Monday, February 23, 2009

Business model of Low Cost Airlines

A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The concept originated in the United States before spreading to Europ in the early 1990s and subsequently to much of the rest of the world. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares.

Typical low-cost carrier business model practices include:
  • a single passenger class
  • a single type of aeroplane (commonly the Airbus A319 or Boeing 737), reducing training and servicing costs
  • a minimum set of optional equipment on the aeroplane, often excluding conveniences such as ACARS, further reducing costs of acquisition and maintenance
  • a simple fare scheme, such as charging one-way tickets half that of round-trips (typically fares increase as the plane fills up, which rewards early reservations)
  • unreserved seating (encouraging passengers to board early and quickly)
  • flying to cheaper, less congested secondary airports and flying early in the morning or late in the evening to avoid air traffic delays and take advantage of lower landing fees
  • fast turnaround times (allowing maximum use of aircraft)
  • simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing aircraft use and eliminating disruption due to delayed passengers or luggage missing connecting flights)
  • encourage the use of direct flights. Luggage is not automatically transferred from one flight to another, even if both flights are with the same company.
  • generation of ancillary revenue from a variety of activities, such as a la carte features and commission-based products
  • emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and computer reservations system)
  • employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents (limiting personnel costs)
  • a disinclination to handle Special Service passengers, for instance by placing a higher age limit on unaccompanied minors than full service carriers
  • Aggressive fuel hedging programs

Not every low-cost carrier implements all of the above points. For example, some try to differentiate themselves with allocated seating, while others operate more than one aircraft type, still others will have relatively high operating costs but lower fares.

The price policy of the low cost carriers is usually very dynamic, with discounts and tickets in promotion. Even if the advertised price may be very low, sometimes it does not include charges & taxes.

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. Frontier Airlines and JetBlue Airways advertise satellite television. Advertiser-supported Skybus Airlines launched from Columbus in 2007, but ceased operations in April, 2008. 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.

The budget airlines frequently offer flights at low prices – often flights are advertised as free (plus applicable taxes, fees and charges.) Perhaps as many (or as few) as ten percent of the seats on any flight are offered at the lowest price, and are the first to sell. The prices steadily rise thereafter to a point where they can be comparable or more expensive than a flight on a full-service carrier.

I hope above information will help you a little to get some more concept about Low Cost Airlines.

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