Low Cost Carriers (LCCs)
In 2013, the global aviation network carried 3.1 billion passengers on 33 million scheduled departures (preliminary figures). By 2030, current projections suggest those numbers will nearly double. Low Cost Carriers have played a major role in this extraordinary expansion of aviation over the past quarter century, and there is every expectation that they will continue to do so.
For example, in the United States—the birthplace of the LCC phenomenon—Low Cost Carriers already accounted 10 years ago for 20% of the seat capacity on scheduled domestic services. By 2012, that share had grown to 31%.
What underlies the LCC success story?
First, the growth of LCCs has gone hand-in-hand with market liberalization. As domestic aviation markets have been progressively deregulated in many countries and as market-oriented air services agreements have increasingly became the new international norm, LCCs have seized the opportunity to offer innovative air services that have spawned new passenger demand, the so-called “Southwest effect”.
For example, Ryanair, Easyjet, and other European LCCs have taken advantage of the creation of a common aviation area in the European Union to capture 37% of the seat capacity on scheduled services as of 2012. Contrast that figure with the 9% LCC capacity share in Africa, where market access barriers remain high. In Asia, the LCC share in 2012 accounts for 23%.
A second observation: although LCCs have pursued a number of different business models, common to all is a laser-focus on the customer: identifying what prospective airline passengers value—that is, what they are willing to pay for—and then offering them products to meet that demand.
Third: in a cyclical industry subject to surges in the cost of fuel, not to mention crises such as terrorist attacks and health scares, LCCs have understood that maintaining a competitive advantage requires a relentless drive to cut costs, expand revenues, and maximize efficiency.
There is no single airline type—whether traditional network carrier, LCC, or some hybrid of the two—that is “best.”
Likewise, both hub-and-spoke and point-to-point service respond to consumer needs and market conditions. These different business models encourage innovation and offer passengers enhanced connectivity, whether for short- or long-haul journeys.