China Airlines - Orient Aviation

special report
Information Technology
When global airline
IT provider, Sabre
Airline Solutions,
commissioned a study
to analyse the development
of the low-cost carrier (LCC) sector it had
a sneaking suspicion it might come up with
some surprising conclusions. It was right.
The so-called LCC sector is shrinking and
some self-tagged budget carriers have even
become full-service network operators.
The global study, released in May, looked
at 540 airlines, 123 of them “self-nominated”
LCCs. A good number of them could be
accused of false advertising.
Of the 123, the analysis found, only 41%
remained true to their pure LCC business
model. Some 52%, it concluded, had moved
towards a hybrid business model and 7%
demonstrated characteristics that would place
them within the more traditional network
business model.
The study showed that 59% have
broken commonly assumed LCC operating
parameters such as sticking to a point-to-point
network, flying single aircraft types, offering
simple fares using direct distribution, usually
through the Internet and having no interline or
code-share agreements. Passenger numbers
for last year show these hybrid airlines carried
65% of all passengers in the broader LCC
segment.
In fact, the low-cost sector, according to
Sabre, is passing into a new era. For many
industry observers, who have found it
increasingly difficult to define if an airline is
an LCC, the results are hardly a surprise. In the
Asia-Pacific, one prime example is Australia’s
Virgin Blue, which now describes itself as
a “New World” carrier, chasing corporate
travellers as well as budget flyers and launching
onto international routes.
Gordon Locke, Sabre’s vice-president
for airline marketing and strategy, said
there has been a lot of speculation about the
evolution of the LCC model, but until now no
quantifiable research existed to show how these
airlines were changing their businesses to stay
competitive.
“The LCC market is one of the most
competitive in the airline industry and this has
spurred many pure LCCs to explore ways of
evolving their businesses to remain competitive
and sustainable. For many, this has meant
adopting some full-service carrier business
practices to help grow their passenger base
and expand their market reach, although they
have often added their own twist on how these
business practices are implemented,” he said.
When is an LCC
not an LCC?
When it’s a hybrid. And there are lots of them
Virgin Blue: now a hybrid carrier
Others have also noticed the trend. “Not
everyone who is selling themselves as
low-cost is really low-cost,” said Norbert
Muller, chief executive of Lufthansa Systems
Asia-Pacific. “There are some airlines with a
business model that operate in a simplified
way ... but they still have a need for IT and
they are more and more having a need to
differentiate. Once you get into chasing
business travellers you need to provide certain
nice things like priority check-in to keep the
customer happy.”
Randy Pizzi, vice-president and managing
director of ARINC’s Asia-Pacific division,
pointed out that economic impacts along with
high fuel prices are resulting in some LCCs
starting to struggle.
While ARINC focuses more on major
airlines and airports it is trying to make its
technology more scalable to get away from
legacy systems and provide cost-effective
solutions to sectors such as budget airlines
upgrading IT and adjusting their models.
The Sabre study showed that full-service
carrier attributes being introduced by LCCs
include: international routes, global distribution
systems (GDS), code-share agreements,
connecting services, multiple fares available
at any time, advanced ticketing procedures,
‘[LCCs] that introduce more
than three full-service
characteristics should be
considered a hybrid carrier’
Gordon Locke
Vice-President,
Airline Marketing and Strategy
Sabre Airline Solutions
multiple aircraft types, multiple classes of
service, interline agreements and long-haul
destinations.
“Airlines that introduce more than three
of these full-service characteristics should
be considered a hybrid carrier because each
attribute adds a level of complexity and cost
to the operating model that is inconsistent
with the fundamental principles used to define
low-cost carriers,” said Locke.
Based on that, within the Asia-Pacific,
low-cost airlines that should be considered
hybrid include Virgin Blue, Lion Air and
AirAsia. Globally, the trend is just as strong
with industry leaders such as Southwest,
Frontier Airlines, Jet Blue, West Jet, Air Tran,
bmi Baby and Flybaboo falling into this new
category.
“Many of these airlines have evolved
into hybrid carriers to make a play for the
highly lucrative business traveller, who has a
completely different set of needs and shopping
behaviours from the leisure traveller that LCCs
have traditionally targeted,” said Locke.
“That’s why some have introduced GDS
distribution, multiple products, new classes of
service and interline agreements. They’ve also
invested in sophisticated revenue management
tools and techniques that help them maximise
the revenue generated by every seat on every
aircraft, every day of the year.
“In comparison, pure LCC airlines don’t
use these tools. They stay true to the LCC
model – a simple, no-frills offering using
discounted airfares to appeal to a single travel
segment, in this case, the price-conscious
leisure traveller.”
According to the study, it appears the larger
an LCC gets the more complexity it adds. ■
44 ORIENT AVIATION june 2008