A low-cost carrier or low-cost airline (also known as a no-frills , discount or budget carrier or airline) is an airline that generally has lower fares. To make up for revenue lost in decreased ticket sales, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc.
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.
Business model
Low-cost carrier business model practices include:
- a single passenger class
- a single type of aircraft (commonly the Airbus A320 or Boeing 737 families), reducing training and servicing costs
- a minimum set of optional equipment on the aircraft, further reducing costs of acquisition and maintenance, as well as keeping the weight of the aircraft lower and thus saving fuel:
- no AVOD etc.; often excluding conveniences such as ACARS and autothrottle
- no in-flight entertainment systems made available
- no seat recliners, seat pockets, window blinds or seat headrest covers
- 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)
- 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)
- unreserved seating (encouraging passengers to board early and quickly, thus further decreasing turnaround times)
- 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 à 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 systems)
- 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
- passengers paying charges for extras, such as hold luggage, online check in and priority boarding
- avoiding using jetways to board and alight passengers by using a mobile stairway which is a cheaper alternative.
- not supplying meals in a flight, but offering snacks, sandwiches and drinks instead to purchase on board
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.
Additional expenses charged can border on the fraudulent, such as levying a credit card charge while credit card is the only payment method accepted.
Traditional perceptions of the "low-cost carrier" as a stripped-down, no-frills airline, as seen on Southwest Airlines, have been changing as new entrants to the market adapt the business model in new ways. AirTran Airways and Spirit Airlines offer a premium cabin while Frontier and JetBlue offer live in-flight television, sometimes for an extra fee. AirTran has XM Satellite Radio available at every seat. Frontier, JetBlue, and AirTran all use assigned seating. Some airlines even have services not available on some legacy carriers, such as mood lighting, found in Virgin America.
History
The first successful low-cost carrier was Pacific Southwest Airlines in the United States, which pioneered the concept in 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 1990, and EasyJet, formed in 1995. Low cost carriers developed in Asia and Oceania from 2000 led by operators such as Malaysia's AirAsia, India's Air Deccan 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 can pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service carriers can prevent them from competing effectively on price - one of the most important factors for 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, 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 100% by Lufthansa and Jetstar in Australia, fully owned by Qantas, 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, Croatia, 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.
Americas
Brazil
In Brazil, Gol Transportes Aéreos began operating on January 15, 2001. WebJet Linhas Aéreas followed in 2006. Azul Brazilian Airlines started operations in southeast and south of Brazil on November 5 , 2008]].
Canada
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 ceased operations on March 11, 2005 and Canjet discontinued scheduled air services on September 10, 2006.
Today WestJet is the primary low-cost airline in Canada. Previously, Zoom Airlines provided an additional option, but ceased operations on August 28, 2008 due to financial problems. Air Canada has started to offer "Tango" fares (not associated with the aforementioned airline) that offer low-cost carrier services while still offer
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