A low-cost carrier or low-cost airline (also known as a no-frills , discount or budget carrier or airline) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full- service airlines offering some reduced fares. Contents [hide ] 1 Business model o 1.1 Common practices o 1.2 Differentiation o 1.3 Pricing policy 2 Criticism 3 History o 3.1 No-frills long-haul flights o 3.2 Low-cost business only carriers 4 See also 5 Notes 6 References 7 External links [edit ] Business model This section does not cite any references or sources . Please help improve this section by adding citations to
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A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc.
The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares.
Contents
[hide] 1 Business model
o 1.1 Common practices
o 1.2 Differentiation
o 1.3 Pricing policy
2 Criticism
3 History
o 3.1 No-frills long-haul flights
o 3.2 Low-cost business only carriers
4 See also
5 Notes
6 References
7 External links
[edit] Business model
This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (November 2007)
Low-cost carrier business model practices vary widely. Some practices are more common in certain regions, while others are generally universal. The common theme among all low-cost carriers is the reduction of cost and reduced overall fares compared to legacy carriers.
[edit] Common practices
Some low-cost carriers operate aircraft configured with a single passenger class, and most operate just a single type of aircraft. In the past, low-cost carriers tended to operate older aircraft, such as the McDonnell Douglas DC-9 and older models of the Boeing 737. Since
2000, fleets generally consist of smaller, newer, more fuel efficient aircraft, commonly the Airbus A320 or Boeing 737 families, reducing training and servicing costs.
Like the major carriers, many low-cost carriers develop one or more hubs to maximize destination coverage and defend their market[1] Many, like Southwest Airlines, do not operate a traditional hub in any market. Southwest operates point-to-point service, with focus cities serving as mini-hubs for passenger connections to other cities.
Aircraft often operate with a minimum set of optional equipment, further reducing costs of acquisition and maintenance, as well as keeping the weight of the aircraft lower and thus saving fuel. Pilot conveniences may be excluded such as ACARS and autothrottle. Often, no in-flight entertainment systems are made available, though many US low-cost carriers do offer satellite television or radio in-flight. Some do not offer reserved seating, hoping to encourage passengers to board early and quickly, thus decreasing turnaround times. Some airlines even use only non-reclining seats, or operate aircraft with no window shades.
Airlines often offer a simpler fare scheme, such as charging one-way tickets half that of round-trips. Typically fares increase as the plane fills up, which rewards early reservations. Often, the low cost carriers fly to smaller, less congested secondary airports and/or fly to airports in off-peak hours to avoid air traffic delays and taking advantage of lower landing fees. The airlines tend to offload, service and re-load the aircraft (turnaround) in shorter time periods, allowing maximum utilization of aircraft.
In Europe and early in Southwest's history, luggage is not automatically transferred from one flight to another, even if both flights are with the same company. This saved costs and is thought to encourage passengers to take direct flights. Modern US-based low-cost carriers generally transfer baggage for continuing flights, as well as transferring baggage to other airlines.
In many cases, low cost carriers generate ancillary revenue from a variety of activities, such as à la carte features and commission-based products. Some airlines may charge a fee for a pillow or blanket or for carry-on baggage. In Europe, it is common for each and every convenience and service to have an additional charge. In other regions this practice is more limited.
Low-cost carriers are intended to be low-cost, so in many cases employees work multiple roles. At some airlines flight attendants also clean the aircraft or work as gate agents (limiting personnel costs). Southwest Airlines is well known for using fuel hedging programs to reduce its overall fuel costs. Some airlines eschew the use of gates that include jetways, since these generally cost more to lease.
Where permissible, some airlines have a disinclination to handle Special Service passengers, for instance by placing a higher age limit on unaccompanied minors [2] than full service carriers. Often these airlines offer no refunds or transfers to later flights in the event of missed flights; if the aircraft leaves on time without a passenger who arrived late, he will have to buy a wholly new ticket for the next flight.
