Usman Nadeem Year 2023

LOW COST CARRIER LEC

1
USMAN NADEEM
YEAR 2023
 Usman Nadeem Year 2023

INTRODUCTION TO LCC

• A Low-Cost Carrier is an airline that does not offer traditional

services that are normally included as part of the fare, thereby
offering lower fares at the expense of fewer comforts. This
usually means that baggage is not provided, or the food and
drinks that are offered by other more premium carriers.
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CONTD

• A low-cost carrier or low-cost airline (occasionally referred to

as budget or discount carrier or airline, and abbreviated as
LCC) is an airline that is operated with an especially high
emphasis on minimizing operating costs and without some of
the traditional services and amenities provided in the fare,
resulting in lower fares and fewer comforts. To make up for
revenue lost in decreased ticket prices, the airline may charge
extra fees – such as for carry-on baggage.
 Usman Nadeem Year 2023

CASE STUDY
 Usman Nadeem Year 2023

VIDEO LINK: SOUTH WEST AIRLINES

CASE STUDY
 Usman Nadeem Year 2023

THE CHANGING FACE OF AIR TRAVEL

• In the old days, flying was a luxury experience. Airlines

primarily catered to the affluent and business travelers. Flyers
were a pampered lot, plied with food and wine. In those days,
flights were seldom full. One could stretch out on the adjacent
empty seat and enjoy a nap in the hushed passenger cabin.
 Usman Nadeem Year 2023

CONTD

• Air travel grew in popularity, with the industry offering more

flights and lower fares after deregulation, As the passenger
traffic swelled, air travel's cachet faded just as low-cost
carriers arrived, pushing fares even lower. It now costs extra to
secure more leg room or glass of wine in a business or first-
class section of the cabin. All too often, air travelers have been
forced to put up with long delays, overcrowded flights,
lengthy security procedures and noisy cabins.
 Usman Nadeem Year 2023

THE RISE OF LOW-COST CARRIERS

• While many blamed the decline in quality, the number of

complaints was not exceptionally high compared to the greater
number of air travelers. That was because airfares dropped
substantially after adjusting for inflation. Consumers have
always known that you get what you pay for. Paying cheap
fares for no-frills air travel was a bargain accepted by the
majority of air travelers. Those who pined for the glamour
days of flying always had the option of paying more for first
class.
 Usman Nadeem Year 2023

WHY LOW-COST CARRIERS SOARED

• TOTAL OF 6 FACTORS::
• The Point-To-Point Model
• The point-to-point system, connects each origin and
destination via nonstop flights. That provides substantial cost
savings by eliminating the intermediate stop at the hub, which
gets rid of costs related to hub development. The point-to-
point system also reduces total travel time and enables better
aircraft utilization. Limited geographical reach is the major
constraint of the point-to-point model. Unfortunately, direct
flights are not economically viable for many city pairs.
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CONTD

• HUB AND SPOKE SYSTEM:

• Many large airlines were quick to adopt the hub-and-spoke model after deregulation.
In that model, a major airport becomes the hub, and other destinations become the
spoke. However, LCCs abandoned that system in favor of the point-to-point model.

• The hub-and-spoke system allows airlines to consolidate their passengers at the hub
and then fly on to their ultimate destinations (the spokes) in smaller aircraft. That
boosts the percentage of seats filled, which helps to drive down fares. Furthermore,
the hub-and-spoke system increases the number of possible destinations. However, it
also has some drawbacks, such as the high costs required to maintain such a
complex infrastructure. The hub-and-spoke system also imposes longer travel times
on customers who must transit through the hubs. Finally, it is vulnerable to
cascading flight delays caused by hub congestion.
 Usman Nadeem Year 2023

DISCOUNT PRICING

• The higher efficiency and better fleet utilization of LCCs,

coupled with their reduced costs, enable them to offer
significant airfare discounts. Ticket pricing is now the biggest
competitive factor for airlines. Most consumers want to reach
their destinations quickly and economically, and are willing to
give up in-flight food and entertainment to save money. This
drive for economy also extends to business travelers as
companies increasingly clamp down on travel costs.
 Usman Nadeem Year 2023

TECHNOLOGY ADOPTION

• The widespread adoption of ticketless travel and Internet

distribution has been a boon for LCCs. It decreases the need
for complex and expensive ticketing systems used by legacy
airlines to handle their complicated pricing structures. The
emergence of the internet as the primary medium for booking
tickets has dramatically increased the transparency of ticket
pricing. That works in favor of the low-cost carriers because of
their lower fares.
 Usman Nadeem Year 2023

FLEET UNIFORMITY

• A significant benefit of the point-to-point model is that LCCs

can use a single fleet type. They frequently do not have much
variability in passenger demand between the major city pairs
that they serve. Traditional carriers often need larger planes to
carry passengers between hubs, and smaller ones for flights to
the spokes. The fleet uniformity of low-cost carriers leads to
lower training and maintenance costs.
 Usman Nadeem Year 2023

MOTIVATED STAFF

• Several LCCs prided themselves on the high motivation levels

of their employees. They motivated employees with
competitive compensation, incentives like profit-sharing, and
a strong corporate brand identity. Additionally, most LCCs
tend to fly shorter routes. That means employees might only
be away from home for a few hours, as opposed to a couple of
days or longer for long-haul flights. More time at home can
also be good for morale.
 Usman Nadeem Year 2023

LCC STRUCTURE

• How Should Airlines Structure?

• The key drivers of performance naturally break up into two
categories – cost and revenue.
• The number of employees per (available per seat mile)ASM
(or departure), salary expense per employee, and fuel costs are
primary drivers of cost.
• Revenue per mile RPM, load factor, and length of flight stage
are primary drivers of revenue. Our analysis shows that
different airline structures accentuate the benefits of each of
these drivers, and certain drivers are sustainable in the long
term whereas others are not
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CONTD

• Successful low-cost airlines have flourished because of low

employees per ASM and low salary expense per employee.
• The point-to-point network structure naturally favors a low
number of employees per ASM. The advantage for low-cost
carriers in terms of salary per employee is not related to their
network structure and is not likely to persist far into the future.
Thus, in the long term, low-cost carriers should work hard to
ensure that they are able to maintain their advantage of having
a lower number of employees per ASM
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VIDEO LINK: PLANES SPOTTING 101

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CASE STUDY
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LETS END