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This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (November 2007) |
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. 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.
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This section does not cite any references or sources. (November 2007) Please improve this section by adding citations to reliable sources. Unverifiable material may be challenged and removed. |
Typical low-cost carrier business model practices often (but not always) include:
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 principal area of competition tends to be the full-coach or "walk-up" fare. Advance purchase fares tend to be competitive with major carriers but not significantly lower. Most successful LCCs try to offer a modicum of additional benefits, such as better on-time performance or more leg room. AirTran Airways and Spirit Airlines have been very successful with their low-fare Business Classes, while Frontier and JetBlue offer live in-flight television. JetBlue uses assigned seating. US Airways brands itself as a low-cost carrier, but has the same features and setup as the other five major carriers in the United States.
Boeing 737-700 of UK low cost carrier easyJet waiting for take off at Bristol, England
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.[citation needed] Often, this credit has been incorrectly given to Southwest Airlines which began service in 1971 and has been profitable every year since 1973[citation needed]. 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 1990, and easyJet, formed in 1995. Low cost carriers developed in Asia and Oceania from 2000 led by operators such as Malaysia\'s AirAsia, and Australia\'s Virgin Blue. The low-cost carrier model is applicable worldwide, although deregulated markets are most suited for its rapid spread. In 2006, new LCCs were announced in Saudi Arabia and Mexico.
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.[citation needed]
Many carriers opted to launch their own no-frills airlines, such as KLM\'s Buzz, British Airways\' Go, Air India\'s Air India-Express and United\'s Ted, but have found it difficult to avoid cannibalizing their core business. Exceptions to this have been bmi\'s bmibaby, germanwings which is controlled 49% by Lufthansa and Qantas\'s Jetstar all of which successfully operate alongside their full-service counterparts.
For holiday destinations, low cost airlines also compete with seat-only charter sales. However, the inflexibility of charters (particularly as regards length of stay) makes them unpopular with many travelers.
The entry of new nations into the European Union from Eastern Europe and moves towards compliance with EU legislation by those who have not yet joined, has led to an extension of open skies arrangements. This has led to the establishment of low-cost routes by existing and new operators (such as Hungary-based Wizz Air, which took its first flight on May 19 2004 and Slovakia-based SkyEurope, which took its first flight on February 13 2002). From 2004 to 2007 routes have been established into Austria, Bulgaria, Slovenia, Slovakia, Poland, Romania, Hungary, Czech Republic, Turkey and Israel. By the end of 2007, there were over 45 low-cost carriers operating almost 3,500 routes around Europe.
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 and Canjet discontinued scheduled air services on September 10, 2006.)
India\'s first low-cost airline, Air Deccan started service on August 25, 2003. The airline\'s fares 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 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. After a year of operation, in 2006, Kingfisher Airlines changed its business model from low-cost to value airlines.
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. Three months after Flying Finn\'s bankruptcy, the other operator Blue1 began flights to three of Flying Finn\'s most profitable destinations.
Airbus A320-200 of Hungarian low cost carrier Wizz Air takes off from London Luton Airport, England
In Norway the first low cost carrier was ColorAir in 1998. Their low prices were matched by competitors SAS and Braathens, and Color Air folded in 1999. The next low cost carrier, Norwegian Air Shuttle (or Norwegian), starting their Boeing 737 operations in September 2002, provided tougher competition for the merged Norwegian part of SAS and Braathens. Although Norwegian started with domestic routes, today their international operations are 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 geography 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. Virgin Blue has become the nation\'s second largest airline, whilst Qantas purchased Impulse and operated it in a \'wet leasing\' arrangement before transforming it into its new low cost carrier Jetstar. Qantas has launched two low cost carriers: Jetstar competes with Virgin Blue in the Australian domestic market, while Australian Airlines operated internationally to Asian destinations. In 2006 Qantas began operating the Australian Airlines operation in a \'wet leasing\' arrangement which essentially means Australian Airlines crew and aircraft operate services under the Qantas brand. As at 2006, Qantas intends to continue developing a sole low-cost brand around Jetstar which will include international destinations.
In early 2007, Singapore low-cost carrier Tiger Airways announced their intention to form a subsidiary airline in Australia. Tiger Airways Australia began operations out of Melbourne Airport in November 2007, and have, in the short time since, grown a network that spans every state and territory in the country.
In 1995, Air New Zealand established a low-fare subsidiary, Freedom Air, in response to the commencement of discount trans-tasman services by Kiwi Airlines. Fierce competition on trans-Tasman routes led to the collapse of Kiwi Airlines in 1996. Freedom Air continues to provide discount services between Australia and New Zealand. Wholly owned Qantas subsidiary Jetconnect was set up as a low cost New Zealand arm of Qantas, with Jetconnect operating all New Zealand domestic services and several trans Tasman services in a \'wet leasing\' arrangement, using the Qantas brand. Qantas has also launched trans-Tasman Jetstar flights .
