Low-Cost Airline Business Model

Air transport is preferred by many due to its convenience and the speed with which people reach their destinations. The airline industry has three components: military, commercial, and general (Albers et al., 2017). Commercial airlines operate planes to carry passengers or transport cargo to various destinations around the world. General aviation includes the recreational components of air transport. On the other hand, military aviation is using aircraft meant for military purposes to engage in aerial warfare. There have been many challenges that have rocked the airline industry. As a result, many have had to adopt business models that help keep them in business i.e., the archetypal LCC (Low-cost carrier) and FSNC (Full-service network carriers). The airline industry is one of the highly regulated industries (Williams, 2017). There are many rules and regulations that airlines need to follow to operate. The international regulatory framework has remained unchanged. The principles involve the protection of passengers and their safety when flying. Economic regulations have also played a role in the fall of some airline operators. The bilateral agreements between countries have also made the operation of airlines costly. The escalation of fuel prices in 2008 made any airlines such as ATA and Aloha both in the United States.

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LCC (Low-Cost Carrier)

It is a business model by Southwest Airlines, and its main advantage of this business model is the low cost of fares. The airlines that adopt this strategy ensure they have compact operational procedures to reduce costs and be flexible in the ever-changing market environment. Low-cost carrier refers to any airline that offers low ticket prices regardless of its value during operations (Dziedzic & Warnock-Smith, 2016). Such airlines charge passengers for food, baggage, and priority boarding to compensate for the losses made in ticketing. There are different strategies employed by this business model. Simple processes are adopted to reduce cost, reduce training, and the maintenance cost of the aircraft. Airlines that operate with this strategy use secondary airports that charge cheaper airport fees. Some airlines use both primary and secondary airports, and most of the non-flying jobs are out-sourced.

The business model requires an airline to use a single type of aircraft for maximum utilization. Low-cost carriers majorly focus on the addition of service enhancements to attract passengers to their airlines. A strong customer culture enables companies to keep their loyal customers and attract others. The seating arrangement in LCC is dense, and other airlines do not offer an assigned seating arrangement before boarding a flight. The companies using this business model cut out intermediaries, and most ticket booking materialize through online platforms and direct sales. It helps to save the commission allocation targeting intermediaries. Low-cost carries use fewer crew members and are assigned multiple tasks. The wages paid to employees by such airlines are low, and performance determines how much an employee will earn. The cost advantage for low-cost carriers is from operational overheads, distribution, and product design. LCCs have eliminated the hindrances to purchase return tickets for passengers to get low ticket prices.

Full-Service Network Carriers (FSNC)

Full-service network carriers (FSNC) are airlines that provide passengers with a wide range of diversified services oriented on the satisfaction of customers (Soyk et al.,2018). The airlines that operate on this kind of model known as hub-and-spoke airlines. Different characteristics define full-service network carriers. The fleet of airlines that operate using the FSNC business model is diverse. The fleet ranges from small aircraft to those with widebodies. The airlines have a wide geographical range though smaller airlines focus on delivering services in their operation. The network structure of FSNCs is a hub and spoke network where there are feeder flights that come from the hubs (Fichert & Klophaus, 2016). The flight enhancement results from non-hub flights that are carefully selected. The flight schedules are of a wide range and at high frequencies. FSNC has 2-4 class services and is mostly offers business and first-class services (Timanywa, 2017). The pricing is more elevated than LCC; however, they share pricing discrimination in some circumstances. There is a downside to using FSNC because there is complexity in the connection of flights on a tight schedule.

Ryanair

The airline operator has a fleet of more than 450 Boeing 737-800 series aircraft and has made 210 Boeing 737 planes (Carida & Bonizio, 2018). The aircraft is relatively big, and by 2024 Ryanair will have a fleet of 585 aircraft enabling it to offer even lesser fares. As seen in LCC's structure and characteristics, Ryanair's fleet composition is identical to the features discussed on how an airline operating on an LCC business model should structure its fleet. The flight routes are regularly in, and mostly, they fly even when the aircraft is not full. The airline offers flexibility on ticket changes and priority seat booking. The pricing of the tickets is also cheap, owing to the 142m customers that fly with Ryanair. With all due consideration, Ryanair operates as an LCC.

In conclusion, airlines have to adopt various business models to ensure they stay afloat. The two business models offer airlines an opportunity to explore the market in different ways. The consideration and preferences of passengers are at the center of each model.

References

Albers, S., Baum, H., Auerbach, S., & Delfmann, W. (Eds.). (2017). Strategic management in the aviation industry. Taylor & Francis.

Dziedzic, M., & Warnock-Smith, D. (2016). The role of secondary airports for today's low-cost carrier business models: The European case. Research in transportation business & management, 21, 19-32.

Fichert, F., & Klophaus, R. (2016). Self-connecting, codesharing, and rubbing among European LCCs: From point-to-point to connections? Research in transportation business & management, 21, 94-98.

Soyk, C., Ringbeck, J., & Spinler, S. (2018). Revenue characteristics of low-cost long-haul carriers (LCCs) and differences to full-service network carriers (FSNCs). Transportation Research Part E: Logistics and Transportation Review, 112, 47-65.

Timanywa, J. M. (2017). Assessment of Factor Influencing Passengers' Choice of Low-Cost Carrier: A Case of Fastjet (Doctoral dissertation, The Open University of Tanzania).

Williams, G. (2017). The airline industry and the impact of deregulation. Routledge.