Not every low-cost carrier implements all of the above points. For example, some try to differentiate themselves with allocated seating, while others operate more than one aircraft type, still others will have relatively high operating costs but lower fares. JetBlue for instance has in-flight entertainment (i.e. LiveTV) in every passenger seat. Other airlines are limited on what points they can implement based on local laws, such as Ryanair cannot remove window blinds from its aircraft as they are required to be fitted by the Irish Aviation Authority. As supply increases, this sort of differentiation by brand is one of the most important criteria for the future success of low-cost-carriers, since price-competition alone is not believed by many experts to be enough given the number of carriers.[3]
As the number of low-cost carriers has grown, these airlines have begun to compete with one another in addition to the traditional carriers. In the US, airlines have responded by introducing variations to the model. Frontier Airlines and JetBlue Airways advertise satellite television. Advertiser-supported Skybus Airlines launched from Columbus in 2007, but ceased operations in April, 2008. In Europe, the emphasis has remained on reducing costs and no-frills service. In 2004, Ryanair announced proposals to eliminate reclining seats, window blinds, seat headrest covers, and seat pockets from its aircraft.[4]
[edit] Pricing policy
The price policy of the low cost carriers is usually very dynamic, with discounts and tickets in promotion. Like other carriers, even if the advertised price may be very low, it often does not include charges & taxes. With some airlines, some flights are advertised as free (plus applicable taxes, fees and charges). Depending on the airline, perhaps as many (or as few) as ten percent of the seats on any flight are offered at the lowest price, and are the first to sell. The prices steadily rise thereafter to a point where they can be comparable or more expensive than a flight on a full-service carrier.
Most airlines charge additional taxes and fees on their tickets. Some low-cost airlines have been known to charge fees for the seemingly ridiculous, such as levying a credit card charge where credit card is the only payment method accepted. Many consumers and governments consider this to be fraudulent, but some still allow this and similar practices.
Traditional perceptions of the "low-cost carrier" as a stripped-down, no-frills airline, as seen on Southwest Airlines, have been changing as new entrants to the market adapt the business model in new ways. AirTran Airways and Spirit Airlines offer a premium cabin while Frontier and JetBlue offer live in-flight television, sometimes for an extra fee. AirTran has XM Satellite Radio available at every seat. Frontier, JetBlue, and AirTran all use assigned seating. Some airlines even have services not available on some legacy carriers, such as mood lighting, found in Virgin America.
[edit] Criticism
Some elements of the low-cost model have been subject to criticism by governments and regulators, and in the UK in particular the issue of "Unbundling" of ancillary charges by both low-cost carriers and other airlines (showing airport fees, taxes as separate charges rather than as part of the advertised fare) to make the "headline fare" appear lower has resulted in enforcement action. Believing that this amounts to a misleading approach to pricing, the Office of Fair Trading (OFT) in February 2007 gave all carriers and travel companies three months to include all fixed non-optional costs in their basic advertised prices. Although the
full service carriers had complied within the specified timescales, the low-cost carriers have been less successful in this respect, leading to the prospect of legal action[5] by the OFT.
Many low-cost carriers show a zero cost for some flights. Most charge additional fees for airport check-in, baggage check-in, 'handling charges', seat allocation and credit card processing. These charges are non-refundable even in the case of cancellation by the airline. Ryanair requires that passengers' airport purchases fit within their carry-on bag.
[edit] History
While tour and package operators have been offering lower-priced, lower frilled traveling for a large part of modern airline history, not until during the post Vietnam War era did this business model really escalate and take off. Through various ticket consolidators, charter airlines, and innovators in lower frills flying, such as Channel Airways, and Court Line, the traveling public had been conditioned to want to travel to new and increasingly further away and exotic locations on vacation, rather than short-haul junkets to nearby beach resorts.
The first low-cost airline was Southwest Airlines which started flying in 1971.[6]
The first airline offering no-frills transatlantic service was Freddie Laker's Laker Airways, which operated its famous "Skytrain" service between London and New York City during the late 1970s. The service was suspended after Laker's competitors, British Airways and Pan Am, were able to price Skytrain out of the market.
