Long Haul Low Cost Operations - Is there a future for legacy carriers?

Five years ago a low cost, no frills, airline (loco) strategy only worked on sector lengths less than two hours, or so the "experts" would have us believe. The perception was that the customer would tolerate a reduction in product quality as long as he or she wasn't subjected to it for too long .

Customers, it was felt, would be prepared to forego the niceties of legacy carriers ground and in- flight services in return for a ''better value for money'' seat.

'A window seat sir ? Certainly - if you can run faster than the rest to the gate!!'

Five years on and the reality is that the European customer base has more than embraced the loco model, with low cost carriers outsizing their country full service legacy carrier counterparts in terms of fleet size, passenger numbers and now profit - and all within the space of a ten year business cycle. Not only has the low cost model transported tens of millions of passengers and delivered value for money tariffs , it has done so on very young aircraft fleets and from departure and arrival airports more convenient for millions of travellers - not to mention delivering a level of punctuality many legacy operations would currently envy.

The legacy carriers have failed to defend themselves against the upstart airlines with the result that some full service European routes have already disappeared and many other Euro legacy routes are now under some pressure.

And with all this to respond to , the loco model is now starting to appear on the long haul horizon.
Where do the full service carriers go? On the revenue side - economy class volumes (and their core revenues) are migrating to loco services. High yield volumes are being squeezed by corporate accountants eager to please their shareholders and reduce 'non essential' travel costs during the global downturn. Many city corporates have introduced a 'no business class' travel policy over the last quarter.

On the cost side - the legacy carriers have a heavy cost base around their necks-operating from high cost hub airports- hand-cuffed by employee contracts some with their core elements created a generation ago, these relatively high cost bases inherited in part over 20 or 30 years.

Life's a bitch !

But is it all doom and gloom for the traditional airline model? Well its not doom yet but it could be, depending upon the reaction of those threatened.

The travelling public have warmed to the low cost model. Low cost carriers will further develop but as European new route opportunities start to saturate they will cast their gaze over a wider potential audience. The low cost carriers have already proved that from an air transport marketing perspective that they can 'think well outside the box' and deliver a successful business strategy.

Long haul low cost operations, as has been witnessed in the European short haul theatre could have a critical effect on the legacy carriers' plans and strategies.

Will the traditional carriers be forced to abandon the economy traveller and re-trench into low density business only operations or will some have the courage and skill to think outside the box and develop new products to take on the locos . How many carriers will stick their heads in the sand and hope it all goes away? Will those in charge of future strategy be able to think beyond the traditional model?

There are those who believe they have only 2 years to develop a plan - after that they are beyond the point of no return

Who will stick their heads in the sand?

What do you think?

20 years ago- The Association of European Airlines was forecasting a combined annual profit for the year for its european members of $1 billion.

Air Europe -one of the first carriers in the UK and Europe to show 'low cost'' tendencies and in many respects ahead of its time was riding high with good customer acceptance and profits. Expanding out of its traditional Mediterranean markets into European scheduled services and with long haul aspirations, little could they have forecast that within 2 years, a combination of gulf war related market contraction and competitor 'marketing' activities would bring it to its knees.