Low-cost carrier

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A low-cost carrier or low cost airline (also known as a no-frills or discount carrier / 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 Europe in the early 1990s and subsequently to much of the rest of the world.

1 Business model
2 History
3 No-frills transatlantic flights
4 See also
5 External links

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Business model

Typical low-cost carrier business model practices include:

a single passenger class
a single type of airplane, commonly the Airbus A320 or 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.

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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.

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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 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. Two exceptions to this have been bmi's bmibaby and Qantas's Jetstar which both 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 both were discontinued. (Jetsgo itself ceased operations on March 11, 2005.)

India's first low-cost airline, Air Deccan started service on August 25, 2003. The airline's fare for the Delhi-Bangalore route were 30% less than those offered by its rivals such as Indian Airlines, Air Sahara and Jet Airways on the same route. The success of Air Deccan has spurred the entry of more than a dozen low-cost airlines in India. Air Deccan now faces stiff competition from other low-cost Indian carriers such as Kingfisher Airlines, SpiceJet, GoAir and Paramount Airways. IndiGo Airlines recently placed an order for 100 Airbus A320s worth 6 billion USD during the Paris Air Show; the highest by any Asian domestic carrier.

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. After three months of bankrupt of Flying Finn, the other operator Blue1 began flights to three best-profitable destinations of Flying Finn.

In Norway the competition started when Norwegian Air Shuttle started their B737-operations in September 2002, giving the merged Norwegian part of SAS and Braathens a tough competition. Norwegian started with domestic routes, but today their international operations is larger than their domestic service. By launching nonstop flights from cities like Stavanger, Bergen, Trondheim in addition to Oslo , they soon became very popular. Norwegians are amongst the most frequent fliers in the world, mostly due to the geographic of the country but also due to the high level of income.

Australia's first low cost airline was Compass which launched operations in 1990 but was short lived. In 2000 Impulse and Virgin Blue commenced low cost operations bringing fierce competition to Australian cities. The former was short-lived, while Virgin Blue has become the nation's second largest airline. Qantas has launched two low cost carriers: JetStar competes with Virgin Blue in the Australian domestic market, while Australian Airlines operates internationally to Asian destinations.

In 1995, Air New Zealand established a low-fare subsidiary, Freedom Air, in response the commencement of discount trans-tasman services by the upstart Kiwi Airlines. Fierce competition on the trans-Tasman routes lead to the collapse of Kiwi Airlines in 1996. Freedom Air continues to provide discount services between Australia and New Zealand.

On May 5 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 December 13 2004. Malaysia's Air Asia made repeated attempts to set up 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, now a part of the US Airways Group, 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.

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No-frills transatlantic flights

The first airline offering no-frills transatlantic service was Freddie Laker's Laker Airways, which operated its famous "Skytrain" service between London and New York City during the late 1970s. The service was suspended after Laker's competitors, British Airways and Pan Am, were able to price Skytrain out of the market.

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 Glasgow, UK; Manchester, UK; and Canada for £89.

It has been claimed that unsubsidized low fare trans-oceanic travel will finally become affordable following the development of an extended version of the Airbus A380, which will be able to hold up to 1,000 persons.

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