Mega-Trend 4: Low cost carriers; the model for the times

It is not a large step to recognising that all of these changes play well into the hands of the LCC model, which typically fly narrowbody equipment on point-to-point services and do not rely on business travel. It’s a simple formula that a reduced yield profile of travellers requires lower cost operations, if profit margins are to be achieved. The new narrowbodies greatly extend their advantages.

Global LCC capacity has increased from 27.5% of total world operations in 2011 to 32.9% in 2019. Perhaps more importantly in terms of future trends, during COVID-plagued 2020, the proportion of LCC seats rose steeply, to 35.1%. That of course doesn’t account for all short haul operations, the majority of which are performed by the larger number of full service airlines.

The proportion of LCC seats in the US by contrast has remained static at around 30% over the decade, and that proportion is largely accounted for by Southwest. The slow uptake is testament to the sheer market power of the big three airlines, which by virtue of their size have been able to adopt many of the low fare – if not low cost – features of LCCs.

Within Europe, where there is no such market dominance, the picture is very different. In 2011 LCCs flew 35.8% of seats, rising to 41.7% in 2019, then increasing another 2 percentage points in 2020.

As an indicator of where the market is heading, over half of all outstanding narrowbody orders (excluding lessor orders) are from LCCs alone, a remarkable statistic considering the much smaller number of LCCs globally.

An even more remarkable shift is that, whereas 42% of aircraft in service today are operated by full service airlines and less than 18% by LCCs, one third of all orders – not just narrowbody orders – are from LCCs, a similar proportion to full service airline orders. Admittedly this does not account fully for the role of lessors, but the numbers are extreme enough to paint the future picture clearly.

Most recently, of 408 new orders for Airbus aircraft at the Dubai Airshow in November 2021, only two were for widebody passenger aircraft. Boeing’s more modest tally of 98, also consisted almost entirely of narrowbody MAXs. Of the handful of widebody orders, most were for freighters. In turn, the vast majority of orders were from LCCs and lessors.

Even long haul low cost is poised for recovery. To emphasise the low cost role even further, long haul low cost airline operations look poised for revival in Asia Pacific as a result and an illustration of this emerging new travel profile.

There has long been a debate over whether such operations were viable. The argument ran that they couldn’t rely on higher density seating and utilisation, as is possible for short haul. More importantly, they could not attract the higher yielding business travel segment necessary for a solid operating margin.

But remove that vital business travel overlay and the long haul low cost model can come into its own. Despite the dismal outlook for Asia Pacific aviation, no less than six long haul low cost – widebody - operations are returning to the space; two of them are subsidiaries of full service airlines, Singapore Airlines’ Scoot and Qantas’ Jetstar; the other four are independent.

Moderator: CAPA - Centre for Aviation, Chairman Emeritus, Peter Harbison

  • Emerald Airlines, CEO, Conor McCarthy
  • Flyadeal, CEO, Con Korfiatis
  • Flypop, CEO, Nino Singh Judge
  • Manchester Airports Group, Commercial Director, Ciaran Brannigan

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