Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries. The airline industry exists in an intensely competitive market.

When air travel started in the 20th century it was very expensive. Only the rich people could afford travelling by plane. As time went on better planes were built. They were faster, quieter and could carry more people over longer distances. In the 1980s a new type of airline emerged, Budget airlines which offered tickets that were much cheaper than those of other carriers. The budget airlines are also called as ‘low cost airlines’ (LCA) or ‘no-frills’ airlines. They give passengers very basic facility of travelling through air with no luxury of entertainment, food, magazines, free internet during the journey.

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Ryanair, an Ireland-based Budget airline, has been known to give tickets away for free. How can these LCA be so cheap, how they operate in order to sustain? They manage this by cutting costs wherever they can. To ensure their survival and prosperity, many try to cut costs aggressively to reduce capacity growth and to increase load factors. When an aircraft is delayed at a gate either with engines off or on, the airline not only incurs operational costs but also has to forego revenue. Hence, airlines always try to maintain the schedules of the plane. Generally, they attract passengers from different mode of transport like passengers travelling through Train- first class AC or through First class AC bus. Some measures which they take to reduce their cost are:

homogeneous medium-sized fleet The usage of younger homogeneous medium-sized fleet results in high cost savings. Usually Boeing 737-700/800 or Airbus 319/320 results in lower fuel, maintenance and personnel costs. Higher seat density in these aircraft also results in lower unit costs for all cost categories

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Provision of One Class of service LCA eliminate the different classes in the aircraft with only one economy class consisting of all basic seating arrangement. They nearly abolished the business class. This increases their capacity of carrying passenger per ride.

Landing on Smaller or Un-congested Airports Uncongestion, smaller airports usually charge lower fees than larger established airports. So landing there will save their cost. They attempts to control airport access and service charges by focusing on airports that offer competitive cost terms. But against this sometimes there is no alternative for the high cost airports. Eg: There is no alternative for Chatrapati Shivaji Airport at Mumbai. Fleet needs to land at this congested & expensive airport only, if a passenger needs to go to Mumbai.

Point-to-Point Flying LCA prefer to provide direct, non-stop routes against hub-and-spoke model. Through this they saves their cost of providing services for connecting passengers, including baggage transfer and transit passenger’s assistance costs etc.

Selling of Tickets online A lot of money can be saved by selling tickets on their own website instead of through a travel agent. So LCA encourage their customers to book ticket through their website directly.

Sticking to short-overhaul distances Flying for short-overhaul distance i.e less than 2 to 3 hours enhances the maintenance strategy of the airlines. The capacity of a fleet remain maintain for long-time due to flying over short distances.

Reducing Turnaround Time Reducing airplane turnaround times means more efficient airplane utilization, particularly for airlines that emphasize point-to-point routes. So, airlines always try to turnaround the plane as soon as possible. The turnaround time for a short-haul flight is defined as the time for an aircraft to complete full off-loading, loading and where required, catering and cabin cleaning procedures (International Air Transport Association, 1997). The average turnaround time of any LCA is 30 minutes.

Fuel Efficiency LCA tries to use their fuel in a very efficient way which involves buying of fuel-efficient fleet, filling fuels from places where fuels are cheap (if the cheaper fuels places falls among their routes), etc

Operating Aircraft for Maximum Hours Per Day They usually opt for operating their aircraft for maximum time. An average 15-17 hrs/ day make maximum utilization of their available resource and help them to earn more.

Other Cost Reductions Higher density seating, as well as by eliminating all forms of free in-flight services such as catering, entertainment during the flight, magazines, etc or make them chargeable when demanded can reduce their cost.

However, not all LCA have applied all the above listed aspects of savings. For Example, EasyJet-a british airline, is among those LCA that operate from major hubs (Amsterdam, Madrid, Munich, Paris CDG, etc.).

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The main challenge to these LCA is to make their business more cost-efficient with the low ticket fare. So, some budget airline companies have revolutionized its business model. It is said that you can’t make money in the airline business. High taxes on fuel, absence of cheaper secondary airports and crowded metro-airports make profits impossible. Some LCA that made profits have proved this wrong. Lets have a look at the operations of some well-known businesses in this Low Cost Airline industry.