In the United States, airline carriers like America West Airlines which commenced operations after 1978, soon realized a cost of available seat mile advantage in relation to the traditional and established, legacy airlines such as Trans World Airlines and American Airlines. Often this CASM advantage has been attributed, solely to the lower labor costs of the newly hired and lower pay grade workers of new start up carriers, such as PeopleExpress Airlines, Valuejet, Midway Airlines, and their like. However, these lower costs, can also be attributed to the less complex aircraft fleets, and less complex route networks these new carriers began operations with, as well as the vastly less costly and freshly trained labor force.
To combat the new round of low cost and start up entrants into the very competitive and deregulated United States airline industry, the mainline major carriers and network legacy carriers strategically developed no frills divisions within the main airlines brand and corporate structures. Among these were Metrojet and Continental Lite. These so called airlines within an airline however, proved to be very short lived, for the most part and a financial burden which were quickly disposed off when economic rationalization or competitive pressures subsided.
Among these low cost carrier survivors are US Airways, the product of a merger of a low-cost deregulation startup air carrier named AmericaWest and the post 9/11 reorganized through chapter 11 bankruptcy and national network carrier US Air, which markets itself as a low-cost airline and conducts long-haul flights. Usually though, its long-haul international fares are equal to other United States major carriers rather than offering the cost saving advantages of what are normally thought to be of a lower cost carriers offerings and services.
It has been suggested that the Airbus A380, able to hold up to 853 passengers in an all Economy layout,[7] would enable true low-cost long-haul service. While the per-seat costs of such an aircraft would be lower than the competition, there are fewer cost savings possible in a long-haul operation and therefore a long-haul low-cost operator would find it harder to differentiate itself from a conventional airline. In particular, low-cost carriers typically fly their aircraft for more hours and flights each day, scheduling the first departure early in the morning and the last arrival late at night. However, long-haul aircraft scheduling is more determined by timezone constraints (e.g. leaving the US East Coast in the evening and arriving in Europe the following morning), and the longer flight times mean there is less scope to increase aircraft utilization by adding one or two more short flights each day.
In 2004 the Irish company Aer Lingus lowered its prices to compete with companies such as Ryanair on shorthaul, however they maintain a full service on transatlantic flights.[8] Late in 2004 the Canadian airline Zoom Airlines also started selling transatlantic flights between Glasgow, UK; Manchester, UK; and Canada for £89.
Australia's Jetstar has operated international flights since 2005, when they began service to Christchurch, New Zealand. In late 2006, more international services began. Departing from Sydney, Melbourne and Brisbane, they fly to popular tourist destinations within 10 hours of Australia such as Honolulu, Japan, Vietnam, Thailand, Malaysia and more. With the delivery of new planes, they hope to fly to the continental US and Europe.
In April 2006, the industry magazine Airline Business analysed the potential for low-cost long-haul service[9] and concluded that a number of Asian carriers, including AirAsia, were closest to making such a model work. On November 2, 2007, AirAsia X, a subsidiary of AirAsia and Virgin Group flew its inaugural flight from Kuala Lumpur, Malaysia to Gold Coast, Australia. AirAsia X claims that it is the first true low-cost long-haul carrier since the end of Sir Freddie Laker era.[citation needed]
In August 2006, Zoom Airlines announced that it was to establish a UK subsidiary probably based at Gatwick Airport, to offer low-cost long-haul flights to the USA and India. The company suspended all its operations from 28 August 2008 due to financial problems related to high fuel prices.
On 26 October 2006, Oasis Hong Kong Airlines started flying from Hong Kong to London Gatwick Airport (delayed by one day because Russia suspended fly-over rights for that flight an hour before the flight's scheduled departure). The cheapest prices for flights between Hong Kong to London could be as low at £75 (approximately US$150) per leg (not including taxes and other charges) for economy class and £470 (approximately US$940) per leg for business class for the same route. From 28 June 2007, a second long-haul route to Vancouver, British Columbia was started. The company ceased operations on 9 April 2008, after over 1 billion HKD of losses.
