Low-cost carriers become harder to define

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Once upon a time a low-cost carrier was simple to define with traits like a one-class cabin, high aircraft utilisation, all internet sales and low fares. Is the definition now redundant with the critical issue being whether a specific model makes money or not?

In the United States, it's Hillary Clinton claiming to be the real Democrat, while in Russia, it's Vladimir Putin saying he represents the real Russia. On a more mundane level, Coca-Cola is the real thing. And among airlines, Ryanair may or may not be the only true low-cost carrier in Europe, as it claims. The question is, does anyone care?

 coca-cola
 "So long as the offer is a compelling one, the business model is secondary to the business practice"

That is the conclusion that suggests itself when looking at how low-cost carriers around the world have begun to define themselves. We all use the term low-cost carrier as a convenient tool to describe what has become a huge variety of subtly varying business models. Four years ago this magazine boldly predicted: "In the not too distant future, the idea of a low-cost carrier will look like a rather curious notion." The argument was that as the sector grew in size and influence, the cost gap between the low-cost players and legacy network carriers would narrow and be filled by a whole range of different fare and service options.

In almost every corner of the globe, from Mexico to South Korea, the rise of low-cost means the industry has duly arrived at this place. While many rightly fear adding complexity and thus cost to their businesses, the opportunity to introduce service features that can grab a few more dollars or Euros from the customer cannot be ignored. In today's fraught market, this revenue could be making all the difference.

So what is needed is a pragmatic business evaluation of, say, a loyalty programme, an extra class or in-flight entertainment, not a dogmatic fixation with a moribund business model idea. Take Australia's Virgin Blue, for example. It defines itself not by its adherence to a model but by differences to a model that is set by its major rival, Qantas. In the USA, JetBlue is increasingly a blend, having rebelled from the old model of one fleet type, no hubs or focus cities, no cabin differentiation and no distribution beyond the Internet. Today JetBlue is true to the old model only in that it has no intercontinental service, but that will change with its linkup with Aer Lingus and its tie-in with Lufthansa.

Similarly, AirTran has become something of a hybrid, with a business class on every flight, a hub at Atlanta and on-board entertainment. Both AirTran and JetBlue have become significant players in the corporate travel market, with JetBlue having its own programmes, a co-branded credit card with American Express, and considerable reach into corporate travel departments through its participation in the GDSs and in the online travel agencies. AirTran has taken similar steps.

Even Southwest has broken the mould that it set itself, going after business travellers with a new fare structure, hiring large numbers of corporate sales agents and working on code-shares after the experience of its arrangement with the late ATA Airlines. Southwest people say that it is only the limits of technology that kept it back for so long now the challenge they say is finding the right partner.

Virgin America, which had the advantage of starting with a clean slate and no preconceptions, likes to say that it does not go to secondary airports, long a defining characteristic of the low-cost model. The carrier has just applied to go into congested Chicago O'Hare, bypassing the city's low fares magnet of Midway Airport.

Consumers don't care what variety of carrier they fly as long as it is safe, goes where they want and offers good prices. In fact, customers now virtually take access to low fares for granted. It is only in the club of the airline industry where we will continue to use the loose term low-cost as it does help to distinguish the last decade's start-up generation of short-haul players from the legacy or network carriers.

What is of greater importance is whether or not a specific carrier's business model makes money. Apart from carriers with scale, like AirAsia, Southwest, easyJet, or Brazil's Gol, as our recent "Low-cost" ranking in the May issue showed, most sub-scale low-cost carriers have struggled to marry fast growth with reasonable returns.

That comes back to the question, does it matter what airlines call themselves or how they characterise themselves? So long as the offer is a compelling one - from just low prices at Ryanair to a real choice at Virgin Blue, the business model is secondary to the business practice.

To read our recent feature on how the traditional low-cost approach has yielded to blended models, go to: flightglobal.com/blend 



Airline Business at IATA

The Airline Business editors will be at the IATA Annual General Meeting in June producing a daily paper while former SN Brussels and Caribbean Airlines chief Peter Davies joins the team to film video interviews. Book your chief executive for an interview and send your stories to: mark.pilling@flightglobal.com