Intro to Low cost carriers.

7/28/2019 Intro to Low cost carriers.

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A service is an economic activity that creates value and provides benefit for

customer at specific times and places by bringing about a desired change in, or on behalf of, the recipient of service

Service

1. Intangible------- Cant see, feel. smell2. Inseparability-- Produced and consumed simultaneously

3. Perish ability-- Dies

4. Variability------ Change

5. Ownership---- Right to use only

Characteristics

Complex and tricky thing as selling intangible idea or product


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Complex and tricky thing as selling intangeble idea or product


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Is the study of processes involved when individual or group select, puerchase ,

use or dispose of product, services, ideas or experiences to satisfy needs anddesires

Consumer behavior

Is the study of processes involved when individual or group select, puerchase ,

use or dispose of product, services, ideas or experiences to satisfy needs and

desires


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Invention of wheel--- mesopotamia

Locomotive 1903


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No-frills is a term used to describe any service or product for which the non-essential features have been removed to keep the price low No-frills businesses operate on the principle that by removing luxuriousadditions, customers may be offered lower prices

The term originated within the airline industry referring to airlines with alower 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

A low-cost carrier or low-cost airline (also known as a non frills, discount or

budget carrier or airline) is an airline that generally has lower fares. Something offered to customers for no additional charge may be designated

as a "frill" - for example, free drinks or food.

Definition


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No-frill airlines are airlines that offer low fares but eliminate all non-essential

services, such as complimentary drinks, snacks, inflight entertainment

systems, business-class seating, flying from remote airports, using one single

type of aircraft, A/C interiors is fitted with minimum comforts, carry

advertising inside to increase revenue, charge passengers an additional fee

for carrying luggage, using the airport checkin desk, using wheelchairs or

toilet

What are No-frill Airlines?


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Some LCCs operate A/C configured with a single passenger class, and most

operate just a single type of aircraft In the past, low-cost carriers tended to operate older aircraft, such as

the McDonnell Douglas DC-9 and older models of the Boeing 737 Since 2000, fleets generally consist of smaller, newer, more fuel efficient

aircraft, commonly the Airbus A320 or Boeing 737 families, reducing training andservicing costs
http://en.wikipedia.org/wiki/McDonnell_Douglas_DC-9http://en.wikipedia.org/wiki/Boeing_737http://en.wikipedia.org/wiki/Airbus_A320_familyhttp://en.wikipedia.org/wiki/Boeing_737http://en.wikipedia.org/wiki/Boeing_737http://en.wikipedia.org/wiki/Airbus_A320_familyhttp://en.wikipedia.org/wiki/Boeing_737http://en.wikipedia.org/wiki/McDonnell_Douglas_DC-9http://en.wikipedia.org/wiki/McDonnell_Douglas_DC-9http://en.wikipedia.org/wiki/McDonnell_Douglas_DC-9


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Single passenger class Single type of aircraft Minimum set of optional equipment on the aircraft Simple fare scheme, such as charging one-way tickets Flying to secondary airports Flying early in the morning or late in the evening Fast turnaround times Unreserved seating Point-to-point service Ancillary revenue Direct sales of tickets Low wages Employees working in multiple roles Aggressive fuel hedging Charges for online check-in and priority boarding. No free meals and drinks No refunds or transfers to later flights Using a mobile stairway Fly their aircraft for more hours


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Not every low-cost carrier implements all of the mentioned points Some try to differentiate themselves with allocated seating In-flight entertainment (LiveTV) in every passenger seat Discounts and tickets in promotion reducing costs and no-frills service reclining seats premium cabin assigned seating mood lighting


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When talking about LCC, some quarters will react with cynical andsometimes preposterous views We've been asked before if a passenger must stand in a flight due to lack of seats or there will be chickens in the flight Such misconceptions are not surprising, given the fact that scheduled, low-fare flights are a relatively new phenomenon in the world We list down some of the most common misconceptions with regards tothe LCC:


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i. Are the aircraft safe? Absolutely! The number one priority for LCCs is safety, and thats a trait thatwe never compromise. LCCs complies with the highest internationalstandards and procedures.

ii. Are they flying old planes? We are rejuvenating our fleet with brand new Airbus A320 aircraft. Going

forward, we will have the youngest fleet of any airline in Asia.

iii. Do they have well trained and qualified personnel? Yes. Our cabin crew is among the best trained and best paid.

iv. What service can one expect? A service that will get you from point A to B, safely, comfortably and on time.


