Low-cost carrier


A low-cost carrier or low-cost airline, also called a budget or discount carrier or airline, is an airline that is operated with an emphasis on minimizing operating costs. It sacrifices certain traditional airline luxuries for cheaper fares. To make up for revenue lost in decreased ticket prices, the airline may charge extra fees, such as for carry-on baggage.
The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. The term is often applied to any carrier with low ticket prices and limited services regardless of their operating models. Low-cost carriers should not be confused with regional airlines that operate short-haul flights without service, or with full-service airlines offering some reduced fares.
Some airlines advertise themselves as low-cost while maintaining products usually associated with traditional mainline carriers’ services. These products include preferred or assigned seating, catering, differentiated premium cabins, satellite or ground-based Wi-Fi internet, and in-flight audio and video entertainment. The term ultra low-cost carrier has been used, particularly in North America and Europe, to refer to carriers that do not provide these services and amenities.

Business model

The low-cost carrier business model practices vary widely. Some practices are more common in certain regions, while others are generally universal. The common theme among all low-cost carriers is the reduction of cost and reduced overall fares compared to legacy carriers.
Traditional airlines have also reduced their cost using several of these practices.

Common practices

Aircraft

While some low-cost carriers choose to operate more than one type of aircraft and configure their aircraft with more than one passenger class, most operate aircraft configured in a single class, as well as utilizing just a single aircraft type. In this way, cabin and ground crew only have to be trained to work on one type of aircraft. This is also beneficial from a maintenance standpoint as spare parts and mechanics will only be dedicated to one type of aircraft. These airlines tend to operate short-haul flights that suit the range of narrow-body planes. As of lately, however, there is also a rise in demand for long range low-cost flights and the availability of next generation planes that make long haul routes more feasible for LCCs.
In 2013, ch-aviation published a study about the fleet strategy of low-cost carriers. They stated that major LCCs that order aircraft in large numbers get large discounts for doing so, and due to this they can sell their aircraft just a few years after delivery at a price high enough to keep their operating costs relatively low.
Aircraft often operate with a minimum set of equipment, further reducing costs of acquisition and maintenance, as well as keeping the weight of the aircraft lower and thus saving fuel. Depending on the low-cost airline, seats do not recline and do not have rear pockets, to reduce cleaning and maintenance costs. Others have no window shades. Pilot conveniences, such as ACARS, may be excluded. Often, no in-flight entertainment systems are made available, though many US low-cost carriers do offer satellite television or radio in-flight. It is also becoming a popular approach to install LCD monitors onto the aircraft and broadcast advertisements on them, coupled with the traditional route–altitude–speed information. Some allow priority boarding for an extra fee instead of reserved seating, and some allow reserving a seat in an emergency exit row at an extra cost.

Bases

Like the major carriers, many low-cost carriers develop one or more bases to maximize destination coverage and defend their market. Many do not operate traditional hubs, but rather focus cities.

Simplicity

Airlines often offer a simpler fare scheme, such as selling only one-way tickets. Typically fares increase as the plane fills up, which rewards early reservations. In Europe luggage is not transferred from one flight to another, even if both flights are with the same airline. This saves costs and is thought to encourage passengers to take direct flights. Tickets are not sold with transfers, so the airline can avoid responsibility for passengers' connections in the event of a delay. Low-cost carriers often have a sparse schedule with one flight per day and route, so it would be hard to find an alternative for a missed connection. Modern US-based low-cost carriers generally transfer baggage for continuing flights, as well as transferring baggage to other airlines. Many airlines opt to have passengers board via stairs, since jetways generally cost more to lease.
Often, low-cost carriers fly to smaller, less congested secondary airports and/or fly to airports during off-peak hours to avoid air traffic delays and take advantage of lower landing fees. This is why Ryanair flies to Gatwick Airport, Luton Airport, and Stansted Airport in the London area and how easyJet can fly to Paris-Charles de Gaulle, and Amsterdam Airport Schiphol. In London's case however, low-cost carriers would not be able to use Heathrow as the airport is running at near capacity, so there is no room to build a base. The airlines tend to offload, service and re-load the aircraft in shorter time periods and do not wait for late passengers, allowing maximum utilization of aircraft.

