Airline management- Critical Review of LCC vs Legacy Carrier
The IATA,International Air Transport Association has forecast that global airline industry profits will reach $2.5 billion this year, as it recovers from the $9.4 billion loss in 2009 when the US and Europe battled their worst recession in decades. The country's leading low-cost air carriers (LCCs) — IndiGo, SpiceJet and GoAir — are set to nearly double their fleet capacity over the next 17 months. This addition by LCCs is set to increase the number of low-cost seats in the domestic network to 80 per cent of the total. Currently, Indian air carriers offer 115,000 domestic seats in a day and 70 per cent of this is low-cost. Similarly in a single decade, low-cost carriers (LCCs) have transformed the European aviation scene beyond recognition. They have changed people's leisure and travel habits, opened up direct services between EU city pairs that were not available through the legacy airlines, forced established airlines and tour operators to change their business models, popularised regional airports by breathing life into otherwise under utilised airports and changed forever the image of air travel. Perhaps though, the most significant achievement for the LCCs, especially in the EU, is that they have bought air travel within easy reach of everyone across Europe. Who could have predicted, 10 years ago, that Ryanair would carry more passengers in Europe per month than British Airways? Recently there are developments and evolving challenges in the airline industry, with an emphasis on global industry forces. Low-cost carriers operate on a reduced-cost model, typically with a single jet model and simplified routes and fare structures. In general their routes are often confined to the domestic market. According to data released last month from AirFinancials.com, domestic carrying capacity for the legacy carriers declined by 85 billion available seat miles between 2003 and 2009, or by 21% on average. That's not necessarily a bad thing. Most of those domestic routes the legacy carriers gave up had slim profit margins that the budget carriers were able to widen through their lower-cost model. The real money for the legacy carriers is in the international routes, particularly as it relates to premium-paying business travel. For example in India – the legacy airlines Air India, King Fisher, Jet Airways concentrate more on International flights whereas Indigo, spicejet, paraway and other LCC concentrate on domestic routes. Similarly in U.S. domestic capacity among low-cost carriers Southwest Airlines /quotes/comstock/13*!luv/quotes/nls/, JetBlue Airways/quotes/comstock/15*!jblu/quotes/nls/jblu , AirTran and four other small carriers rose by more than 84 billion available seat miles. Legacy airline Delta Air Lines, appears to be concentrating exclusively on international routes. So there is possibility that over the next five years the legacies will become more like trunk carriers with smaller airlines feeding people into the hubs. This is where partnership between legacy airline and LCC comes into picture. So that major trunk routes are linked to hub and spoke system. It would be too early to say if LCC had cut business of Legacy airlines. The high unemployment rate and low GDP growth could be hobbling domestic growth, while the growth in global trade coming off such miserable year-ago lows - is helping spark international business travel. But according to the Air Transportation Association, a smaller portion of U.S. spending is going toward domestic flights, underscoring the impact of budget flying. Through 1991 to 2000, U.S. customers spent about 0.73% of the economy on average on domestic flying, but that fell to 0.56% in 2008 and declined to 0.48% by the third quarter. More recently, airfare has been climbing across the board. Average ticket prices for international routes are up 16% in March from a year ago, while domestic airfare is up 13%.
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