Tuesday, March 3, 2009
low-cost carrier or low-cost airline
A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The concept originated in the United States before spreading to Europe in the early 1990s and subsequently to much of the rest of the world. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While 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 flights without service, or with full-service airlines offering some reduced fares.
Australia
Australia
Australia's first low cost airline was Compass which launched operations in 1990 but was short lived. In 2000 Impulse and Virgin Blue commenced low cost operations bringing fierce competition to Australian cities. Virgin Blue has become the nation's second largest airline, whilst Qantas purchased Impulse and operated it in a 'wet leasing' arrangement before launching its new low cost carrier Jetstar. In 2006, Qantas discontinued a wet leasing agreement with Australian Airlines and developed international destinations for Jetstar.
In early 2007, Singaporean low-cost carrier Tiger Airways announced their intention to form a subsidiary airline in Australia. Tiger Airways Australia began operations out of Melbourne Airport in November 2007. Indonesian low-cost carrier Lion Air has also expressed interest in establishing domestic and international routes for 2009.
Netherlands
The Netherlands have one low-cost carrier, Transavia, a daughter company of KLM (Royal Dutch Airlines). Transavia have only B737-700s and B737-800s in their fleet. Transavia is based at Amsterdam Airport Schiphol.
New Zealand
In 1995, Air New Zealand established a low-fare subsidiary, Freedom Air, in response to the commencement of discount trans-tasman services by Kiwi Airlines. Fierce competition on trans-Tasman routes led to the collapse of Kiwi Airlines in 1996. Freedom Air continued to provide discount services between Australia and New Zealand until it ceased operations in March 2008. Wholly owned Qantas subsidiary Jetconnect was set up as a low cost New Zealand arm of Qantas, with Jetconnect operating all New Zealand domestic services and several trans Tasman services in a 'wet leasing' arrangement, using the Qantas brand. Qantas has also launched trans-Tasman Jetstar flights
Australia's first low cost airline was Compass which launched operations in 1990 but was short lived. In 2000 Impulse and Virgin Blue commenced low cost operations bringing fierce competition to Australian cities. Virgin Blue has become the nation's second largest airline, whilst Qantas purchased Impulse and operated it in a 'wet leasing' arrangement before launching its new low cost carrier Jetstar. In 2006, Qantas discontinued a wet leasing agreement with Australian Airlines and developed international destinations for Jetstar.
In early 2007, Singaporean low-cost carrier Tiger Airways announced their intention to form a subsidiary airline in Australia. Tiger Airways Australia began operations out of Melbourne Airport in November 2007. Indonesian low-cost carrier Lion Air has also expressed interest in establishing domestic and international routes for 2009.
Netherlands
The Netherlands have one low-cost carrier, Transavia, a daughter company of KLM (Royal Dutch Airlines). Transavia have only B737-700s and B737-800s in their fleet. Transavia is based at Amsterdam Airport Schiphol.
New Zealand
In 1995, Air New Zealand established a low-fare subsidiary, Freedom Air, in response to the commencement of discount trans-tasman services by Kiwi Airlines. Fierce competition on trans-Tasman routes led to the collapse of Kiwi Airlines in 1996. Freedom Air continued to provide discount services between Australia and New Zealand until it ceased operations in March 2008. Wholly owned Qantas subsidiary Jetconnect was set up as a low cost New Zealand arm of Qantas, with Jetconnect operating all New Zealand domestic services and several trans Tasman services in a 'wet leasing' arrangement, using the Qantas brand. Qantas has also launched trans-Tasman Jetstar flights
India
India
India's first low-cost airline, Air Deccan started service on August 25, 2003. The airline's fares for the Delhi-Bangalore route were 30% less than those offered by its rivals such as Indian Airlines, Air Sahara and Jet Airways on the same route. The success of Air Deccan has spurred the entry of more than a dozen low-cost airlines in India. Air Deccan now faces stiff competition from other low-cost Indian carriers such as Jetlite, SpiceJet, GoAir and Paramount Airways. IndiGo Airlines recently placed an order for 100 Airbus A320s worth 6 billion USD during the Paris Air Show, the highest by any India domestic carrier. After a year of operation, in 2006, Kingfisher Airlines changed its business model from low-cost to value airlines.
