A low-cost carrier (also known as a no-frills or discount carrier) is an airline that offers low fares but eliminates most traditional passenger services. Typical low-cost carrier
business model practices include:
- a single passenger class
- a single type of airplane, commonly the Boeing 737 (reducing training and servicing costs)
- a simple fare scheme (typically fares increase as the plane fills up, which rewards early reservations, known as "yield management")
- unreserved seating (encouraging passengers to board early and quickly)
- flying to cheaper, less congested secondary airports (avoiding air traffic delays
and taking advantage of lower landing fees)
- short flights and fast turnaround times (allowing maximum utilization of planes)
- simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing aircraft
utilization)
- emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and
corporate booking systems)
- employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents
(limiting personnel costs)
- "Free" in-flight catering and other "complimentary" services are eliminated, and replaced by optional paid-for in-flight food
and drink.
History
The first successful low-cost carrier was Pacific Southwest Airlines in the United
States, which pioneered the concept when their first flight took place on May 6, 1949. Often, this credit has been
incorrectly given to Southwest Airlines which began service in
1971 and has been profitable every year since 1973. With the advent of aviation deregulation the model spread to Europe
as well, the most notable successes being Ireland's Ryanair, which began low-fares
operations in 1991, and easyJet, formed in
1995. As of 2004, low cost carriers are now edging into Australasia, led by operators such as Malaysia's Air Asia, and Australia's Virgin Blue.
Low-cost carriers pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service
carriers prevents them from competing effectively on price-- the most important factor among most consumers when selecting a
carrier. From 2001 to 2003, when the aviation
industry was rocked by terrorism, war and
SARS, the large majority of traditional airlines suffered heavy losses while low-cost
carriers generally stayed profitable.
Many carriers have opted to launch their own no-frills airlines, such as KLM's Buzz, British
Airways' Go Fly, and United's Ted, but have found it difficult to
avoid cannibalizing their core business. One exception to this has been British Midland's bmibaby, which successfully operates
alongside its full-service counterpart.
In Canada, Air Canada has found it
difficult to compete with new low-cost rivals such as Westjet, Canjet, and Jetsgo despite its previously dominant position in the
market: Air Canada entered a period of bankruptcy protection in 2003, but emerged from protection in September 2004. Air Canada
operated two low-fare subsidiaries, Tango and Zip, but were both discontinued. (Jetsgo itself ceased operations on March
11, 2005.)
In Finland the competition went in a different direction, as the national carrier
Finnair lowered prices so that the low-cost competitor Flying Finn was forced to cease its operations.
Australia's Qantas airline has
recently launched two low cost carriers: JetStar services the Australian domestic
market in competition with Virgin Blue, while Australian Airlines operates
internationally to Asian destinations.
In New Zealand, Air New Zealand chose to buy their low-fare competitor, Freedom Air, instead of competing against them.
On 5 May 2004, Singapore's first low-cost
carrier, Valuair was launched, prompting dominant carrier Singapore Airlines to invest in a new low-cost startup, Tiger Airways, to beat the competition. Not to be outdone, Singapore Changi Airport's second most dominant carrier,
Qantas Airways, also started its Asian offshoot, Jetstar Asia Airways based in Singapore and commencing operations on 13 December 2004. Malaysia's Air Asia made repeated attempts to setup a Singaporean operation, but its insistence in using Seletar Airport, in addition to
other demands to cut airport usage charges, delayed its abilities in gaining the relevant permits from the authorities in
Singapore. This set-back may block Air Asia's Singapore expansion ambitions.
As the number of low-cost carriers has grown, these airlines have begun to compete with one another in addition to the
traditional carriers. In the US, airlines have responded by introducing variations to the model. America West Airlines offers a first class product, for example,
while JetBlue Airways advertises satellite television. In Europe, the
emphasis has remained on reducing costs and no-frills service. In 2004, Ryanair announced
proposals to eliminate reclining seats, window blinds, seat headrest covers, and seat pockets from its aircraft.
No-frills transatlantic flight
In 2004 the Irish company Aer Lingus lowered its prices to compete with
companies such as Ryanair and also started offering no-frills transatlantic flights for just above €100. Late in 2004 the
Canadian airline Zoom airlines
also started selling transatlantic flights between Manchester, UK and Canada for £89. The American no-frills airline ATA Airlines plans no-frills transatlantic flights by mid-2005.
See also: List of airlines, List of low-cost airlines
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