Low cost carriers - or are they ?

One market sector within air transport has fared better in the last 12 months than any other - the low cost carrier .

But are those who announce their low cost credentials genuinely offering such a product? That basic 'get you a seat from a to b' product where anything on top attracts a charge . Analysis identifies that relatively few 'low cost carriers' now pass the test- few are now exhibiting the basic service that defines the true low cost model.

Want a ramp agent to place your bag in the hold - you pay for it ! Want a beer on board,want to pay for your ticket by credit card? - you pay for it ! Want a widow seat? - well that depends how fast you can run to the aircraft steps! Paying for each additional product facet has become the norm for 10s of millions of passengers worldwide. Those who will turn on the Ipod and listen to or watch their choice of entertainment and fore go the onboard in flight entertainment selected by someone else, bring their own drink on board and cram a weeks worth of clothes into the sports bag that with effort just passes the cabin bag size check at the gate.


Some who originally planned their business model with low cost foundations are adopting certain additional product features whilst the legacy carriers adjust their back end products taking them in the reverse direction to reduce costs. In times of difficulty there is the temptation to deviate from the known comfortable business model .

Enter the Hybrid carrier. Product creep towards the full service carrier whilst the legacy carriers creep backwards in terms of product in order to reduce cost has created this mongrel.

So does pre-boarding seat selection qualify under the low cost business model ? How about a hold baggage allowance? Free drink on board? Queuing for the traditional airport check in ?

Well many of the self stated 'low cost' carriers are exhibiting product creep by offering some of these additions in order to become attractive to the wider audience. In doing so they must now classify themselves as hybrid - parked between the genuine low cost business model and the traditional full service legacy model.

And with this comes additional cost - does the provision of these new products facets to attract the new 'need to have ' market set against offering them for the already converted and thus 'nice to have' market result in a net revenue improvement ?

So who is left on the loco ramp - by definition maybe 1 in Europe and 5 globally.

Of course the measure of success is the ability to take a product and deliver a return on investment when the market tours sour . This industry is good at re-inventing itself.

Who have been true to their no frills roots? Does it even matter that many of the low cost carriers are becoming Hybrid? Or is it something only marketing academics ponder over ?

What do you think ?

Sense prevails on European airport slots

Some support for the embattled industry has at last come from the European parliament this week with the announced holiday on the 'use it or lose it' policy for European airport slots.

The industry - already trying to make sense of the serious decline in passenger and cargo revenues caused by the global economic turbulence found itself with an additional dilemma. That of balancing new reduced demand with supply and frequency reductions, leading to the potential for losing rights to airport slots if they remained unused.

No carrier is escaping the fallout from this economic contraction. The asset value of these slots is considerable for many airlines. Faced with the prospect of loosing both the slot and its asset value or wasting hard earned cash by flying for no commercial reason other than to protect its ownership had the potential creating a farcical situation . It would further stress the balance sheets of the already pressurised carriers and make the policy makers look stupid.

Sense has prevailed and operators are with immediate effect no longer required to fly loss making schedules solely for the purpose of slot protection.

Sense prevailing at last in Europe? Why has it taken 9 months to put in place a fix for which the arguments weighed so heavily in favour of the change? Good news for the airlines but with a downside for the airports, seeing a decline in their airside revenues now these slots become at least temporarily dormant.

The fragility of this industry

For an industry already badly impacted upon by economic issues, what was not needed was another global situation to negatively impact customer confidence and further erode business performance.

History shows that this is an industry more badly affected than other industries by external factors- territorial conflicts, economic cycles, pandemics etc- especially in an era where news broadcasting is instantaneous .

Like the SARS speculation some years ago, current media speculation and over reporting causes concern in the minds of the travelling public. In the case of the SARS issue, media output was much overblown compared with reality and history shows the final issue was far less dramatic than the media forecasts predicted.

Stock market parallels can be seen- an industry driven entirely by speculation rather than objective fact sees stocks take a dive as a result of comment , only to be followed by an equivalent bounce the following day when the realisation of a more balanced view restores confidence!

Airline stocks in Europe witnessed just that over a 48 hour period this week. All associated with the Swine flu announcement and driven by sentiment alone rather than clear objective understanding. This, then followed within 24 hours by a bounce back to the original levels. This must call into question the relative intelligence levels of those leaders 'trusted' in managing these large finance portfolios whose reaction seems more 'follow the leader' rather than 'lead the followers' !! For anyone denied access to any news of any kind, a look outside the front door first thing in the morning would see little or no change for many compared with 6 months ago.