Norway
In Norway the first low cost carrier was ColorAir in 1998. Their low prices were matched by competitors SAS and Braathens, and Color Air folded in 1999. The next low cost carrier, Norwegian Air Shuttle (or Norwegian), starting their Boeing 737 operations in September 2002, provided tougher competition for the merged Norwegian part of SAS and Braathens. Although Norwegian started with domestic routes, today their international operations are larger than their domestic service. By launching nonstop flights from cities like Stavanger, Bergen, Trondheim in addition to Oslo, they soon became very popular. Norwegians are amongst the most frequent fliers in the world, mostly due to the geography of the country but also due to the high level of income.
India's first low-cost airline, Air Deccan started service on August 25, 2003. The airline's fares for the Delhi-Bangalore route were 30% less than those offered by its rivals such as Indian Airlines, Air Sahara and Jet Airways on the same route. The success of Air Deccan has spurred the entry of more than a dozen low-cost airlines in India. Air Deccan now faces stiff competition from other low-cost Indian carriers such as Jetlite, SpiceJet, GoAir and Paramount Airways. IndiGo Airlines recently placed an order for 100 Airbus A320s worth 6 billion USD during the Paris Air Show, the highest by any India domestic carrier. After a year of operation, in 2006, Kingfisher Airlines changed its business model from low-cost to value airlines.
Norway
In Norway the first low cost carrier was ColorAir in 1998. Their low prices were matched by competitors SAS and Braathens, and Color Air folded in 1999. The next low cost carrier, Norwegian Air Shuttle (or Norwegian), starting their Boeing 737 operations in September 2002, provided tougher competition for the merged Norwegian part of SAS and Braathens. Although Norwegian started with domestic routes, today their international operations are larger than their domestic service. By launching nonstop flights from cities like Stavanger, Bergen, Trondheim in addition to Oslo, they soon became very popular. Norwegians are amongst the most frequent fliers in the world, mostly due to the geography of the country but also due to the high level of income.
Canada, Air Canada has found it difficult to compete with new low-cost rivals such as WestJet, Canjet,
In Canada, Air Canada has found it difficult to compete with new low-cost rivals such as WestJet, Canjet, and Jetsgo despite its previously dominant position in the market: Air Canada entered a period of bankruptcy protection in 2003, but emerged from protection in September 2004. Air Canada operated two low-fare subsidiaries, Tango and Zip, but both were discontinued. Jetsgo ceased operations on March 11, 2005 and Canjet discontinued scheduled air services on September 10, 2006.
Today WestJet is the primary low-cost airline in Canada. Previously, Zoom Airlines provided an additional option, but ceased operations on August 28, 2008 due to financial problems. Air Canada has started to offer "Tango" fares (not associated with the aforementioned airline) that offer low-cost carrier services while still offer legacy carrier type service on other fare structures.
Today WestJet is the primary low-cost airline in Canada. Previously, Zoom Airlines provided an additional option, but ceased operations on August 28, 2008 due to financial problems. Air Canada has started to offer "Tango" fares (not associated with the aforementioned airline) that offer low-cost carrier services while still offer legacy carrier type service on other fare structures.
The first successful low-cost carrier was Pacific Southwest Airlines
The first successful low-cost carrier was Pacific Southwest Airlines in the United States, which pioneered the concept in 1949. Often, this credit has been incorrectly given to Southwest Airlines which began service in 1971 and has been profitable every year since 1973. With the advent of aviation deregulation the model spread to Europe as well, the most notable successes being Ireland's Ryanair, which began low-fares operations in 1990, and easyJet, formed in 1995. Low cost carriers developed in Asia and Oceania from 2000 led by operators such as Malaysia's AirAsia, India's Air Deccan and Australia's Virgin Blue. The low-cost carrier model is applicable worldwide, although deregulated markets are most suited for its rapid spread. In 2006, new LCCs were announced in Saudi Arabia and Mexico.
