Home' Asian Aviation : AAV Dec Jan2011 2012. Contents 28 AsianAviation | DECEMBER 2011 / JANUARY 2012
Years ago, when low-cost carriers
(LCCs) rst made an appearance,
airlines were either classified as
following budget or full-ser vice
business models. Now, however,
the landscape has become much
more complicated, with LCCs morphing into no-
frills operators, hybrid airlines and even "new-world
carriers" as the changing economic climate forces
carriers to adapt to the market.
Many carriers that started out as LCCs have over
the years embraced some of the trimmings associated
with more traditional, mainline carriers -- including
in- ight entertainment, frequent- yer programmes,
codeshares and alliances, and membership of global
distribution systems. But all of these have come at a
cost to passengers, with ancillary revenues a focus of
While their outward appearance may have
changed, LCCs remain true to their original principle
of maintaining the lowest possible cost base.
US low-cost pioneer Southwest Airlines launched
ser vices in 1971, operating high-frequency Boeing
737 services to secondary US cities with limited
on-board ser vice and low fares. Laker Airways was
the rst to see the potential in long-haul, low-cost
services, operating trans-Atlantic ser vices until it
collapsed in 1982. Later, People Express followed
on trans-Atlantic ser vices in the 1980s, charging
passengers for food and beverages and bags.
The low-cost phenomenon really kicked off in
Europe in the 1990s, thanks to liberalisation of the
air transport market and the growth of the internet.
Leading the charge was Ryanair, which had rst
launched ser vices between the UK and Ireland in
1985. Today, Ryanair operates 250 Boeing 737-
800s, connecting 160 destinations. In November,
the airline announced half-year pro ts up 20 percent
to 544 million euros (US$729 million), on tra c
growth of 12 percent, despite a European recession,
with 73.5 million passengers expected to y with the
carrier in 2011.
EasyJet, Europe s second-largest LCC a er Ryanair,
launched operations in 1995 and today carries 50
million passengers per annum using a eet of over
200 Airbus A319s/A320s on more than 582 routes
between 128 airports in 29 countries.
In the US, New Air, later renamed JetBlue, was
launched in 1999. JetBlue was responsible for a
change in LCCs, still maintaining a focus on o ering
low-fares, but with an eye on on-board service as well.
The Asia-Pacific region was relatively slow to
follow the LCC trend, with AirAsia and Virgin
Blue launching ser vices in the region in 2000-2001.
Since then, the market has grown rapidly, with LCCs
appearing in countries throughout the region, despite
not experiencing the liberalisation and common
market bene ts that allowed European LCCs to
prosper and proliferate.
e major LCC groups, including AirAsia and
Jetstar, have successfully deployed the LCC model in
countries throughout the region -- from Singapore to
Australia to Vietnam and all points in between, with
new subsidiaries waiting to take ight.
AirAsia, for example, has grown from an airline
with 250 employees, two aircra and one destination
to a group with operations throughout the region,
with more than 8,000 employees, 104 aircra and
serving more than 78 destinations. e airline has
been operationally pro table from its launch and
is now the largest LCC in the region, with units in
Malaysia, Indonesia and ailand, in addition to its
Kuala Lumpur-based long-haul a liate, AirAsia X.
In its latest nancial results, for the second quarter
released in late August, AirAsia Group reported a 15
percent increase in revenue to 1.08 billion ringgit
(US$344 million) and a pro t before tax of 145
million ringgit -- up 0.6 percent year-on-year. Passenger
loads were up four percentage points to 81 percent,
as were ancillary revenues from baggage charges, seat
selection, in- ight merchandise and meals. Ancillary
revenues were up in all three operations.
The improved results came despite "a stormy
environment of volatile fuel prices, rising costs and
global economic uncertainty", says the airline.
e company s "load active, yield passive" strategy
is paying rich dividends, says group Chief Executive
O cer Tony Fernandes, with low fares attracting
more passengers who contribute more in ancillary
revenues. "We ve always maintained that instead
of raising fares for higher yields -- running the risk
of dampening air travel -- we d rather keep fares at
reasonable levels so as to attract higher passenger
loads and boost revenue through ancillary ser vices,"
Beyond 2011, AirAsia will focus on containing
or driving down costs, raising yields and further
expanding network reach, Fernandes adds.
AirAsia Philippines is on track to launch in
Low-cost carriers may have undergone significant change since the model was launched by Southwest Airlines
in the 1970s, but they remain true to the core principle of keeping fares as low as possible to maximise load
factors, writes Emma Kelly.
"We've always maintained that instead of raising fares for higher
yields ... we'd rather keep fares at reasonable levels so as to
attract higher passenger loads." -- AirAsia CEO Tony Fernandes
Low-cost carriers evolve
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