Low Cost Carrier Impact

Topics: Low-cost carrier, Airline, Southwest Airlines Pages: 6 (1532 words) Published: June 16, 2011
February 2003
English and French only


(Presented by Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Moldova, Monaco, Netherlands, Norway, Poland, Portugal, Romania, Serbia and Montenegro, Slovakia, Slovenia, Spain, Sweden, Switzerland, The former Yugoslav Republic of Macedonia, Turkey, Ukraine, United Kingdom)1



1.1 In the current difficult climate for European aviation, one sector is performing extremely well, the so-called low cost/no-frills carriers. While the flag-carriers are experiencing severe difficulties, withdrawing from routes and cutting staff, the low cost sector continues to expand at a tremendous pace. There is evidence that the low cost carriers are even becoming dominant players on a significant number of intra-European shorthaul point-to-point routes. The extent to which this expansion of the low cost carriers will affect the traditional airline hub-and-spoke networks poses interesting questions for the European industry and policy makers. 1.2 Europe’s experience of low cost scheduled operators began in 1991 when Irish carrier Ryanair transformed itself from a conventional regional airline into a carbon copy of the US low cost pioneer Southwest Airlines. By focusing initially on serving the large leisure market between Ireland and the UK, the airline had a dramatic effect on services across the Irish Sea. The second phase of Ryanair’s rapid growth has involved the carrier in building up a network of intra-EU routes linking London’s third airport, Stansted, with over 50 under-utilized, secondary airports in a number of countries, making the second largest low-cost carrier in Europe. 1.3 After the acquisition of it’s rival and British Airways offshoot Go, EasyJet, established in 1995, is currently the largest low cost carrier in Europe. Several other low cost scheduled carriers have also been established as a reaction to these developments or are currently being launched, including, Buzz and bmibaby in the UK, Virgin Express in Belgium, Basiq Air in the Netherlands, and German wings and Germania in Germany.


The 15 Member States of the European Union appear in bold

(3 pages)




2.1 The chief difference between low cost carriers and traditional airlines fall into three groups: service savings, operational savings and overhead savings. Low cost airlines tend to focus on short haul routes (of generally less than 1,500 km). To achieve the low operating costs per passenger required, this type of carrier needs to have as many seats on board its aircraft as possible, to fill them as much as possible, and to fly the aircraft as often as possible. Competitive advantage derived from greater aircraft productivity is of paramount importance and is achieved by a combination of using uncongested secondary airports and not offering anything other than point-to-point services, like interlining. Secondary airports have two main advantages over larger airports: they tend to charge airlines less for using their services; and, as they are less busy, delays due to congestion are less. In addition, low cost airlines operate a single type fleet. By having only one aircraft type, pilots and cabin crew can operate on any aircraft in the fleet. Another key area where a low cost airline can gain a cost advantage over network carriers is in distribution. Significant cost savings can be made by selling directly to customers via the Internet and call centres and by using electronic ticketing. By not selling via travel agents, low cost airlines avoid travel agency commissions and also avoid computer reservation system fees. Lastly, the area of cost savings that is perhaps most apparent to passengers of low cost...
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