Low-cost carriers can pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service carriers can prevent them from competing effectively on price - one of the most important factors for consumers when selecting a carrier. From 2001 to 2003, when the aviation industry was rocked by terrorism, war and SARS, the large majority of traditional airlines suffered heavy losses while low-cost carriers generally stayed profitable.[citation needed]
Many carriers opted to launch their own no-frills airlines, such as KLM's Buzz, British Airways' Go, Air India's Air-India Express and United's Ted, but have found it difficult to avoid cannibalizing their core business. Exceptions to this have been bmi's bmibaby, germanwings which is controlled 49% by Lufthansa and Jetstar in Australia, fully owned by Qantas, all of which successfully operate alongside their full-service counterparts.
For holiday destinations, low cost airlines also compete with seat-only charter sales. However, the inflexibility of charters (particularly as regards length of stay) makes them unpopular with many travelers.
The entry of new nations into the European Union from Eastern Europe and moves towards compliance with EU legislation by those who have not yet joined, has led to an extension of open skies arrangements. This has led to the establishment of low-cost routes by existing and new operators such as Hungary-based Wizz Air, which took its first flight on May 19, 2004 and Slovakia-based SkyEurope, which took its first flight on February 13, 2002. From 2004 to 2007 routes have been established into Austria, Bulgaria, Croatia, Slovenia, Slovakia, Poland, Romania, Hungary, Czech Republic, Turkey and Israel. By the end of 2007, there were over 45 low-cost carriers operating almost 3,500 routes around Europe.
Low-cost carriers can pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service carriers can prevent them from competing effectively on price - one of the most important factors for consumers when selecting a carrier. From 2001 to 2003, when the aviation industry was rocked by terrorism, war and SARS, the large majority of traditional airlines suffered heavy losses while low-cost carriers generally stayed profitable.[citation needed]
Many carriers opted to launch their own no-frills airlines, such as KLM's Buzz, British Airways' Go, Air India's Air-India Express and United's Ted, but have found it difficult to avoid cannibalizing their core business. Exceptions to this have been bmi's bmibaby, germanwings which is controlled 49% by Lufthansa and Jetstar in Australia, fully owned by Qantas, all of which successfully operate alongside their full-service counterparts.
For holiday destinations, low cost airlines also compete with seat-only charter sales. However, the inflexibility of charters (particularly as regards length of stay) makes them unpopular with many travelers.
The entry of new nations into the European Union from Eastern Europe and moves towards compliance with EU legislation by those who have not yet joined, has led to an extension of open skies arrangements. This has led to the establishment of low-cost routes by existing and new operators such as Hungary-based Wizz Air, which took its first flight on May 19, 2004 and Slovakia-based SkyEurope, which took its first flight on February 13, 2002. From 2004 to 2007 routes have been established into Austria, Bulgaria, Croatia, Slovenia, Slovakia, Poland, Romania, Hungary, Czech Republic, Turkey and Israel. By the end of 2007, there were over 45 low-cost carriers operating almost 3,500 routes around Europe.
Typical low-cost carrier business model practices include:
a single passenger class
a single type of aeroplane (commonly the Airbus A319 or Boeing 737), reducing training and servicing costs
a minimum set of optional equipment on the aeroplane, often excluding conveniences such as ACARS, further reducing costs of acquisition and maintenance
a simple fare scheme, such as charging one-way tickets half that of round-trips (typically fares increase as the plane fills up, which rewards early reservations)
unreserved seating (encouraging passengers to board early and quickly)
flying to cheaper, less congested secondary airports[1] and flying early in the morning or late in the evening to avoid air traffic delays and take advantage of lower landing fees
fast turnaround times (allowing maximum use of aircraft)
simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing aircraft use and eliminating disruption due to delayed passengers or luggage missing connecting flights)
encourage the use of direct flights. Luggage is not automatically transferred from one flight to another, even if both flights are with the same company.