Non-flight revenue

Low-cost carriers generate ancillary revenue from a variety of activities, such as à la carte features and commission-based products. Some airlines may charge a fee for a pillow or blanket or for carry-on baggage. In Europe, it is common for each and every convenience and service to have an additional charge.

Limit personnel costs

Low-cost carriers intend to be low-cost, so in many cases employees work multiple roles. At some airlines flight attendants also work as gate agents or assume other roles, thereby limiting personnel costs. Southwest Airlines is well known for using fuel hedging programs to reduce its overall fuel costs. Check-in at the gate of luggage requires fees, as it requires addition to the weight calculation and last-minute baggage handling.
Online check-in is becoming common, again in the interest of avoiding personnel costs.
Where permissible, some airlines have a disinclination to handle Special Service passengers, for instance by placing a higher age limit on unaccompanied minors than full-service carriers. Often these airlines do not offer connecting tickets, since the airline will have to pay for ground crew to transfer luggage. A customer may create a connection manually by purchasing two separate tickets, but these are considered separate contracts, and the passenger bears the risk if a delayed inbound flight causes a missed connection.
After deregulation, which led to lower fares, many airlines remained bound to these salary agreements and pensions, whereas new low-cost carriers employed new staff with lower salaries, especially for cabin crew, keeping personnel costs low and allowing for competitive fares. In some cases airlines have gone bankrupt, and new airlines replaced them.
Traditional carriers followed the low-cost carriers by enabling web check-in, encouraging machine check-in at the airport, and generally reducing ground personnel cost.
The number of crew members follow international conventions that require one flight attendant per 50 passenger seats and two pilots. However, carriers can save money by reducing the amount of ground crew.
Carriers hire pilots through third-party agencies based in low-tax countries without benefits for sick pay, pensions or health insurance. Traditional carriers have also started to try this, including starting their own low-tax agencies. These agencies can easily find less experienced co-pilots and cabin crew, as the profession is popular, but there are problems for low-cost carriers to recruit and keep captains who have to be experienced.

Principles of operation

At IATA, a LCC operation is defined as including the following characteristics, at least to some degree:
  • Primarily point-to-point operations
  • Short-haul routes, often between regional or secondary airports
  • Strong focus on price-sensitive traffic, mostly leisure passengers
  • Typically a single service class, with no customer loyalty programmes
  • Limited passenger services, with additional charges for some services
  • Low average fares, with a strong focus on price competition
  • Different fares offered, related to aircraft load factors and length of time before departure
  • A very high proportion of bookings made through the Internet
  • High aircraft utilisation rates, with short turnaround between operations
  • A fleet of just one or two aircraft types
  • Private-sector companies
  • A simple management and overhead structure with a lean strategic decision-making process
While low-cost airlines differ in service offerings, by definition they feature most of the following:
  • Standardized fleet
  • Absent non-essential features
  • Use of secondary airports for lower landing fees and marketing support
  • Avoidance of airports with high costs
  • Rapid turnaround
  • Fly at less desirable times of the day, which price sensitive tourists accept
  • Online ticket sales to avoid the cost of call centres or agents
  • Online check-in, charge for desk check-in
  • Baggage charges for checked bags to offset baggage handling and loading costs
  • Use staff for multiple jobs
  • Hedge fuel costs
  • Charge for all services
  • Do not use reserved seating, or charge extra for reserved seating or early boarding.
  • Fly point-to-point
  • Carry little extra fuel
  • Outfit plane with fuel-saving modifications, such as winglets
  • Route planning before aircraft arrives at airport
  • Market destination services such as hotels and rental cars for commissions
  • Cabin panels decorated with advertisements