Simply Flying
Everything you need to know about low-cost aviation
With the whole new buzz around the film Soorarai Pottru that celebrates the life of the maverick businessman Captain GR Gopinath, it has managed to put on airs about this man who has revolutionized flying in India by enabling air tickets at prices less than a cent which is indisputably an incredulous pitch.
However, the concept of a low-cost airline was started in the seventies by the American domestic carrier Southwest with the sole objective of offering cheap airfares to the consumers. This created a situation where already established legacy airlines had to lose a significant amount of the market share to these newly formed low-cost airlines, purely because of their ability to charge a lower price over traditional full cost airlines. No business better exemplified the democratization of services than the aviation industry and the low-cost carriers (LCCs) were at the forefront of that movement.
Rise of LCC’s
Every business model has its shortcomings and the low-cost carrier was no different. Consumers who traveled business class were completely against the idea of no-frills air travel. On the other hand, the majority of consumers were actually happy about the decline in the ticket fare and this led to an increase in the number of people who commuted by air. The year 1970 witnessed the rise of low-cost airlines. The main reason for this decline in ticket fare was the deregulation of the U.S. airline industry. The 1978 Airline Deregulation Act shifted the control from the government sector to the private sector. This gave the private organizations the freedom to decide upon important aspects that were previously controlled by the government. Before the 1978 Airline Deregulation Act, the Civil Aeronautics Board had an iron grip on the U.S. airline industry controlling critical elements like the ticket fare.
Why LCC?
LCCs have adopted the point-to-point model which connects each origin and destination via non-stop flights which reduce total travel time. This coupled with less overhead charges enables the companies to offer tickets at very low and competitive prices. The majority of air travelers prefer instantaneous travel and an economic ride which is exactly what low-cost carriers offer.
LCCs also do not have complicated ticketing systems for booking tickets unlike the other airlines and have transparent pricing structures. They have lower training, repair, and maintenance costs and require less flight crew.
Other reasons for the success of low-cost carriers are cutting down on non-essential services such as food and drinks. They also buy fuel when the prices are cheap. Rather than using large airports, they land at smaller airports that accept smaller fees. Landing time and cabin luggage are kept to a minimum which decreases turnaround and refueling time. Many companies stick to buying one type of airplane which cuts down additional expenses and also gives room to receive deals from manufacturers. The LCC aviation broke stereotypes associated with the compromise on the safety aspect of the model.
· Analytics
While ten years ago the mainline carrier market dwarfed that of LCCs, with 2.3 times more seats available, LCC capacity has grown by an incredible 331.9 percent during the period to reach 125million. That’s 60.7 percent of the total Indian aviation market, up from just 30.1 percent a decade earlier.
Graphical Delineation
The Low-Cost Model
The above-mentioned examples in low-cost airline history share one common feature. They are either based on or have used a ‘modified’ version of the Southwest low-cost model of operation.
The success of low-cost airlines can be attributed to what is called a low-cost leadership position strategy adopted by these airlines. According to Flouris & Oswald (2006), “The goal of a low-cost leader is to contain the costs to the lowest relative to industry rivals and, in essence, to create a sustainable cost advantage over the competition. The key to this strategy is that cost is not equal to price”. The original low-cost model is designed based on this concept and as outlined in Alamdari & Fagan (2005, p.378),
The original South West low-cost model consisted of the following:
- Fares
Unrestricted and low price.
- Network
Point to point high frequency routes. The aircrafts often used shortcuts rather than the conventional routes which helped them reduce fuel cost.
- Distribution
A major change adopted by this model was an online booking. Online transactions changed the whole ticket reservation aspect cutting down on paperwork, employee strength, and paving way for a customer-friendly interface.
- Fleet
High utilization, second-hand aircraft were used across the fleet.
- Airport
Secondary airports with short turnaround times.
- Sector length
Short (around 400nm). Low-cost airlines also mostly fly short-haul routes (less than 4 hours) therefore several sectors can be done in a given day.
- Staff
High productivity with competitive wages and profit sharing. The staff were trained to work in only one passenger class flight which cut the cost in paying them.
