Low cost Carrier

Topics: Airline, Low-cost carrier, Southwest Airlines Pages: 6 (2771 words) Published: April 3, 2013
The airline industry has been plagued by factors such as overcapacity, commoditization of offerings or competition, high level of rivalry, entry of low cost carriers. other factors include several macro-level socio economic troubles, SARS crisis, 9/11 attacks, bird flu, Asian Tsunami and other terrorism concerns, due to this there has been a big impact on airline profit. As market condition is continuously changing, it is difficult to predict the future of the airline industry. the overall industry as we see it is in a weak position, even though the demand is rising. companies now are providing additional services at low cost and decreasing the fare to attract the customers. this assessment will underline the following issues and airline strategies, * Revenue and cost structures of full service network and low cost carriers. * financial challenges confronting the airlines

* key factors affecting revenue and cost
* approaches taken by airlines to maximize revenues and reduce costs * analyzing Singapore airlines past 5 years bank statements

Low cost Carrier
In a nutshell, low cost carriers are airlines that operate a point-to-point network, these airlines usually have a lower pay grade then the full service network airlines and the offer no extra services when on flight. Full service network carriers

Full service network carriers or Legacy are airlines the focus on providing the customer an abundance of services either on flight (IFE) or at the airport (business lounges), they even include different service classes and connecting flights. these airlines are usually referred to as hub and spoke airlines. http://ec.europa.eu/transport/modes/air/doc/abm_report_2008.pdf Revenue and cost structures

the operating costs of any airlines is divided into 2 section, which is operating and non operating costs, o operating costs are then further divided into direct and indirect costs. http://repository.up.ac.za/bitstream/handle/2263/5597/Ssamula_Developing(2004).pdf?sequence=1

Figure [ 1 ] Cost Structure

Low cost carrier
all over the world, low cost carrier have similar strategies, with a few added variables depending on the location and demand for travelling. in Australia, low cost carriers are fortunate enough to get terminal space, the bigger terminals are lower in cost when compared to smaller airports, this is because of the urban concentration in Australia Most new entrants tend to use the smaller and flexible aircraft, such as the B737, these carriers usually chose simple fare structures and avoid complex programs. they usually are keen to have just one class service as the majority of the customers would not be willing to pay extra for better services. fare structures are simple but are extremely time dependant, as in if a flight is busy, the minimum fares offered would be higher than normal and the opposite if the flight is not busy. they usually have flexible and non flexible tickets. Marketing expense for these airlines are minimal when compared to bigger airlines. the virigin group is a good example for free publicity as they make low fares available at most times. low cost carriers usually depend on selling tickets online instead of travel agents, this is basically to cut extra costs which would have been paid to the travel agents, Australia as most developed countries has an high usage of internet access and credit card usage, thus selling on the internet is easier in these countries. low cost carriers have lower cost structures compared to Legacy airlines, and they have quite successful, this is because they generally tend to operate on a no frills basis and are able to avoid costs of better or higher quality service, simpler network are operated so they have no extra charges or more complex costs. LCC's usually pay their staff lower wages or have cheaper contractors working for them, they even achieve high capital utilization. Security is another issue for low cost...
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