Low cost Airlines are still Flying High and here is why - by Ahmed Haouaria

23 Jan 2018
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Overview

 Having personally been worked me on 2 different Low Cost airlines after 13 years working in a legacy airlines, I strongly recommend the first.

The aim of this article is to explain how low airlines keep the costs low to ensure customers keep getting cheap prices.

 

Low cost airlines the origins

 Current low cost companies have not invented a new economic model for air transport. They were in fact inspired by the American company Southwest Airlines, which was the first to offer this type of service in the 1970s.

Applying as structure of network called "point-to-point", Southwest Airlines launched in 1971, started operations with a fleet of 3 Boeing 737s. Its strategy was simple. To offer the customers regular flights, over short distances, and at a very low price compared to other companies.

A major characteristic of Southwest, the on-board service was not included in the price of the ticket, in order to reduce the ticket price to the maximum.

Thus, meals, seating and connections offered by legacy airlines were not found at Southwest. Last but not least, the low cost model developed by Southwest makes punctuality one of its priorities.

During the 1970s, Southwest invested massively to develop its brand image, under the slogan "Flying is fun". This strategy had a double impact: first, to capture a portion of the customer base of its direct competitors (people express), and then, to favor the creation of a new market (induction traffic). Indeed, during this period, a part of the clientele (business and leisure) began to prefer the plane to other means of transport (cars, trains) for relatively short or medium distances. Southwest's CEO, Herb Kelleher, from 1971 to 2007 believed that Southwest’s was competing with other airlines, but with land transport.
Southwest's marketing strategy, seen as revolutionary at the time, can be summed up in this sentence: "For a customer to get a ticket at a very attractive price, Southwest provides transportation, and only transportation." In order to fulfill this customer promise, Southwest had to put in place a very low cost policy. Here are the main lines:

 Flying the friendly skies is getting more turbulent, however Low cost Airlinesare still Flying High and here is why.

1- New Planes

Potential customers would believe that low cost planes are old and less safe than legacy airline planes but actually it's the opposite.

After 9/11, major aircrafts manufacturers, Airbus and Boeing were struggling to sell aircrafts because there was the market drop.

Major Low Cost Airlines were able to place large orders allowing them bulk discounts.

The use of new planes is the most efficient choice because it defiantly saves fuel.

The average aircraft age is between 4.0 and 5.7 when legacy airlines operate aircrafts with 9.4 up to 12.4 years.

So, in actual fact, successful budget airlines are often flying newer plans that their more expensive rivals.

 

 2-    Only use one model of aircraft

In Europe Ryanair only operates 737- 800 and easy jet Only A320, In middle east and North Africa Air Arabia only operates A320,which means that, pilots, Cabin Crew ,maintenance Engineers  and ground staff only need to be trained on one plane type.

This is a huge source of savingboth of time and money, which the airline can then pass onto the customer.

Southwest uses just, the Boeing 737.  V.P. of ground operations explained these results in all manner of cost-saving efficiencies: "We only need to train our mechanics on one type of airplane. We only need extra parts inventory for that one type of airplane. If we have to swap a plane out at the last minute for maintenance, the fleet is totally interchangeable—all our on-board crews and ground crews are already familiar with it. And there are no challenges in how and where we can park our planes on the ground, since they're all the same shape and size."

 

3- Internet  the major ally of low-cost carriers

Definitelyrecognized in the airline industry, low cost carriers are here to stay.

Internethas had animportant effect on the airlinebusiness. In the 1980s airline revenueswere dependent ontravelagents dealings, who mostly took a cut out of every single sold ticket. This wascostly both for the airlines and customer. The industry found itself struggling witha third-party cost it couldn't effectively control.

The first ticket ever to be sold via internet was in December 1995, by Alaska Airlines the Seattle metropolitan area of the state of Washingtonheadquartered company.

By 1998, every carrier was experimenting with online sales, mostly as a way of cutting the expensive middlemen — travel agents — out of the game.

Today Not only does internet technology help airlines  get found online, it also helps them convert visits into money through online booking (or reservation) systems.

For customers, the advantages go from quick and easy prices comparison on several airlines offers to allowing travellers to print their boarding passes at home.

 

4- Use of secondary airports

The arrangement of quick turnaround times and use of secondary airports with low delays probabilities leads to important cost saving advantages for the low-cost airlines.

 Low-cost airlines largely emphasize the use of low-cost airports when these are available. Conversely, they tend to avoid legacy hub airports, eventhough they serve some of them. Thus Southwest, by far the largercarrier of passengers in the United States. (Carried more total system passengers in 2016 than any other U.S. airline, with 156.3 million, equal to an 18.7 % market share)does not provide service to half the top 10 busiest US airports.

Howeverthe competition todayexists between the low-cost and the legacy airports, in a way it did not when the low-cost carriers were marginal. Many legacy airports have lost their previous dominations. This fact has to motivate their management more than they would otherwise be inclined to build facilities that will be more competitive with low-cost airports as they discovered they were losing business opportunities.

Life as a low cost carrier has changed, and more and more, those airlines are shifting their operations to primary airports. Costs may be higher, but so are revenues.

 

5- On Time Performance, OTP

One of the measured criteria for evaluating a company's performance is punctuality, On Time Performance. This is one of the criteria adopted by international legislative proposals on the reinforcement of passenger rights, which provides for the compensation of passengers in the event of cancellation and delay. The Low Cost companies have understood that this factor is decisive and applies to constantly enhance punctuality. In most Low Cost Airlines, staff isdrastically requested to respect the timetable and it is not uncommon for their planes to arrive at their destination before the scheduled arrival time. In some companies, as proof of the special attention paid to punctuality, the punctuality statistics are posted directly on the "flight information" pages, accessible from their website homepage. Thus, playing the card of transparency with their customers.

 

6- The yield management

"Yield management is the application of information systems and pricing strategies to sell the right capacity to the right customers at the right time (Kimes and Chase, 1998)."

 

Aalso called revenue management, Yield managementis a broad technique that aims to maximise profits. The concept provides an overview of various benefits for organisations seeking to link their promotional efforts with yield management strategies.

 

In airlines the yield management is a system of management of the available seat capacities having for objective the maximization of the turnover. In the airline sector, it consists in modifying the price of the available seats according to several parameters (date of reservation compared to the date of departure, price of the competitors, type of customer,) in order to have the best possible turnover. It's a bit like a stock price where the price varies depending on demand. This practice was initiated in the United States thirty years ago by American Airlines Company and spread gradually to the entire airline industry.

 

 

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