How to deliver cost efficiency's? Low Cost Airlines Vs Legacy. Cost efficiency is critical for an airline's ability to compete and survive. Yet, this does not mean that every airline should seek to be the lowest cost operator. Instead, it is important that the costs appropriate for the standard of service provided to the customer are achieved in the most efficient manner.
The emergence and growth of no frills, low cost airlines (LCCs) have radically altered the nature of competition within the airline industry, especially on short-haul routes. The major LCCs have exploited different operational methods (e.g. point-to-point routes from secondary airports), fewer service offerings (e.g. charges for in-flight catering) and distribution efficiencies (e.g. internet-only bookings) to lower their cost base and to lower the average fares paid by customers. Yet not all LCCs are profitable, with typically only a handful of market-leading LCCs in a region producing a consistent level of returns above their cost of capital
Strong competition from LCCs has forced the network airlines to respond or to fail. The strategic response can take many forms, but all involve improving cost efficiency – a process given even more urgency by the significant rise in jet fuel costs in the last two years. However, while there are several lessons on cost-efficiency to learn from the LCCs it does not mean that network airlines must adopt their business model wholesale. Airlines offering additional services for which their target customer base is willing-to-pay will incur higher costs, the key is ensuring that these costs are delivered efficiently and economically relative to the premium in yields that higher service quality can attract.
As the market is maturing the distinction between the two business models is becoming more blurred as LCCs begin to take some of the features of traditional airlines and visa versa. The fight for market share in Europe is heating up and this is a big focus this year at the World Low Cost Airlines Congress where we will have LCCs, Traditional Airlines and Short-Haul offshoots discussing what's going to happen in Europe?
There is a great report from IATA on the topic of cost efficiency which you can download here>
Why not join us at the World Low Cost Airlines Congress 2013? To find out more about the event, please download the brochure here >