Brief history from around the world
AMERICA
During the late seventies in the US, the idea of mass air travel and the deregulation and liberalization of the US airline industry accelerated the widespread use of LCC s. This whole revolution in the airline industry and the rise of LCC around the world has been mainly attributed to southwest airlines for its series of innovations, proliferations and consolidations which encouraged many other players such as Pacific Southwest, New York Air, Jet America to enter the market of which, some survived the competition and others did not. Also, some of the major carriers started their own subsidiaries under the low-cost banner in order to regain their lost market share.
EUROPE
The low-cost carrier revolution spread worldwide between 1990 and 2020. The LCCs came to Europe in the 1990s mainly in the UK and Ireland, based on the Southwest model with the introduction of EasyJet and Ryanair in 1995, mainly due to the deregulation of airlines which allowed airlines of member states to operate domestically within the European Union and the use of underused airports with low landing costs. LCC’s have been most successful in Europe, where the sector grew from 8 million passengers in 1998 to more than 100 million in 2007.
ASIA AND OCEANIA
In Asia, the rapid demographic and economic progress combined with congested hub airports alongside unused airports and the need for governments of those countries to promote tourism and trade outside the capital cities influenced the bringing the low-cost concept to the continent of Asia. Seeing the success of some of the European airlines such as EasyJet and Ryanair, Malaysian carrier Air Asia started low-cost domestic operations in 2001 based on the South West model. Other subsidiary airlines such as Tiger Airways, value air, Peach, Jet star Japan and many others in emerging Southeast Asian economies.
In Oceania after the deregulation of the Australian domestic market in the early nineties, airlines such as Compass Airlines and compass Mk II started low-cost operations. However, they were absorbed into the Qantas group as a result of the financial strength Qantas had over the low-cost airline. The only significant low-cost innovation came in the form of virgin blue which still continues to operate today.
The Deccan Odyssey
In 1997 an Indian entrepreneur/author-politician, Captain Gorur Ramaswamy Iyengar Gopinath, a retired Captain of the Indian Army partnered with Captain K.J. Samuel and launched Deccan Air which has grown ever since at a rapid pace, expanding its network across the country and providing a level of service unparalleled in the charter industry.
DECCAN CHARTERS, today, operates with a fleet of helicopters and fixed-wing aircraft, which suit virtually any requirement.
Now his airline introduced “dynamic pricing” where a small number of “early bird” customers could travel at a rupee. Latecomers would pay a higher ticket price, which would still be substantially lower than competitors. Not surprisingly, booking counters were overrun with customers, many of them first-time fliers. Critics howled such pricing methods would wreck the industry.
Today, the company provides a complete suite of solutions ranging from corporate travel to aircraft management, maintenance and technical services.
DECCAN has then identified the need for regional air transport in India. For this gap to be bridged DECCAN has launched a first of its kind daily charter air service between Kolkata, Jamshedpur and Cooch Behar. Through this new initiative, Deccan will identify hereto inaccessible tourist, industrial and other important clusters that are not serviced by airlines and provide customized charter flight services through partnerships with local stakeholders.
But Air Deccan struggled to cope with the costs as losses mounted. In 2007 Capt. Gopinath sold his company to Kingfisher, owned by liquor baron Vijay Mallya, who also owned Kingfisher Airlines. Mr. Mallya rebranded Air Deccan as Kingfisher Red.
By then other low-cost carriers had entered the market and they still dominate it. In 2018, some 140 million Indians flew domestically, mostly on budget carriers.
But Air Deccan is no longer in the skies. In September 2011, Mr. Mallya shut down a bleeding Kingfisher Red and eventually his whole business, which went bankrupt.
“It was sad. But the dream of Air Deccan lives on. The [budget airline] revolution continues,” Capt. Gopinath says.
Indian LCCs
Besides being a pioneer of the low-cost aviation industry, The Deccan Air invariably created a foreground for various other budget airlines to thrive on.
Promoted by the Wadia group, GoAir is a no-frills airline based out of Mumbai. It was positioned as a ‘Smart People’s Airline’, with its theme of ‘Fly Smart’.
