The Economics of Low Cost Flying: Part 2 - Implications

LONGFORM

Travel Analysis


Uh-oh, this again

And if you only fly with full-service carriers - you've got to watch out too.

 Current members in the Star Alliance network 

Current members in the Star Alliance network 

I didn’t originally envision writing a two-part series on budget air travel - it was just meant to be some #AVGeek inspired rundown of how low cost travel works. However, after reading more, I realised that it was a topic screaming to be covered because of how wide-ranging its impact was on the industry. 

Part 2 (you’re reading it now) is dedicated to how low cost travel has changed the industry and forced a fundamental rethink of what flying is like for full service carriers and passengers. I’ll let you decide whether these developments are for better or for worse.

Recent casualties

Seats at the back of the plane are rarely chosen for their comfort but for their price. Because of this, the business proposition of offering low cost travel is seen as the holy grail in an industry beset by cut-throat competition.

However, the history of low cost carriers has been a seemingly contradictory balance of promising profits and less than encouraging performance. Although Asian carriers like Jetstar, AirAsia and Scoot have done well for themselves, there has been countless budget carriers in Europe and the US that have failed spectacularly.

1. AirBerlin, Germany’s second largest, filed for insolvency in mid-August after record losses and opted to sell most of its aircraft and rights to its rival Lufthansa. Lufthansa’s Anschluss is now complete.

2. RyanAir announced in late-September that it was cancelling 18,000 flights due to a scheduling mishap, stranding 400k passengers and suspending 34 routes. Competing carriers rejoiced as if budget flying wasn’t already shitty enough for customers.

3. A week later, Monarch folded, triggering the largest repatriation of British nationals (110k passengers) since Dunkirk and throwing a further 750k people who are booked on future flights into disarray. Does this collapse portend the future of Britain after Brexit?

What on Earth is happening?

Didn’t every analyst say that budget carriers are great for customers and are here to stay? Weren’t we promised a future of ultra low prices?  

The simple answer is that budget carriers are not immune to the headwinds that routinely impact the industry. The rise of terrorist attacks in key leisure destinations across the Mediterranean is one such example where attacks have severely dampened demand for flights to a region that is critically important to budget carriers. 

Full service (or legacy) carriers are also beginning to restructure their operations and this has begun to win back customers. When the price difference is marginal, people opt for the image and ‘prestige’ of legacy carriers. 

A development even more alarming for budget carriers is the launch of new budget carriers within the stable of the legacy carriers. While its not new for legacy carriers to have regional wings like CX’s Cathay Dragon and TG’s Thai Smile, carriers like SQ’s Scoot and Qantas’ Jetstar are proving to be hugely successful. This new wave of budget operations are already well established in Asia and are beginning to take root in Europe with IAG’s Vueling and Level.

Air France’s attempt with Joon is also another response to the budget craze, albeit with a unique twist. While it has said that Joon is not quite a low cost carrier, the new airline will undoubtedly have to contend with the low cost travel environment of the European market; if not the preferences of budget-conscious millennials that the airline is trying to target.

 

What then is the future of rock-bottom fares and direct flights?

I think that while the renaissance of budget flying is far from over, the age of budget carriers being assuredly cheaper than their legacy counterparts is. I’ve already and flown on legacy ticketed itineraries that are cheaper than budget offerings which is perhaps a sign that fares are getting lower across the board.

What's the future like?

At the dawn of low-cost operations, it became clear to passengers that seats on these jets weren’t that much smaller, and legroom not too little to complain about.

Instead, what began to bite at them was the appearance of hidden fees and charges. For the unsuspecting traveller - these have begun to add up and deter them but for those savvy enough - a bargain travel bonanza revealed itself. Since then, imaginative budget-focused itineraries proliferated across the internet and while you’d be hard-pressed to coordinate a multi-carrier low cost marathon for a trip like Singapore to New York, it is certainly doable. 

However, therein lies a question - Do we want our holidays to be clammed in by downright frustrating (and tiring) budget flights because money could be saved? It seems to me that every international airline (legacy or budget) is pushing their products and services in that direction.

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