The Low Cost Carrier – Part Three – September 18, 2009

Welcome and happy Friday. Almost finished with this series but I have two more articles to go and I hope that they prove interesting. So, let’s continue with a look at how the business model came about and what the future may hold for the LCC. As always, I would like all aviators to connect with their roots and one of the ways they can do that is by using the “Third Dimension Blog” as a resource.

Quote of the Week

“How long can men thrive between walls of brick, walking on asphalt pavements, breathing the fumes of coal and of oil, growing, working, dying, with hardly a thought of wind, and sky, and fields of grain, seeing only machine-made beauty, the mineral-like quality of life?”— Charles A. Lindbergh

The Low Cost Carrier

There is a lot to be said about the business models being used by the low-cost carriers (LCCs), as I said last week, and this week we will discuss the remaining four points/elements listed below.

Traditionally there are seven elements that define a LCC. These elements are:

1. Low labor cost per flight hour
2. Low ticket distribution costs
3. No frill service
4. Common fleet type
5. Point-to-point route structure
6. Secondary airport service
7. Above-average fleet utilization

Of course, the missing element that makes all of this work is that there is no CAB to micromanage the affairs of the airline. So let’s take a look at each one of these separately by asking a question—What if?

Common fleet type airlines will be a constant in this equation and the only factor that could garner additional profits is more leg room. More leg room equals removal of seats, which equals less people and increased costs per revenue mile. Who will be the first to do this and increase the ticket price on the promise of more comfortable surroundings and better service? Who will pay—the airline or the employees?

Will it be point-to-point or hub and spoke? This is a question that will plague the LCCs as they grow and as they try to protect their traffic. There are a number of hubs that Southwest and others use, but as the number of LCCs continue to expand, who will be the first to adopt the true hub and spoke system of the legacy carriers? Then what happens to the point-to-point advantage that the established LCCs have?

Secondary airport service will prevail for some time to come, but as the government prepares for the next wave of deregulation, airports and ATC, this will also change. Airports will begin to compete for service based on the rules of free enterprise, and not government subsidy. It only makes sense that we stand-by for a change. Who will be the highest bidder for the right to service the major hubs?

Fleet utilization is at an optimal level for most LCCs but we can never underestimate management’s ability to get more for less. This is usually done at the expense of the employees, but at some point the employees push back and this is usually done with a Union, which history tells us will dramatically affect the labor cost equation. So what happens when the Unions organize all of the LCCs?

Next week we will finish up our series on the “Low Cost Carriers” and talk about the Regional Jets being operated by and for the Legacy Carriers. So, until then take some time to look back, connect with your past and remember as an aviator you are a “Gatekeeper of the Third Dimension.”

Protect your profession, your future and the future of your fellow aviators.

Robert Novell

September 18, 2009