Earlier known as the Royal Airways, New Delhi-based SpiceJet was promoted by Ajay Singh, the Kansangra family, and Sanjay Malhotra. It started operations in 2005 with its target customer being the Indian Railways passenger traveling in the AC coach. SpiceJet made an entry into the Indian LCC market with a fair price of Rs 99 for the first 99 days and followed it up with a Rs 999 scheme for select routes.
Established in 2004, Air-India Express started operations in 2005. Its aim was to provide value for money, efficient service and convenient connectivity in the short-range routes at affordable prices.
A low-cost airline based in Delhi; Jagson Airline commenced charter operations in 1992 two 18-seat Dornier 228–201 aircraft.
· Analytics
In 2018 the total domestic departure seats offered by Indian LCCs has reached 165.8 million, an amazing 341.5 percent higher than in 2009. Conversely, mainline domestic capacity has grown by just 6.6 percent, only recently recovering to the levels seen prior to the aviation industry’s great depression following 9/11.
Internationally, the growth of low-cost flights has also far outstripped mainline carriers, although the total capacity available remains far lower. In an international aviation market, which has grown by a total of 75.9 percent over the decade, LCCs have grown total seats by 239.9 percent compared to 53.6 percent for mainline carriers.
· Advent of UDAAN
With the launch of the Regional Connectivity Scheme (RCS) UDAN(‘Ude Desh ka Aam Nagrik’), the aviation sector now has a big boost at tapping a huge market of middle-class flyers living in Tier-2 and Tier-3 cities. This is the first-of-its-kind scheme globally which harnesses the power of the markets in favor of the public.
The scheme has two components:
· The first component is to develop new airports and enhance the existing regional ones. This scheme also looks at increasing the number of operational airports for scheduled civilian flights from 70to at least 150 airports with regularly scheduled flights.
· The second component is to add multiple financially viable, capped-airfare, new regional flight routes to connect more than 100 underserved airports in smaller towns with each other as well as with well-served airports in bigger cities.
The way forward
The Low-Cost Carriers (LCCs) have visibly changed the industry dynamics worldwide, ranging from highly developed (e.g. USA) to developing (e.g. India) nations. Their entry into the Indian market has been fulfilling the dream of many Indians, a majority of them being cost-conscious.
The low-cost long-haul model may also give Indian carriers like SpiceJet and IndiGo an opportunity to regain their market share of Indian passengers from their foreign counterparts. Roughly 38% of people fly in and out of India through Indian carriers and the remaining 62% from foreign carriers.
Studies reveal that brand loyalty doesn’t position a high place on travelers' preferences lists as they tend to switch constantly between airlines offering cheaper fares. This scenario must be changed and each LCC must form its own loyal customer base to sustain in the market. The Indian LCC travelers are expecting better comfort and convenient services without paying extra. Achieving a balance between low-fares and value-added services is no cakewalk. LCCs that tackle these challenges skillfully and can keep pace with the ever-changing industry might only continue to stay afloat and even sail further.
“Routes of five to 10 hours have so far been the sweet spot for the long-haul low-cost model. The economics of medium-haul routes are generally more attractive than long-haul routes,” CAPA said.
In a nutshell, the Indian low-cost airlines are playing a crucial role in elevating the norms to a faster and reliable trav2el that will eventually result in higher productivity and output.
References:
1.Alamdari, F. & Fagan, S. (2005).Impact of the Adherence to the original low-cost model on theprofitability of low-costairlines. Transport Reviews 25(3) 377–390.
2.Flouris, T.G. & Oswald, S.L. (2006).Designing and Executing Strategy in Aviation Management, Hampshire, England: Ashgate Publishing Limited.
3.WikiDot. http://aviationknowledge.wikidot.com/aviation:low-cost-airlines:a-brief-history-the-current-state#toc0.
4.BBC. https://www.bbc.com/news/world-asia-india-54927691
6.Excite. http://travel.excite.co.uk/why-low-cost-airlines-are-so-successful.html
