My Account Menu

CAPA Login

Low Cost Carriers (LCCs)

Create Diamond Alert

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.

 

37,462 total articles

and

918 total articles

and

Aegean Airlines' wider 1Q operating loss reflects intensifying competition, especially from Ryanair

30-May-2015 11:46 PM

After strong results in 2013 and 2014, Aegean Airlines has started 2015 by reporting a wider loss in the seasonally weak 1Q. Capacity grew sharply, led by international routes from Aegean's Athens base, but revenue failed to keep pace. Unit costs came down, helped by lower fuel prices and greater network efficiencies, but they were not enough to offset falling unit revenue.

Aegean's weak unit revenue highlights strong competition and capacity increases in its markets, especially from ultra-LCC Ryanair. Although Greece has seen strong growth in tourism since 2012, uncertainties surrounding the macro environment in Greece add to Aegean's challenges.

As the airline's Managing Director Dimitris Gerogiannis observed, "We continue to believe that network synergies and tourism development in our country can offer further potential to our company provided a return to stability is achieved in the very near term for our country".

Redefining airport hubs: (Self)-connectivity: the next vital piece in the industry’s advancement

29-May-2015 4:25 PM

Now that the industry’s two previously near-autonomous airline categories, LCCs and FSCs, are increasingly feeling the need to connect, the repercussions are being felt at every level, by airports, IT providers, government regulators and more.

Even the global alliances are looking at ways of integrating the new models into their systems. Code sharing, partnering, interlining and simply co-operating are all taking on new levels of significance.

Today, definitions of airports’ roles are being stretched, as self-connection between point to point operations becomes commonplace. Airlines have different needs and airports are responding differently, some more effectively than others. As the role of national airlines is redefined, is there a need to reassess the nature of national connectivity?

This report is based on an article published in May-2015, in CAPA's Airline Leader journal for industry CEOs.

Wizz Air's first results post-IPO: FY2015 underlying net profit up 67%, but slowing in FY2016

28-May-2015 2:37 PM

Reporting its first financial results since its Feb-2015 IPO, Wizz Air announced that its underlying net profit jumped by two thirds in FY2015. In another year of double digit capacity and revenue growth, it managed to grow its unit revenue while simultaneously lowering its unit cost.

Ranked by operating profit margin for the 12M period to Mar-2015, Wizz Air is equal second with easyJet and behind only Ryanair in the list of Europe's most profitable airlines. The IPO has also left it with a robust balance sheet, a useful attribute in the volatile airline industry.

Wizz Air's guidance for FY2015 implies much slower profit growth of less than 20%. Lower fuel prices and a competitive market backdrop look likely to put unit revenue under pressure. Moreover, further unit cost reduction is harder when costs are already very low. Nevertheless, Wizz Air's low cost base and impressive ancillary revenue performance, together with strong market share in Central and Eastern Europe, position it to remain one of Europe's more successful airlines.

Ryanair: Michael O'Leary's new cuddly approach is rewarded with 66% profit growth

27-May-2015 3:00 PM

Ryanair's FY2015 net profit jumped 66%, a return to profit growth after a rare dip in FY2014. It was helped by lower fuel prices, but, unlike many other European airlines, Ryanair would still have reported improved FY and 4Q results with no change in its average fuel cost per seat versus last year.

Average fares barely changed (up 1%), but load factor jumped to 88%, from 83% in FY2014, driving up revenue per seat, even in Q4 when average fares fell sharply. Ryanair's new customer service initiatives and improved airport network may not yet be attracting consistently higher fares, but they are persuading more passengers onto its aircraft. What's more, revenue per seat growth outpaced the resultant increase in cost per seat.

Ryanair is being cautious about fares into FY2016, but still expects another 10% growth in profit. Moreover, the combination of product and service improvements and a wide discount to competitor fares should benefit pricing in the longer term, even as further load factor gains become less dramatic.

Norwegian Air Shuttle narrows its 1Q2015 loss thanks to lower fuel, but it's still a heavy loss

1-May-2015 1:42 PM

Norwegian narrowed its losses in 1Q2015, the first quarter in over a year when its adjusted operating result improved on a year-on-year basis. This was achieved as growth in unit revenue was higher than growth in unit costs although the loss was still its second highest first quarter loss.

Moreover, the containment of unit costs was entirely due to lower fuel prices, whereas non-fuel unit costs increased. Norwegian can point to costs related to a pilot strike as contributing to this, and adverse currency movements also hurt its result, but it does underline the need for cost efficiency improvements.

Meanwhile, Norwegian is still awaiting a definitive decision regarding its Ireland-registered subsidiary Norwegian Air International's US foreign carrier permit application. Approval would be positive for labour productivity on its long haul network. As the US DOT continues to drag its feet, Norwegian may soon be forced to consider alternative plans.

Long haul LCCs on the North Atlantic. Ryanair's Michael O'Leary has talked EUR100 fares

17-Apr-2015 3:27 AM

Ryanair CEO Michael O’Leary’s recent musings about a possible low-cost transatlantic project indicate that he believes any such operation would need average fares below EUR100.

This raises the question of just what is a sustainable fare in this market?

Until recently the exclusive preserve of legacy full service carriers, the North Atlantic has seen the entry of LCC Norwegian over the past year.

However, it was always possible to find relatively low fares and Norwegian’s pricing, while lower than that of premium airlines such as British Airways, does not appear to be substantially lower than the average all-inclusive economy fare of Association of European Airlines (AEA) member airlines between Europe and North America.

This report explores some of the key factors in establishing viable pricing for this model.

This content is exclusively for CAPA Membership Subscribers

CAPA Membership gives you the latest aviation news and alerts, access to CAPA articles, reports, and our leading aviation data with optional premium add-ons.

This content is exclusively for CAPA Membership Subscribers

CAPA Membership gives you the latest aviation news and alerts, access to CAPA articles, reports, and our leading aviation data with optional premium add-ons.