Low Cost / No Frills Airlines
Air Transportation AE 725
Presented By:- Shashank Narendra Gupta 01002031 Business Design for Low Cost Airlines Three Key Elements Simple Products (No Frills) No meals Narrow seating (greater capacity) No seat reservation (free seating) No frequent-flyer programs Positioning Non business/price conscious business passengers, leisure traffic High point to point frequencies Aggressive marketing Secondary airports Competition with all transport carriers Low operating Costs Low wages, low airport fees Homogeneous fleet hence low costs of maintenance, cockpit training and standby crews High turnaround times of aircrafts, simple boarding processes Lean sales (high % of online sales) A Comparison of Unit Costs: Southwest vs. other US Airlines
Comparison of Operating Costs for a Boeing 737-300 US Airlines Data for 1998 Cost Advantage for Southwest despite shorter average distances Low Cost Airlines in US
Southwest Airlines: The first of the breed, not only in the US but also the world Flying since 1971 within Texas state of US (i.e. a domestic airline) Expansion in 1978 (after deregulation) Today, transports 64 million passengers annually Largest domestic operator in the US with over 50% of the low cost market Has never operated at a loss Airline with the highest stock market value in the world After deregulation in 1978, as many as 34 LCAs came up, but only 2 survived Today Southwest is the market leader But after 2001 the major expansion has come from JetBlue, Frontier and AirTran (previously Valujet) LCAs growing much faster than regular Airlines LCAs in Europe
Low Cost Airlines mostly a phenomenon only in the US till the 90s Started off mainly in Great Britain
Ryanair from Ireland (from 1991), operating on the British Isles, first genuine low cost operator in Europe
GO an LCA backed by the British Airways (later swallowed by Easyjet) Establishment of Low Cost Airlines in Europe after deregulation in 1997 by the EU
Easyjet Launched in 1997, right after deregulation Ryanair, one of the most profitable major Airlines in the World (had a 19 % margin in 2003) Continued… Continued…
From 1998 to 2003, mainly due to and Ryanair, Easyjet, low-cost air traffic grew by 600 percent in Europe, compared to just 10 percent growth for full- service airlines Relentless growth of LCAs in Europe continues
Iceland Express in Iceland
Sky Europe in Slovakia
Air Polonia in Poland
Volare Web in Italy
BasiqAir in the Netherlands
Flying Finn in Finland and many more Ryanair, and Easyjet losing market share to other LCAs LCAs in Europe vs. in US
European market largely untapped, LCAs account for less than 15 % of total air travel in Europe as opposed to US where it is 30 % Europe going down-market with cheaper rates, US LCAs providing more high end services Challenges
Competition within LCAs as well as against regular airlines
Increasing cost of fuel
In Europe, EU regulation to discourage overbooking LCAs in India
Air Deccan, first Indian LCA A slew of LCAs to be launched
Kingfisher Airlines by UB group
By Wadia Group
Alliance Air, and Indian Airlines subsidiary
Air-India Express, a discount airline by Air India for Gulf and South East Asia Challenges faced by LCAs in India
No secondary airports, so have to pay same charges as regular Airlines
Lack of internet penetration
High taxation on ATF, fuel costs as high as 35 % of total costs
Lack of airport infrastructure The Future
LCAs in US and Europe facing harsh competition
US LCAs moving up market and going against basic Business Model
Survival of a few Airlines, demise of the rest
Set to capture a major share of the market
Stimulate overall demand in existing market In India a large market remains untapped
LCAs to bring in new passengers, may not hurt flag carriers as much
Development dependent on simultaneous growth of infrastructure Thank You