1. Southwest AirlinesSouthwest Airlines Co. is a major U.S. airline headquartered in Dallas, Texas. They are the world’s first successful no-frills carrier. They pioneered ways of reducing operating costs that are now used all over the world. They mostly focus on keeping their operations simple. They serve mainly domestic air routes consisting 93 destinations in 40 states. They even operate to their neighboring countries like Aruba, Jamaica, and The Bahamas. and five near-international countries. To reduce costs, Southwest fill its planes with more seats and make sure each flight is packed and flew its aircraft more often than full-service airlines.

Southwest airlines have a frequent flyer programme called ‘Rapid Rewards’. This gives benefits to frequent travellers of Southwest by helping them to earn points in terms of ‘miles’ from their each travel, which can be utilize to earn them a free ticket or to upgrade their class. This attract more travellers to travel from the particular airline.

The airlines fly only Boeing 737s family fleet which results in all manner of cost-saving efficiencies. They only need to train their mechanics on one type of airplane. They also only need extra parts of inventory for that one type of airplane. If incase they have to swap a plane out at the last minute for maintenance, the fleet is totally interchangeable—all the airline’s on-board crews and ground crews are already familiar with it.

Southwest Airlines follows the free-seating philosophy which let you sit where you like, they don’t assign seats on the flights. They provide on-board seating arrangement where they distribute the available boarding position on first-come, first-serve basis. Passengers even have the options to upgrade their boarding pass available on the check-in counter, which will be charged heavily. An even British airway follows the same strategy of open-seating. The “free-seating” philosophy contributes to the reduction of operating costs because it encourages passengers to board the plane earlier and thus additionally reduce delays. It also proves beneficial when incase if a plane is swapped out, and a new one’s brought in with a different seat configuration, there’s no need to adjust the entire seating arrangement and issue new boarding passes.

Most of the LCA charge to check bags these days. But, Southwest has resisted the trend and opted for “bags fly free” policy as a good marketing strategy. The Southwest’s flights are generally point-to-point. The plane lands, goes through turnaround, and often heads right back where it came from.

Southwest targets the domestic business commuter, not the globetrotting jetsetter. The airline has limited itself intentionally, to keep its operations running smoothly. But to overcome this phenomenon and to attract international flyers, Southwest airlines have undergone several codeshare agreements with other airlines. Codeshare agreement is an aviation business arrangement where two or more flights share the same flights. There the carrier operating a given flight allows one or more other carriers to market this flight and issue tickets for it as if they were operating the flight themselves. Through this

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agreement two or more airlines offer their passengers one-booking & one-ticket, and place its codes on a "codeshare" partner airline's flights

In a departure from its traditional "go it alone" strategy, Southwest entered into its first domestic codesharing arrangement with ATA Airlines, which enabled Southwest Airlines to serve ATA markets in Hawaii, Washington, D.C. and New York City. They also signed its second international codeshare agreement on November 10, 2008, with Mexican low-cost carrier Volaris. The agreement allowed Southwest to sell tickets on Volaris flights. After acquiring AirTran Airways in 2011, Southwest began a codeshare agreement with AirTran on February 14, 2013. The agreement ended after AirTran became fully integrated into Southwest on December 28, 2014.

Along with maintaining low fare, southwest airline do provide non-alcoholic beverages and some snacks as a complementary. However, they charge for alcoholic drinks and other snacks. They provide wi-fi and television facilities on a prescribed rates.

According to V.P. of ground operations of Southwest airline -Chris Wahlenmaier, they can turnaround planes in about 25 minutes which is industry leading. A simpler network also means fewer luggage getting lost in the shuffle. The simplest operations of Southwest have proven them a winner. These all factors contribute to their lower operating cost, and so they in return are able to provide low fares to the passengers. Recently, Southwest Airlines quoted that they earned a record profit of $1.1 billion in 2014, the first time the Dallas-based carrier has gone over the $1 billion mark.

2. AirAsia AirlinesOther noteworthy business in LCA industry is Malaysian Airline Company, AirAsia. AirAsia received ‘World’s Best Low Cost Airlines 2014’ award from world airline Skytrax . The airlines which has been successful in most of the markets it operates in, follows the business model of offering heavy discount on advance bookings. No other low-cost carrier has as many destinations in Asia as they do. Not only the number of destinations, but the frequency of flights. They are serving a 100 destinations in 22 countries. Apart from domestic, the airline travels in Thailand, Indonesia, Hong Kong, Philippines, India, UAE, Australia, Brunei, China, Korea, Sri lanka, Bangladesh, japan and many more.

