Low Cost Carriers (LCCs)
A key structural change in aviation over the past decade has been the proliferation of low-cost carriers (LCCs). The low-cost model has overwhelmingly been the favoured mode of airline start-up over the period, and their spread around the world, into both short- and long-haul markets, has caused a fundamental shift in the competitive dynamic of the industry.
'Classic' characteristics of the low-cost model include:
- High seating density;
- High aircraft utilisation;
- Single aircraft type;
- Low fares, including very low promotional fares;
- Single class configuration;
- Point-to-point services;
- No (free) frills;
- Predominantly short- to medium-haul route structures;
- Frequent use of second-tier airports;
- Rapid turnaround time at airports.
38,347 total articles
937 total articles
Brussels Airport: Ryanair tests itself against Vueling and Gulf airlines offer long haul connections
Brussels Airport's passenger traffic was badly hit in the global financial crisis. Although it recovered in 2011, it was only when two leading LCCs established bases at the airport in 2014 that traffic growth really took off. Ryanair's battle with Vueling at Brussels, also played out in a number of airports across Europe, provides the Irish LCC with a meaningful calibration of its attempts to improve customer service and its appeal to business passengers. It also seems to have stimulated the airport's leading airline Brussels Airlines into its own European route expansion.
Although there has been an increase in traffic to intercontinental destinations over the past decade, this rapid growth of LCCs has further sharpened the airport's already high focus on European traffic. Long haul accounts for fewer than one in five seats at Brussels and is mainly centred on North America and Africa. Destinations in Asia Pacific are reached mainly via other airports (principally Frankfurt and other Lufthansa Group hubs). The growth of Gulf airlines at Brussels provides competition to these hubs in providing long haul connectivity to the Belgian capital.
In 2006 and 2009 CAPA published a popular management report on Low Cost Airports and Terminals (LCATs). At the time, LCATs were very much in favour within the budget airline business as that segment grew rapidly worldwide.
Less than a decade on the Low Cost Carrier (LCC) segment is still growing, albeit a little less rapidly now as markets increasingly reach maturity, and as can be observed from the chart below.
Accordingly the construction of LCATs has slowed in some regions. Overall, while there some new LCATs on the planning board, the trend more recently has been and is to move away from building these facilities in some parts of the world.
CAPA's LCC Airports Congress, attended by some 20 CEOs of Asian LCCs and airports, is to be held in Bangkok on 15-Sep-2015. The full CAPA Low Cost Airports Report 2015 is available for download.
The CAPA LCCs Airport Congress Asia (15 September) is fast approaching and we wouldn't want you to miss out!
20+ airlines, including the CEOs of AirAsia Group, AirAsia Berhad, AirAsia Indonesia, AirAsia X Berhad, HK Express, Jetstar Asia, Philippines AirAsia, Spring Airlines, Thai AirAsia, Thai Smile, Thai Vietjet Air, Tigerair Taiwan and many more will be in attendance.
Many key airports in the region and from Europe are also participating.
Ryanair returned to the German domestic market on 3-Sep-2015, after a four year absence. Its Cologne/Bonn-Berlin service, on the largest domestic city pair outside Frankfurt and Munich, is an advance party ahead of an onslaught that will increase its seat capacity in Germany by more than 40% this winter, when it will launch eight new international routes.
This follows a capacity increase in Germany of more than 10% this summer, when five new routes took its German total to 171 for the season (source: OAG). By comparison, Lufthansa has 203 intra-Europe routes (of which 27 are domestic), Germanwings has 276 (25 domestic) and airberlin has 271 (31 domestic).
Ryanair has thrown large numbers of seats into Germany before, most recently in 2013, only to cut capacity again in 2014. In the past, Ryanair's simple charms have not suited the more refined tastes of the German market as much as in other parts of Europe, where it has a higher market share. However, as its recent FY2016 profit guidance upgrade indicates, its charms are now appealing to more people across Europe. Its latest expansion comes just as both the German market and Ryanair have become more mutually compatible than ever before.
LCCs now account for more than one in four airline seats worldwide, whereas within Southeast Asia close to three in every five seats are now produced by LCCs. In virtually every region worldwide, LCCs are the growth engine within the airline business. But the airports they serve were often built in a very different era. As a result, there is commonly a mismatch between airport infrastructure, technology and services and the contemporary needs of LCCs.
Airport managers and government regulators can also lack insight into the drivers of the LCC business model. Meanwhile, there are different types of LCCs, as many adopt the features of their full service counterparts and ‘hybridise’.
This essential one-day CAPA Summit in Bangkok aims to help bridge the gaps in awareness that exist between the stakeholders - to help create the conditions for a win-win in Asian aviation and beyond.
The CAPA Summit will be held at the Shangri-La, Bangkok on 15 September, with a welcome reception, hosted by AirAsia, on the evening on 14 September.
In 2Q2015, Pegasus Airlines' operating result fell into loss in what is usually a profitable quarter for the Turkish LCC. Foreign currency movements served to inflate both revenue and costs, with a net negative impact on profitability.
However, the negative result was largely driven by the weakness of unit revenue (RASK), which was dragged down both by poor yields and falling load factors. It seems that the competitive landscape at Sabiha Gokcen, Pegasus' main base, remains highly competitive thanks to Turkish Airlines' expansion and the LCCs own strong capacity growth.
If it is to meet its FY2015 profitability target, Pegasus will have to perform more strongly in 2H2015, in particular in 3Q (which typically accounts for the vast bulk of annual profit).