The question of whether the low-cost business model can be transferred from short-haul to long-haul has long been a subject of debate in the airline industry. Tim Clark, president of Dubai-based Emirates Airlines, argues that it is inevitable, and may happen sooner rather than later
It may be a bitter pill for many legacy carriers to swallow, but the era of long-haul low-cost carriers is approaching rapidly. In fact it has always been only a matter of time before the short-haul low-cost model migrated into long-haul. After all, the two business models have only two major differences – aircraft size and stage length. And all this is good for the industry.
Often touted as a threat to the legacy carriers for reasons I am not altogether clear about, the low-cost phenomenon has revolutionised our industry, brought millions more people to the business by offering astoundingly good value and, in its own low-cost, no-frills way, actually delivers what the customer wants.
Important obstacles to long-haul low-cost growth are being dismantled. For example, we know there has been clear evidence of a progression towards aeropolitical multilateralism in the past 20 years. More and more countries are recognising that liberal air access has a multiplier effect on their economies and protection of their national carriers no longer stacks up in the cost-benefit equation or serves their national interest. Unwittingly, they have been subsidising their national carriers through a fortress mentality of aeropolitical protection and the elimination of competition, and other primary sectors of their economies have suffered as a result.
But things are changing as more countries take a holistic view of aeropolitical economics and are liberalising air access. Canadian transport minister Jean Lapierre said in a recent speech in Toronto: "The fundamental structure of the air industry is changing – not just in Canada, but around the world. The traditional industry model – closed domestic markets, strong national flag carriers and bilateral agreements – is giving way to a new model. We have been seeing a worldwide trend in recent years toward making aviation markets more accessible, with decisions being left increasingly to market forces. Travellers, shippers and consumers benefit from the increased competition that results. This is an opportune time to re-examine the pros and cons of further liberalisation on three fronts – domestic, trans-border and international air services."
And remember, Canada has traditionally been pre-determinist in its aeropolitical policies.
Consider an Airbus A380 in an all-economy configuration of about 760 seats. The aircraft would be stripped of all major galleys, with the exception of some beverage stations, and passengers would be invited to bring or buy their catering requirements before boarding. Baggage would be limited to one piece of 25kg (55lb) each.
Full video on demand would be provided at a price, as would tea, coffee, soft and alcoholic drinks. There could be a place for duty-free and in-flight gambling for an extra charge.
Now fly this aircraft from London Stansted – the UK and Europe's largest low-cost hub – say to Macau or Adelaide via Colombo (assuming these fields take the aircraft), charging €400 ($530) per round trip, including tax. With New York charging €200 and Burbank California €300, you'd break even at 80% seat factor.
Include other income streams and breakeven falls to 70%. These fares would be freely available year round, online with none of the "from" pricing syndrome. What you see is what you get.
Think of the connections the Stansted hub could bring from all parts of the UK and Europe. And what would happen if Ryanair or easyJet engaged with this carrier but without compromising the basics of their business models? We would enter a new dimension of long-haul travel.
Incidentally, if Airbus could be persuaded to launch the stretched A380, some 870 seats could be offered at stellar seat mile costs. Big is beautiful, particularly as far as the long-haul, low-cost, mass markets are concerned, despite environmental and airport capacity issues.
Watch this space.
Source: Airline Business