[Economics Q] How did low cost "no frills" airlines become popular?

Question

I am writing a report on what caused the rise of LCC in the aviation market? What factors caused airlines such as Southwest, Easyjet, Ryan air to rise?

Thanks

Answer 1

The concept began in the States, then spread to Europe in the 90's. The idea was to provide a no-fuss, no-hassle service, purely to take passengers from point A to point B. These companies manage to reduce turn around times, as well as operating costs (overheads), therefore enabling them to sell flights at lower prices to the public. A reason for this rise in popularity could be demand. With so many people flying each year, there is an increased demand for no-nonsense services which don't cost the end of the earth, even if they are nothing more than just a flight. In a world where technology is increasing, there is also a need for cheap flights to be available online, which can be booked quickly.

If a company can reduce overheads, then they will have a significant competitive edge over market rivals, and I'm sure you know the benefits of that! (economies of scale)

Answer 2

First off, remember there is Southwest the original low cost carrier.  Everyone else is a copycat but none has been as successful as Southwest.

    Southwest began as a intrastate carrier, providing high volume service within the state of Texas.  The carrier provided point to point service (similar to a bus schedule) vice a hub and spoke organization.  This allowed SWA to have more frequency of flights as well as more reliable service.  

     They also flew to secondary airports within a metropolitan area.  These airports were generally within 10 minutes of a downtown buisness center.  

     Efficiency with same type aircraft, the 737 (although the owned 6 727's in the 80's).  Logistically as well as standardization in maintenance/pilot and flight attendant training kept costs down as well.  The SWA pilots were the first to carry a blanket type rating for all variants of the 737 SWA flew.  This kept costs immensley not to mention, all pilots had to have a type rating before getting a job at SWA.  

     10 minute turns of aircraft made one aircraft act like 3 because it had the ability to keep the aircraft off the ground and flying consequently, making money.  Of course, this is because the airline was purely dedicated to the buisness traveller who did not carry luggage.  The 10 minute turn is now about 20 - 30 minutes to accomodate more family boarding.

     The use of technology.  The E ticket was designed by SWA.  They also do not pay commissions to travel agents.  As stated, everything has to be book over southwest.com or tthrough telephone reservations.  SWA was the first to operate an internet site for booking air travel and the site is considered one of the top buisness sites in the world. Obviously, keeping costs in-house means all profits go back to the company.

    Deregulation in the late 70's brought expansion to SWA.  The first city outside of Texas was New Orleans.  

   They have never offered frills because of costs.  Just high volume/high frequency service that was dependable.  They have maintained the highest ontime performance of any other carrier in 37 years.  

  I could keep going but I hope that helps.  If you want to read a great book regarding SWA's revolutionization of the airline industry read a book called "Nuts."

http://www.amazon.com/Southwest-Airlines...

It's a great read and hopefully will help on your report.

Answer 3

One reason Southwest was so successful, while all the big Airlines such as American, United, Delta, Continental. Where duking it out with much longer flights to major cities. Southwest was able to find a niche with much shorter domestic flights.

Secondly a major factor was major airlines bid for fuel prices, and a few years back all the Legacy airlines and other airlines didn't succesfully gamble with fuel prices. Southwest was one of the only ones that bid, and got lower fuel prices. Which enhanced thier ability to provide lower cost to the customer and which helped boom their business.

Answer 4

In one sense, it's how the market has evolved.

The existing carriers got a bit "too big", too many routes, and so on and so forth.

Southwest economized by 1) operate ONE type of aircraft: Boeing 737's. This makes upkeep fairly simple and costs down, as it's a very popular aircraft  3) concentrate on core markets (i.e. Southwestern US) and fly around the main hub city in Phoenix, AZ.  and only expand into new routes when they are sure they can operate enough flights to compete with existing carriers  4) operate from nearby but cheaper airports (such as Oakland and San Jose instead of San Francisco) 5) simpler ticket procedure. Southwest don't offer too much agent discounts, and doesn't have the MASSES of rate codes that you find with most airline tickets. They sell tickets direct via their website and 1800 number, rather than through masses of agents all of whom get a cut. This makes refunds, exchanges, and such practically painless, compared to airlines that has a ton of restrictions, cancellation fees, etc.

Basically, people want more frequent flights, and didn't care too much about the onboard services, and Southwest was able to capitalize on that by creating an airline that serve this need well.

Answer 5

Cheap tickets?

Answer 6

I think the rise is mostly tied to broader access to information powered by the internet.  In economics the consumer is closer to having "perfect and complete information" (http://en.wikipedia.org/wiki/Perfect_com...   In the fog of the past airlines could extract more loyalty with frequent flier programs and expectations of higher service and reliably getting from A to B efficiently.  Lowest price now dominates and is easily found on the web.  The growth of Southwest, Jetblue, Ryanair, etc. has really taken off since internet pricing replaced travel agents.