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v. Do they Fly on time? LCCs time performance is now above industry average. And it is continuouslyimproving as we induct more brand new Airbus A320 aircraft into our fleet.

vi. Do I have to stay through weekends to get the best fares? No such nonsense. Our tickets are point to point and fare is based on demand

for a particular flight. There are no ridiculous restrictions to get the cheapestfare; you just have to be faster before anyone else snaps it up first.

vii. Do LCC really offer the cheapest fare at all times? Yes. Our business model stipulates that our fare must be at least 20% cheaper

than a competing FSC at all times. Anything less, in our view, will steerpassengers to our competitors.

Yield Management


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v. Do they Fly on time? LCCs time performance is now above industry average. And it is continuouslyimproving as we induct more brand new Airbus A320 aircraft into our fleet.

vi. Do I have to stay through weekends to get the best fares? No such nonsense. Our tickets are point to point and fare is based on demand

for a particular flight. There are no ridiculous restrictions to get the cheapestfare; you just have to be faster before anyone else snaps it up first.

vii. Do LCC really offer the cheapest fare at all times? Yes. Our business model stipulates that our fare must be at least 20% cheaper

than a competing FSC at all times. Anything less, in our view, will steerpassengers to our competitors.


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1. High aircraft utilization Aircraft is kept flying as much as possible, the first flight starts as early inthe morning commercially possible and the final flight typically ends atmidnight A fast turnaround is critical to ensure time spent of the ground is minimal

an airline makes money when the aircraft is flying, not when the aircraft isparked Air Asias turnaround time is 25 minutes; compare that against 1 hour for aFSC On average, AirAsias utilization per aircraft is 12 block hours per day, a FSCmight do about 8 block hours per day


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2. No frills Underlying business for a LCC is to get a person from point A to point B Everything else is considered to be luxury item or frill, of which can beacquired for a small fee Among many of the frills that AirAsia has do away are;

No free food & beverages .Why give away something that you dont appreciate? Passengers aremost welcome to purchase food & drinks at an affordable price from thecabin crew Free seating .

There is no assigned seating. Passengers receive a generic boarding passand they will have to take any of the available seats


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2. No frills Ticketless airlines .Less hassle for the customer, who doesn't have to worry about collectingtickets before traveling, and cost-effective for the airlines (paper,

printing, distributing). No refund .Airlines waste a lot of money when passengers do not show up for aflight due to refunds and rescheduling. Whether a passenger shows up ornot, the cost of flight to the airline is the same. LCC are unforgiving to noshow passengers and do not offer refunds for missed flights No loyalty programme .We believe our customers are loyal to our low fares, so who needsfrequent flyer miles programme then


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3. Streamline Operations

Making the process as simple as possible is the key of a successful LCC. Single type of aircraft .

Pilots, flight attendants, mechanics and operations personnel arespecialized in a single type of aircraft, which means, among others, thatthere is no need for costly re-training of staff, for maintaining a stock withparts for different types of aircraft, for knowledge and skills in order tooperate and maintain different types of aircraft with their owncharacteristics, or for new work requirements.

Single class seating .There is only one class seating, i.e first class, and passengers are free to

sit where they choose. Should you want to have the privilege to chooseyour seats, you can by purchasing Xpress boarding.

Standard Operating Procedures .SOPs are important to ensure same level of competence among all thestaff. This way we can ensure the homogeneity of service throughout the

company.


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4. Basic Amenities Secondary airports .

Low cost carriers mostly fly to and from airports that are notnecessarily the busiest, for example, London - Stanstead rather thanLondon Heathrow These are often referred to as secondary airports. Operating from so

called secondary airports is cheaper than from the bigger major airportsand they are also a lot less congested and turnaround times for aircraftare a lot shorter For instance, to minimize fees AirAsia fly into Clark Airbase which is70km away from Manila as appose to flying into Manila Ninoy Aquinoairport.

Business Lounges . Forget about it.