In late 2007, Cebu Pacific, the Philippine based low cost carrier, announced intentions to launch non-stop Pacific flights from the Philippines to the United States West Coast and other US cities by around mid-2009.[10]
On March 11, 2009, AirAsia X started its first low cost long-haul service into Europe to London Stansted, England. The daily flights to Stansted are operated by two leased Airbus
A340-300 aircraft. A one way economy class ticket often costs £150 and the Premium class one way often costs £350.
[edit] Low-cost business only carriers
A trend from the mid-2000s was the formation of new low-cost carriers exclusively targeting the long-haul business market. Aircraft are generally configured for a single class of service, initially on transatlantic routings. Similarly, Midwest Express (later Midwest Airlines) operated this model for its domestic US routes until it was absorbed into Frontier Airlines in 2010.
Probably best described as "fewer frills" rather than "no frills", the initial entrants in this market utilized second-hand, mid-sized, twin jets such as Boeing 757 and Boeing 767 in an attempt to service the lucrative London-US Eastern Seaboard market:
Eos Airlines , which ceased operating on 27 April 2008[11]
Maxjet , which has ceased its scheduled business flights, but is planning to restart as a luxury charter carrier[12]
Silverjet , which ceased[13] operations on 30 May 2008
Complaint letter from business to business.
Dear Mr Thompsen,
I recently received a letter from a Mr Robinson, a valued customer of ours. He purchased an Italian coffee table and four French dining-room chairs from us which your company delivered to his residence.
He has written to complain that the purchases arrived damaged. We pride ourselves in the quality of our products and would like an explanation as to how this mishap occurred. Even though the items are insured, our reputation is at stake.
I would be most grateful if you would reply as soon as possible so that this matter can be resolved to everyone's satisfaction.
Sincerely
Jackie Middleton
Customer Services Manager
Complaint letter from a business customer to a telephone company
Dear Sir,
I am writing this letter to complain in the strongest terms about the poor service that I have received from your company.
We signed up to your telephone and internet service package two months ago because your advertising suggests that you are better than Telco. In addition, you promise to deal with problems quickly and efficiently, something that Telco were unable or unwilling to do. However, in the first month of service you managed to cause me to lose two days worth of business because of poor administration. The main problem was that you failed to provide me with the correct telephone number, 9818 8747, that you had promised when I completed the contract. This phone number was an established business line which I had been using for the last three years. Obviously this meant that my clients were unable to contact me and it cost me many hours of phone calls to resolve the matter with your support centre.
I would appreciate it if this situation could be resolved and a substantial rebate offered on my first three month's account.
I look forward to hearing from you soon.
Yours Faithfully
Charlie Williams
A letter to a magazine expressing an opinion about tourism
Dear Sir-As someone who has travelled throughout Asia on business and holiday I would like to give my opinion on its environmental impact. Having visited Indonesia, Thailand and Malaysia I understand that tourism can bring money to developing countries. However, this money often goes into the pockets of foreign investors, and only rarely benefits local people. Multinational hotel chains also have little regard for the surrounding wildlife when they build new resorts. This can cause many problems.In view of these facts we, as tourists, can directly affect these countries in a positive way if we are thoughtful. When we visit these countries we can visit restaurants, bars and even hotels that are owned by local people. In addition, we can refuse to give luxury resorts our patronage and therefore prevent them from becoming even larger. Most importantly we should check that any tours or excursions we take have minimal effect on the natural surroundings. Finally, we can even attempt to change the behaviour of other tourists by sharing our opinions.If we follow these simple steps we can be sure that our pleasure is not causing any harm to people or places that we visit.
A letter in application for a job
Dear Sir/Madam,
I am writing this letter to apply for the position of student assistant that I saw advertised on your website. I am interested in working in the teachers' resource library, or in the accommodation department.
I have recently graduated from the WSB Business School in Warsaw and received high grades in both my English and Business Courses. In addition, we had to use all of the Microsoft Office programs in the preparation of our finished assignments, so I am able to do most things with computers.