generation of ancillary revenue from a variety of activities, such as a la carte features and commission-based products
emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and computer reservations systems)
employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents (limiting personnel costs)
a disinclination to handle Special Service passengers, for instance by placing a higher age limit on unaccompanied minors than full service carriers
Aggressive fuel hedging programs
Not every low-cost carrier implements all of the above points. For example, some try to differentiate themselves with allocated seating, while others operate more than one aircraft type, still others will have relatively high operating costs but lower fares.
The price policy of the low cost carriers is usually very dynamic, with discounts and tickets in promotion. Even if the advertised price may be very low, sometimes it does not include charges & taxes.
As the number of low-cost carriers has grown, these airlines have begun to compete with one another in addition to the traditional carriers. In the US, airlines have responded by introducing variations to the model. Frontier Airlines and JetBlue Airways advertise satellite television. Advertiser-supported Skybus Airlines launched from Columbus in 2007, but ceased operations in April, 2008. In Europe, the emphasis has remained on reducing costs and no-frills service. In 2004, Ryanair announced proposals to eliminate reclining seats, window blinds, seat headrest covers, and seat pockets from its aircraft.
The budget airlines frequently offer flights at low prices – often flights are advertised as free (plus applicable taxes, fees and charges.) Perhaps as many (or as few) as ten percent of the seats on any flight are offered at the lowest price, and are the first to sell. The prices steadily rise thereafter to a point where they can be comparable or more expensive than a flight on a full-service carrier.
a single type of aeroplane (commonly the Airbus A319 or Boeing 737), reducing training and servicing costs
a minimum set of optional equipment on the aeroplane, often excluding conveniences such as ACARS, further reducing costs of acquisition and maintenance
a simple fare scheme, such as charging one-way tickets half that of round-trips (typically fares increase as the plane fills up, which rewards early reservations)
unreserved seating (encouraging passengers to board early and quickly)
flying to cheaper, less congested secondary airports[1] and flying early in the morning or late in the evening to avoid air traffic delays and take advantage of lower landing fees
fast turnaround times (allowing maximum use of aircraft)
simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing aircraft use and eliminating disruption due to delayed passengers or luggage missing connecting flights)
encourage the use of direct flights. Luggage is not automatically transferred from one flight to another, even if both flights are with the same company.
generation of ancillary revenue from a variety of activities, such as a la carte features and commission-based products
emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and computer reservations systems)
employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents (limiting personnel costs)
a disinclination to handle Special Service passengers, for instance by placing a higher age limit on unaccompanied minors than full service carriers
Aggressive fuel hedging programs
Not every low-cost carrier implements all of the above points. For example, some try to differentiate themselves with allocated seating, while others operate more than one aircraft type, still others will have relatively high operating costs but lower fares.
The price policy of the low cost carriers is usually very dynamic, with discounts and tickets in promotion. Even if the advertised price may be very low, sometimes it does not include charges & taxes.
As the number of low-cost carriers has grown, these airlines have begun to compete with one another in addition to the traditional carriers. In the US, airlines have responded by introducing variations to the model. Frontier Airlines and JetBlue Airways advertise satellite television. Advertiser-supported Skybus Airlines launched from Columbus in 2007, but ceased operations in April, 2008. In Europe, the emphasis has remained on reducing costs and no-frills service. In 2004, Ryanair announced proposals to eliminate reclining seats, window blinds, seat headrest covers, and seat pockets from its aircraft.
The budget airlines frequently offer flights at low prices – often flights are advertised as free (plus applicable taxes, fees and charges.) Perhaps as many (or as few) as ten percent of the seats on any flight are offered at the lowest price, and are the first to sell. The prices steadily rise thereafter to a point where they can be comparable or more expensive than a flight on a full-service carrier.
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