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Emergence of Low Cost Carrier (LCC) industry has created new challenges for A/Ps toconsider splitting up their services and offer a different product to different A/L sinceLCCs have different needs to have quick turnaround times, raise productivity, and cutdown costs Their focus is on point-to-point services and avoid passenger/baggage handling systms

LCC Needs and Requirements of Airport Terminals

Service/facility LCC needs and requirementsOverall terminal design Simple, functional with low construction/operating costsCheck-in Fewer desks than full service airlinesAirline lounges Not neededSecurity Efficient processes so boarding may not delay aircraft

Transfer facilities Not neededAirbridges Preference for steps for quicker boarding and deplaneAirfield buses Preference for passengers to walk to/from A/C to save costsOffice accommodation Simple and functional


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For small regional A/Ps, the arrival of LCCs has been useful to fill up underutilizedexisting infrastructure while A/Ls have benefitted from uncongested facilities which help

them achieve fast turnarounds Such a strategy may have problems if demand grows to such a level that new facilitiesare needed and the A/P revenues are not sufficient to fund further investment

Examples of regional A/Ps include Liverpool and Prestwick in the UK, which havedecided to focus purely on serving the LCC market and have developed the simplifiedfacilities these A/Ls require Other examples include Finland, where Finavia, the governing body of the FinnishA/Ps, introduced a low cost concept at the small A/P

Outside Europe, this practice is generally not so common Avalon near Melbourne in Australia is a rare example of an A/P that has beendeveloped for the ops of the LCC Jetstar


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In some cases, old unused military A/Ps have been developed primarily to serve theLCC sector This has been the case of London Manston A/P and Robin Hood Doncaster airport in

the UK

Frankfurt Hahn(former US

airbase) is anotherexample where

passengerterminal was a

converted officers

club

Ryanair began servicesfrom the A/P in 1999 and

then in 2002 it set up abase there and give

services to 27destinations

A/P is served by threeother LCCs, namely BlueAir, Iceland Express, and

Wizz Air

P assenger numbers havegone from 90 000 in 1999 to

over 4 million in 2007

During this time the A/Pauthorities have invested 17million to give the A/P a

capacity of 5 millionpassengers

This is equivalent to aninvestment cost perpassenger of 3.50

compared to 18.25 atHamburg, 32.40 atCologne Bonn, and60.00 at Munich


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Frankfurt Hahn(former US

airbase) is anotherexample wherepassenger terminal

was a convertedofficers club

Rental space has increasedfrom 180 square metres in

2002 to 3300 in 2005, whilst

parking spaces have risenfrom 3433 to 9736

This means that non-aeronautical revenue now

accounts for 35% of allrevenues

A/P does not charge a landing fee toairlines with fast turnarounds to minimize

the fixed cost per turnaround and thepassenger charge varies between 5.35

for less than 100 000 passengers and 2.48for 2 to 3 million passengers

Beyond 3 millionpassengers, further

discounts is offered fora turnaround time of

25 minutes


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When an A/P serves both full service and LCCs, it is a difficult task to meet thedifferent and conflicting needs of these two types of A/Ls

One option which is growing inpopularity is to develop aspecialized low cost facility or

terminal with simple design &lower service standards than inconventional terminals

Certain costs associated

with the R/W, navequipment, fire/rescue,and security, will be samefor all

Alternative approach tohandle LCC traffic is to

have a competingterminal

Notable case is Ryanair

that has lobbied for aseparate terminal for itsops in Dublin for manyyears

Another option when twoor more airports are underthe same ownership

In this case one specificairport can deal with the

low cost traffic as is thecase with Hahn airport inFrankfurt, Ciampina inRome, and Stansted inLondon


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For example, Amsterdam A/P built which has a simple design with no airbridges andfunctions within a 20-minute turnaround time Marseilles had a separate low cost terminal that was converted from an old cargofacility Budapest has also developed an LCC terminal to accommodate Wizz Air and Sky

Europe who have bases there, and in 2004 Warsaw A/P opened its Etiuda terminal,which originally had been an arrivals hall but more recently was used as asupermarket, furniture shop, and storage space At all these A/Ps, the passenger charge is lower for the low cost facility except atAmsterdam where there is a differential landing charge depending on whether anairbridge is used or not

Table-4.2 Examples of LCC Facilities and TerminalsAirport Date of Type of Passenger Gross area A/P charges Airline users

opening terminal capacity policyMarseille 2006 Refurbished l3.5 7532 Cheaper EasyJet, Flybe, MyairAmsterdam 2005 Piers off terminal 4 6150 Cheaper No airbridgesBudapest 2005 Refurbished N/A 7990 Cheaper Wizz Air, Sky Europe,

