Low Cost Carrier at the End of the Happy Road
Nov 20, 2018
We all know: Low Cost Carriers (LCC) revolutionized the airline world. They successfully challenged the legacy airlines and they changed the game. The appearance of the LCCs gave rise to entirely new structures and approaches. Being efficient by utmost lean processes instead of being perfect by complexity was one. New network structures relying on point-to-point traffic the second. Unified fleet structures, effectively employing only one A/C model, the third. This was complemented by addressing, and indeed promoting, a completely new type of customer demand, being sensitive primarily on price and not on expensive bundled feature packages. In conjunction with early implementation of newest IT this changed the game and made many LCCs rank among the biggest in their region.
Success creates new challenges. The happy road, where LCCs have just dictated the game and teared the meat out of their competitors like sharks, may have come to an end. The business model of the legacy airlines survived the attack and they have learned to defend themselves. At least some of them have. Of course, they just tried to copy what LCCs have proven to be successful. But even the copy made them less vulnerable to the original. At the same time limitations of the LCC business model can be recognized at the horizon. The low cost demand is not infinite. There is no longer just a vacuum to fill. LCCs have to notice that they compete each other. After inflationary growth, the phase of crowding out has begun. In addition, the limits of network expansion due to the one-model-only fleets and to the focus on peripheral point-to-point traffic can be felt. Thus, LCCs have to re-invent themselves in order to remain the leaders.
How to continue on this road?
LCCs need to manage the task of repositioning themselves. This covers different business areas:
- General strategy: Do I keep operating strictly according to my LCC business model or would a turn into a hybrid model allow me to grow and gain market shares?
- Future network strategies and structures: Do I offer connection flights? If yes, what would be the impact on my operations?
- Cooperation strategies: Do I offer codeshare flights? If yes, which partner would be the best?
- Product: Do I want to focus more on high-revenue business passengers and offer a dedicated product – or not?
These and many other questions need to be answered soon by the LCCs to continue on their (happy) road of success. The biggest challenge for me though within this transformation is to manage the rising complexity without losing simplicity and in regaining operational excellence. Digitalization might be one good solution.
What would be your approach? What do you think about this?
I look forward to getting your direct feedback here or comment.