Air Arabia was established on Feb 3 2003 and started operations on October 29 2003.
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 AirAsia 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 AirAsia\'s Singapore expansion ambitions. In July 2005, the owners of Jetstar Asia took over Valuair and are merging the two carriers. Tiger Airways is now profitable while Jetstar Asia remains in the red.
Japan has seen a few attempts at LCC, for example Hokkaido-based Air Do which flew between Sapporo and Tokyo from 1998, but was acquired by ANA in 2000. Viva Macau and JetStar fly from Narita, Osaka and Nagoya. Korean Air have announced they are to create an LCC that will connect Seoul and Japan starting May 2008. ANA has announced the creation of an LCC by 2009.[1]
Sky Express is the first Russian low-cost airline focusing on internal flights. Its main base is Vnukovo International Airport. The airline was established in March 2006 by a consortium of investors which included KrasAir CEO Boris Abrmovich, EBRD, Altima Partners and others, becoming the Russia\'s first low-cost airline. The first flight took off on 29 January 2007 from Moscow to Sochi.
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. US Airways offers a first class product and airport lounges, for example, while Frontier Airlines and JetBlue Airways advertises satellite television. Advertiser-supported Skybus Airlines launched from Columbus in 2007. 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.[2]
Some elements of the low-cost model have been subject of criticism by Governments and Regulators, and in the UK in particular the issue of "Unbundling" of ancillary charges by both low-cost carriers and other airlines (showing airport fees, taxes as separate charges rather than as part of the advertised fare) to make the "headline fare" appear lower has resulted in enforcement action. Believing that this amounts to a misleading approach to pricing, the Office of Fare Trading in February 2007 gave all carriers and travel companies three months to include all fixed non-optional costs in their basic advertised prices. Although the full service carriers had complied within the specificed timescales, the low-cost carriers have been less successful in this respect, leading to the prospect of legal action[3] by the OFT.
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 suggested that the Airbus A380, able to hold up to 853 passengers in an all Economy layout [4], would enable true low-cost long-haul service. While the per-seat costs of such an aircraft would be lower than the competition, there are fewer cost savings possible in a long-haul operation and therefore a long-haul low-cost operator would find it harder to differentiate itself from a conventional airline. In particular, low-cost carriers typically fly their aircraft for more hours and flights each day, scheduling the first departure early in the morning and the last arrival late at night. However, long-haul aircraft scheduling is more determined by timezone constraints (e.g. leaving the US East Coast in the evening and arriving in Europe the following morning), and the longer flight times mean there is less scope to increase aircraft utilization by adding one or two more short flights each day.
In April 2006, the industry magazine Airline Business analysed the potential for low-cost long-haul service [5] and concluded that a number of Asian carriers, including AirAsia, were closest to making such a model work. On November 2, 2007, AirAsia X, a subsidiary of AirAsia and Virgin Group flew its inaugural flight from Kuala Lumpur, Malaysia to Gold Coast, Australia. AirAsia X claims that it is the first true low-cost long-haul carrier since the end of Sir Freddie Laker era.[citation needed]
In August 2006, Zoom Airlines announced that it was to establish a UK subsidiary, probably based at Gatwick Airport, to offer low-cost long-haul flights to the USA and India.
On 26 October 2006, Oasis Hong Kong Airlines started flying from Hong Kong to London Gatwick Airport (delayed by one day because Russia suspended fly-over rights for that flight an hour before the flight\'s scheduled departure). Tickets for flights between Hong Kong to London can be as low at £75 (approximately US$150) per leg (not including taxes and other charges) for economy class and £470 (approximately US$940) per leg for business class for the same route. From 28th June 2007, a second long-haul service has operated to Vancouver, in Canada.
Australia\'s Jetstar has operated International since 2005, when they began service to Christchurch, New Zealand. In late 2006, more international services began. Departing from Sydney, Melbourne and Brisbane, they fly to popular tourist destinations within 10 hours of Australia such as Honolulu International Airport, Japan, Vietnam, Thailand, Malaysia and more. With the delivery of new planes, they hope to fly to the continental US and Europe.
A recent trend is the formation of new low-cost carriers exclusively targeting the long-haul business market, with aircraft configured for a single class of service, initially on transatlantic routings. Probably best described as "less frills" rather than "no frills", the initial entrants in this market, including Eos Airlines, and Silverjet are using mid-sized twin jets such as Boeing 757 and Boeing 767 to service the lucrative London - US Eastern Seaboard market.
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