Since I was 15 years old I have helped my father to run his small import-export business. I have been involved in helping a variety of clients and also the general administration of the business. In the past 2 years I have worked in the WSB library, helping teachers and students to find and use the resources there. This experience has given me the ability to deal with the needs of all types of people.
I have an outgoing, diligent personality and find that I enjoy the challenges of working in busy environments. In addition, my studies and experience have taught me to be accurate and efficient in organising my work so I would be a valuable addition to your school.
I look forward to hearing from you.
Yours faithfully
Pawel Minescz
;
Informal Letter
Hi Leo,It's been a while since we wrote, so I thought I'd drop you a line to bring you up to date with what's been happening here.I suppose the most important thing is that Jane's job is more secure than we thought. At the beginning of the year, when she got the job, we thought it might only be for one semester, but we just found that she has a permanent contract of sorts. Obviously this is great, as it means we can relax a little. I still don't have what I really want work wise, but it will happen soon. You have to stay positive, don't you?My parents are both fine, and I think they are really happy that we've moved back. For us, it's great to be so close to family again, an extra sense of comfort and security. We see my sister quite often as she's in London, although we're not that bothered about going into the city.So, what about you these days? Are you still stuck in that old job? Since I've been having so much trouble getting a job I understand your reluctance to change. There's nothing worse than filling in endless application forms, with no idea of what it will lead to.Anyway, I've got another form to fill in so I'll love you and leave you.RegardsJohn
An informal letter asking for a favour
Hi Jen,I'm writing this letter because I really need your help. You're the only person who knows me well enough to give me a reference for a course I want to do.I saw an advert in a paper recently offering a free journalism course to successful applicants. I sent in an article I wrote for the student newspaper, you know, the one about legalising drugs? Anyway, they really liked it, but as there are only five places they want a reference as well. I haven't given them your name yet, as I expect this would be the first reference you've been asked to give. Is it OK if I send them your phone number? I think they want to phone so they can have a proper conversation with you and really check me out.I know it's been a while but if you could do it it'd really help me out. I've got a new phone number, 09957 234 563, so you can get me on that, and my address is still the same.
Hope to hear from you soon.RegardsPatrick
A semi-formal e-mail in the form of a report
Hi Doug,Just getting back to you with a preliminary report on what we need to set up the multimedia suite in the library.Firstly I looked at cameras and other hardware that students will be borrowing.As you know we're dealing with about 600 students on this site. In addition, there have been 6 tutors who have already been asking about digital cameras and digital video cameras, and they hadn't even heard about this project. Judging by the interest I don't think we should buy less than 4 of each, that way we can let a class take three at a time and still have one left over. We'll also need to ensure that the cameras are only lent out for a day at a time. I'm going to try to get some advice from other colleges about equipment which is both rugged and reliable enough to be borrowed by our students. We'll probably need to get a mini disc recorder as well, so students can record high quality sound.The second area I looked at was the computer hardware we need.Obviously, as we'll be dealing with video, image and audio files, we'll need as fast a processor as we can get, Mac or PC. We'll also need at least 512MB of RAM, but 1GB would actually be much better. For capturing video we'll need a 10,000 rpm hard drive as well, they're much faster than the old 7,200 rpm drives. They also need to be as large as we can afford. If we can get a deal it is probably better to get Macs, even if it'll take a little while for everyone to get used to them. I suppose that depends upon our preferred suppliers though. With a discount we should be able to get at least 3 workstations.Finally we need to consider software.We need to have a full range of media software, from print to video on at least one computer, preferably all three. It would be great if students had the opportunity to use whatever media was best for their particular project. I think it could be very interesting to help them use the internet as a vehicle for their opinions, and for demonstrating their skills.So that's it for now. We're really looking at a budget of £8,000 for the hardware. We'll have to look at the licenses we already have for software to see if we'll need to spend much on that.I'll get back to you when I have more info on the cameras.CheersCharlie