs full-service airline users? [An article from: Transportation Research Part E]
Book (Elsevier)
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