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Art of operating LCCs Asia Pacific region is suddenly seeing spurt of Low Cost Carriers (LCC) who are

giving tough time to the established Full service Carriers (FSC). One of the reasons for the spurt being the simple business model that LCCs adopt. When majority of the FSCs, barring a few are struggling to keep themselves in black, LCCs on the other hand have seen more success than failures. In this article we try to look at the parameters that give an edge to the LCCs over FSCs by looking at operations of Malaysia Airlines (FSC) & AirAsia (LCC). AirAsia is Malaysia based LCC that pioneered low cost travel in Asia. Malaysia Airlines on the other hand is the governmentowned FSC of Malaysia. While Malaysia Airlines has been losing money, AirAsia has been running a profitable business venture. The striking difference can be explained by looking at four major costs that determine the success of an airline. Understanding & aligning various parameters that help keep these costs in check are the reasons LCCs have been successful as compared to FSCs.

LCC Share (%, 2011)

29.40% 24.30% 19.10% 9% 6.80% 6.10%

Source: Frost & Sullivan

Cost of Fuel Aviation fuel costs the same for everybody. So what makes the difference? Fleet Age Keeping the fleet younger is one of the ways to reduce the fuel consumption & hence reducing the overall fuel costs. AirAsia has average fleet age of 4.5 years ranking it in top 33% of airlines which young fleets, whereas Malaysia Airlines has relatively old fleet with average age of 11.5 years. What this means is that while both the airlines buy fuel at relatively similar price, AirAsia with its younger fleet of aircrafts is able to deliver fuel economy & hence lower fuel bill. Cost of idling - Airlines that keep their aircraft flying for longer hours get better revenues. This is achieved by, Turn Around Time This is the time interval between aircraft arriving at the gate & departing the gate. A no frills or low cost carrier is able to quickly turn its aircraft around. AirAsias turnaround time is 25 minutes; compare that against 50-60 minutes for a FSC like Malaysia Airlines. Aircraft Utilization Lower is the idle time, longer is the aircraft in the air & higher is the utilization.

AirAsias utilization per aircraft is 12 block hours per day, a FSC might do about 10 block hours per day. Cost of Maintenance - Globally, airlines have to maintain and service airlines to strict safety standards. The maintenance costs can be kept minimum by, Fleet Type Keeping it simple in terms of fleet type seems to be the mantra that is working in favor of LCCs. Southwest with its all Boeing 737 fleet started the trend & the LCCs seem to adopt the same methodology. While Malaysia Airlines maintains a fleet consisting of 8 different aircraft types, AirAsia (barring AirAsiaX) has fleet of A320s making it quite simple to maintain. Although providing flexibility, the airlines with a diverse mix of aircraft tend to have higher costs as they have to maintain personnel & inventory to cater to different aircraft types. Cost per Available Seat Kilometer (CASK) - CASK is a metric that measures what it costs to fly every seat for each km of distance. This can be lowered by employing various alternatives as explained below. No loyalty programme This ensures lower cost of operation by lowering staff & infrastructure costs to cater to special needs & services. Secondary Airports LCCs fly to and from airports that are not necessarily the busiest. Operating from so called secondary airports is cheaper than from the bigger major airports and they are also a lot less congested and turnaround times for aircraft are a lot shorter. AirAsia uses LCC terminal at Kuala Lumpur as its hub & flies to secondary airports where cost of operations is lower eg it seized its flights to Mumbai, Delhi which have very high airport landing & other related fees. As these parameters are widely known to all airlines, what matters is the way these parameters or strategies are executed resulting in lower cost of operation. AirAsia along with few other LCCs like RyanAir, SouthWest have imbibed these strategies in their daily operations.
---------------------------------------------------------------------------------------------------------------------------- ------------------This article was authored by Sagar Shahane, Consultant, Asia Pacific Aerospace & Defense Practice, Frost & Sullivan. Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from 40 offices on six continents. To join our Growth Partnership, please visit Media contact, please email or