The gap is closing between legacy carriers and budget airlines like Ryanair
The gap in cost between budget airlines and legacy has closed by 30% in the last six years, according to a new report.Research by KPMG into airline unit costs found that the gap had narrowed from 3.6¢ to 2.5¢ (US cents) per available seat kilometer (ASK), between 2006 and 2011. The UK analysts said: “From a customer perspective, the distinction between the two business models for short haul flying is increasingly irrelevant as traditional flag carriers’ short haul operations now compete head to head with the low-cost carrier’s point-to-point services.” KPMG’s 2013 Airline Disclosures Handbook, which reviews the financial reports of the world’s top 25 airlines and six of the largest low cost airlines, found that the majority of this convergence happened in 2008 and 2009, mainly due to aggressive streamlining by legacy carriers in response to the financial crisis. James Stamp, partner at KPMG’s Global Aviation Team, said: “The airline sector is in flux like never before and the old categories of legacy vs low-cost are becoming increasingly blurred. “The concept of customer loyalty to a brand is becoming obsolete as the service now being offered by low cost and legacy carriers is more or less the same. “Price has become the key factor for customers when it comes to choosing a short haul flight.”The research reveals in detail the areas in which legacy carriers restructured their operations since the financial crisis began and the impact these measures have had on the cost base of airlines. Reducing fuel costs, redundancy programmes and the streamlining of back-office operations, helped legacy carriers to cut the cost gap with their low cost counterparts. Stamp added: “The interesting questions is what will airlines do next to stay competitive? “We think there is not much they can do anymore to reduce the cost gap any further, which means all airlines have to take a fresh look at their business models. “For legacy carriers the key question will be how to compete on price with the LCCs while maintaining a differential especially while feeding into their long haul network. “As far as the LCCs are concerned, some of them will be ruthlessly following the Ryanair model which means carrying passengers from A to B at the lowest price.“Others will try to compete with the premium aspects of legacy carriers. All airlines will have to look at new ways of cooperating with each other.”
Source: Steven Thompson
Gravity always wins!