Table gives details of some presently existing low cost terminals and facilitiesSome of these are refurbished existing facilities and some are dedicated new terminals

LCC facilities & Terminals in EUROPE

LCC f iliti & t i l i S th E t A i


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There are two LCC facilities in South East Asia (Singapore A/P, Kuala Lumpur A/P)opened in 2006 At both the A/Ps, the passenger charges for the low cost terminal are lower and therental charges at Singapore are half of those charged in the main terminal

LCC facilities & terminals in South East AsiaTable-4.2 Examples of LCC Facilities and Terminals

Airport Date of Type of Passenger Gross area A/P charges Airline usersopening terminal capacity policy

KLumpur 2006 New terminal 10 35290 Cheaper Air Asia,Pacifi c Air,Singapore 2006 New terminal 2.7 25000 Cheaper Tiger Airways

There is Plan for providing similar facilities in Bangkok, the Philippines, Indonesia,Dubai, and Delhi In Mexico, at Monterrey A/P, Terminal C is an LCC terminal Southwest in the US has low cost facilities at Baltimore Washington, and at JFK A/Pin New York


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5. Point to point network Point to point network.

LCC shuns the hub-and-spoke system and embraces the simple point-to-point network Almost all AirAsia flights are short-haul (3 hour flight or less) No arrangements have been made with other airline companies on

connecting flights, on possibilities of flight transfers, nor on having theluggage labeled and passed through from one flight to another


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6. Lean Distribution System Distribution costs are something that FSC most often ignore. Very often, FSCrelies on travel agents and from their posh sales office Furthermore, FSC always blows the budget by complicating theirdistribution channels by integrating their systems with multiple GlobalDistribution Systems

LCC will keep their distribution channel as simple as possible and will coverthe whole spectrum of the clientele profile For example, AirAsia can cater to the most sophisticated European travelervia internet and credit card sales. And at the same time, AirAsia has anestablished system to sell our tickets to the most remote and technologydeprived locations, such as in Myanmar.(a) Internet Sales . The bulk of sales (65%) are done via the airlines website,whereby the fares are paid using a credit card. This is the most cost effectivedistribution channel


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6. Lean Distribution System

(b) Sales office . AirAsia only has a few sales offices. We only establish a callcentre if we are confident the sales derived from the centre will be worth it.Furthermore, we are not fixated with having our sales office in the posh sideof town.

(c) Travel agents . LCC avoids reliance for sales via travel agent as much aspossible. This means that the airlines do not pay any commission to a travelagent, which would otherwise have been reflected in the fares. Also, as theydo not use travel agents, they do not use, nor participate in the world widereservation systems and thus save costs, which again are reflected in theirpricing.

(d) Call centres . Ticket sales can be done via telephonically; this is a simpleand cost effective method


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Full service airlines argue that LCC terminals are discriminatory against carriers that

operate in the main terminals and all A/Ls should have access to the new terminals

They also argue that A/Ps should be focusing on the reduction of costs for all its A/Lcustomers and there should not be differential pricing

These A/Ls have made a number of legal challenges For example, at Geneva A/P where easyJet is a major A/L, there were plans to convert

an old terminal into a low cost terminal but Air France-KLM objected and claimed thatthe lower passenger charge would give the LCCs a competitive advantage but SwissFederal Court rejected this but Geneva has abandoned its low cost terminaldevelopment project At Marseilles A/P, Air France-KLM claimed that the differential charges between the

main terminal and the low cost terminal were unreasonable. This resulted in MarseillesA/P discontinuing its separate charges in the main terminal and adopting a single 3.54fee which is nearer to the 1.22 fee of the low cost terminal At Amsterdam, Air France-KLM has also opposed the differential pricing, particularly asthere is only a separate pier and not a separate terminal


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For A/Ps, LCC terminals are an effective and cost-efficient way of coping with

increasing demand , if the current terminal capacity is already well utilized

However if there is still capacity in the main terminal, the more favourable option mustbe to get A/Ls to use this terminal Worst case scenario is when a significant traffic shifts from the old terminal to the new

terminal, leaving the original terminal underutilized at a time when overall costs have

increased There is also a more general issue related to non-aeronautical revenues as most of the

low cost terminals have commercial facilities but revenue from them is lower than what

would have been generated in the main terminal

Intro to Low cost carriers.

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Transcript of Intro to Low cost carriers.