Yet the sentiment in the press sees a far different response. This is not taking lightly the potential for a global illness . However Europe sees many thousands on average die each year from Influenza or complications caused as a direct result. Populations and commerce gets on with life and business worldwide plan for growth in the knowledge of this background issue.


Some in the industry are reporting light ahead. Is the smart money on some recovery signs at year end. To what extent will the reported pandemic interfere with this small yet positive sign and further pressurise traffic levels ? Or will another 48 hours see the media become bored with this story, it becomes old news and all can get back to managing the recovery ?

It had to happen sooner or later

In this age of expanding waistbands it was only a matter of time before airline operators would react and enforce additional charges for those of us of a 'larger disposition' .

The average customer weight has risen visibly over the last 20 years but for a certain proportion of individuals, it has turned into a sport. How many times have our regular customers found that they are having to share half the seat they have bought with the burger and fries loving guy sitting next to them - not only have the armrests become unavailable for use but half the seat is occupied too!

Still to make an appearance in Europe and the Far East, there are now a good half dozen U.S carriers resolving this problem of transporting sumo size customers with a second seat purchase condition. True, they will try to accommodate these customers on a no charge basis on the flight in question if possible. But on full flights if all else fails , its a bump onto the next available flight for the big guy (or gal!) and a second visit for the customers' credit cards to the PDQ machine.


Meanwhile the number in the global air transport fleet currently ''resting'' in dry desert conditions due economic impacts has risen beyond 2000 airframes. It's good business for the specialists who maintain these cocooned planes in anticipation of better times and proves that someone's crisis always seems to be another's opportunity. Whilst operators use the downturn to retire the less economic high time airframes, there are also unfortunately a growing number of relatively new beasts on the desert line . With fading painwork and removed engines, some will never make it into the air again.

At the same time the cutback in executive jet manufacture as a result of the economic climate is causing shortage in this market in certain territories. This sees potential buyers trawling the used market to the extent that demand exceeds supply and second hand values for low hour models of some of the marques now exceeds new unit prices . Is the 'high nett worth individual ' market less impacted upon ?

As ever the industry can always surprise !!

Back in the mass market transportation sector, who will be the first in Europe to adopt the 'buy two get one ' product ? Will we ever get a situation in corporate travel where only the non-obese can expect to travel by air on company business as part of their employment contracts? Seem far fetched? So was mass market air travel 40 years ago !

Mixed fortunes for the global air transport community

The state of the industry globally has recently been described as woeful with decline in global passenger forecast carryings next 12 months likely to be in the 5% territory and cargo volume decline at 13%.

Premium cabin passenger revenue and cargo revenues are the big losers over the last 6 months and forecast to continue at least in the short term. A cumulative industry $4 billion forecast loss for 2009 on top of a $8 billion loss for 2008.

New aircraft deliveries from the major manufacturers will fall from a recent high of 1100 units annually to below 800 over the next 2 years.

Regionally the airline picture varies with Far Eastern markets taking the biggest hit , but with Europe less so. The U.S is matching volume decline with capacity reduction and thus profit performance treading water and the Middle East market showing small revenue improvements.

It is rare to see an annual 10% return on investment for this industry and the cumulative profits banked over several years are easily lost in a 12 month period. The old joke that the only way to make a small fortune in this industry is to start with a large one becomes embarrassingly accurate!

How much less pain could have been felt if the fuel buyers had not hedged at the ridiculously high 2008 prices . Sometimes the airline industry is too clever for its own good!

As in life though , problems for some will be an opportunity for others .

There is no doubt that no one involved in the industry is escaping pain. The strategists would far rather focus on continued measured expansion than being moved away from their comfort zones to delivering survival strategy. Some will fail in that delivery.

However, some have business models more adaptable and less exposed in the changing market. Some are showing an extra eagerness to appeal to the customer, manoeuvring to capture new volumes, eying the availability of aircraft delivery positions deferred by others, identifying new opportunities.

Who will see opportunity and pick up the new aircraft delivery slots deferred by others? Who will take those opportunities and emerge from the downturn relatively stronger and sharper? Who will suffer the business cardiac arrest that although not killing them now, will leave them so weakened they limp along and finally keel over just when the green shoots of recovery are seen ?
Who are the names in your minds eye?

Locos in the back yard

Expansion of low cost carriers across Europe has had a significant impact on Euro legacy operations and also legacy air transport orientated airports.

5 years ago it was said that the acceptability of no frills strategy would be limited to short haul operations. Customers would fore go the pre-seating and in flight service as long as the journey was 1.5 hours or less.

It would appear that Europe has so readily adopted the principles of the low cost operator, both legacy carriers and airports that uniquely support them are suffering far greater loss than would have been forecast even 2 years ago. Many loco routes now offer the frequency to appeal to the business traveller,often from departure points more convenient than the traditional legacy operators .

The legacy carriers are being hit in their leisure and business segments . Many carriers are reporting declines in premium traffic of 25 % in Q1 2009 . High frequency low cost alternatives are attacking the leisure revenues from the back end . The high yield cabins are under pressure from the corporate accountants reducing unnecessary costs to placate their shareholders. The appeal to carriers of operating to major hubs still provides connecting passengers . BUT-The customer approach to air travel has changed and it looks increasingly likely that no frills models now appearing on long haul markets will have the same effect with an increasingly dominant range of services stripping out the core low yield volumes on many routes from the legacy carriers

Will the major legacy carriers have markets to return to after the latest business downturn ? Will they become just niche ''business only'' operators within the next generation, or will the markets return to their traditional levels of occupancy when the downturn is behind us? And what value their precious slots at hub airports if the aircraft are carrying only half the passengers but occupying the same runway and terminal space?

Changing times ! Possibly permanently!

Crisis management- not a time to be media reactive

The visibility of recent air transport incidents and accidents highlights the immediacy of news reporting and the availability of cctv or on the spot public with phone cameras or camcorders recording the incident.

The fact that an incident is unexpected does not require those organisations involved not to be prepared.

The increase in camera incident capture no doubt helps investigators providing an important extra dimension in the post incident analysis. However these images are also made available to feed the media craving for sensationalist news. The public love a drama and the media requirement for apportioning immediate blame and identifying the cause needs to be satisfied. The absence of an 'official line'' has heralded an array of pundits and experts who are put up for interview. Whilst not wishing to speculate on the cause in front of the microphone, they follow that comment by doing just that!

It is inevitable that accident/incident investigation and analysis to determine cause requires the time and the attention of very skilled individuals and thus the media wish for communicating immediate cause does not sit well with the need for providing measured accurate skilled accident investigation and suggests mutual exclusivity. The days, weeks ,months of careful investigation and analysis post accident do not exist to satisfy the needs of news thirsty media. The need is to identify an event or events, mechanical failure or human shortcoming with the objective to minimise or avoid a future repetition of the event.

An observation of recent air transport negative issues indicates that the industry crisis management divisions to a wide extent remain unprepared for the unscheduled issues that occur. This allows the media feeding frenzy to not let absence of immediate facts get in the way of a good story. By the time the organisational management have got their act together, the media have broadcast the drama, lost interest and moved on, leaving the accurate detail ignored, and the public misinformed.


The British Midland Kegworth accident 20 years ago became a case study of how to ensure a major accident didn't become a drama, with the airline staying ahead of the speculators. And yet 20 years on the availability of a text book response is ignored and the same old mistakes continue with speculation and inaccuracy of detail occupying the high media ground.


Specialist crisis management companies do exist to assist business in this very specialist area. How many organisations believe that they can ''get away with it'' based upon the held view that these situations will not happen to them and so remain completely unprepared- is this an issue based upon cultural approach or are these just the same organisations that deliver a questionable approach to normal everyday customer service?

There exists a critical first 5 hour media period where the absence of a proactive, undramatic and informed response will result in all the 'experts' providing a purely speculative,uninformed and often incorrect analysis of the incident, often with resulting negative impact on the organisation involved- an image that often stays in the public eye years after. Some senior management in certain organisations still believe a head office team designated to lead the business response will be the only effective method of media management. Even when the incident may be 15 hours flying time from head office and with them in the air en route to the incident scene and thus unavailable for comment over the critical first 5 hour period.


With so much budget put aside for 'positive' advertising and brand promotion, so little time and effort for crisis management is the order of the day in many organisations. Many involved in air transport seem naively prepared for the most important and most negative media issue that they all hope will never happen to them. This is a time to be proactive with the media, not reactive