They also earn a high share of its revenue from ancillary services. Against the other low-cost airlines AirAsia follows hub-and-spoke model, having Kuala Lampur as their main hub. Like Southwest, they too include frequent flyer program called ‘Big Loyalty Programme’.

AirAsia when was launched in India, got their fleet- Airbus A320 delivered at their place in Chennai. They saved their staff efficiency by not sending their officers and crew members out of the system to flying factory at Toulouse, France. In India to increase their revenue they sought permission from Foreign Investment Promotion Board (FIPB) for renting and leasing of aircraft. The permission also includes air transport carriers (of freight) and cargo handling. By renting, leasing and by carrying air freight they optimized their revenue to the maximum with the use of their available resources.

AirAsia doesn’t have a codeshare agreement with any airlines, as they believe the relationship between passengers and airline will be hamper due to change of brand in the journey. The other strategy about why they sell inexpensive tickets is a main method in which they try to get a lot of usage out of the same cost of operating a single airplane. For example, they fly 17hrs a day which is far more than their competitor.

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Empty Seats OptionsAirAsia launched Empty Seats Option, which means that for RMB100 (US$16), you can occupy the full row of three seats if there are no other passengers. If the airline ends up selling all the seats, they give money back to passengers. If the seats are left unoccupied, company get an extra RMB 100. By doing this, they estimate that they can earn up to US$1 million in 2012.

They also adopted the unique model where they burn less fuel per passenger than other airlines. They burn two liters of fuel for one passenger 100 kilometers. For traditional airlines, it's four liters.

3. IndiGo AirlinesThe next big example is of Indian based Airlines, IndiGo. In August 2009, while the other airlines were bleeding from mile-high debts and declining number of passengers, IndiGo was making money. The airline won ‘Central Asia & India’s Best Low Cost Airlines 2014’ award from world airline Skytrax. They are point-to-point operator connecting multiple destinations in Asia-Pacific and the Middle East. The airlines also serves selected international destinations, namely Dubai, Muscat, Kathmandu, Singapore and Bangkok.

They spend very low on marketing and advertising. IndiGo has six-year sale and lease back agreements for most of its planes. The leaser takes the planes back after the lease and the airline can induct a brand new one in its place. Taking their fleet on lease saves their huge amount of money for the future maintenance and repair. They operate Airbus A320 family fleet which consists of high density seating. They have single aircraft with a very simple fare structure. The airline has been able to plan its operations to the last detail over the past four years. Days before an aircraft is delivered they are well-planned about where to operate it and usually have begun selling tickets.

IndiGo was among the first airlines to have the aircraft taxi to the terminal with one engine, shutting down the second engine to save fuel. Another example is of pilots flying at higher speeds (and burning more fuel) to reach Mumbai quickly, only to spend the next half-hour circling the airport. This was curtailed and fuel burn reduced. Airbus customers in India, including Air India and Kingfisher, send their pilots, crew and engineers to Toulouse to the plant. But IndiGo prefers to have the planes delivered in Delhi. This comes at a marginally higher cost; the advantage is that two sets of pilots and crew are not out of the system for the 10-15 days.

On the network, IndiGo is sticking to routes with an average stage length of 1 hour, 30 minutes. It has daily flights on all its routes, and is the largest operator on a third of these routes. It aligns flight timings to match connections from Mumbai and Delhi. It has no loyalty programs, yet half of those flying are repeat customers.

The IndiGo even have luxurious lounge facilities to cater to their premium customers who allow them to escape from the crowd and work & relax in peace and quietness. Services include hot buffet meals/snacks & non-alcoholic beverages, internet workstations, wi-fi and a variety of newspapers and magazines which is chargeable. IndiGo also offers ticketless travel; that means you don’t need to carry a ticket while boarding, you just need to carry the confirmation page printout and your credit/debit card from which you have booked your ticket.

Challenges

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High fuel cost, government taxes, airport charges adds to the big challenges for the low cost airlines. These budget airlines are in flirty situations when they left with no options apart from trying to compete with these high costs. The whole working of low cost carrier is dependent on their operations; so if they lack a small gap between them, their whole operations goes in inefficient way. They are also facing a very tough competition from fast railway transport, which are provides the same kind of service as air-transport.

In conclusion we can say that, these low airlines proved that it is possible to grow and keep your margins high. LCCs are being affected by a greater competitive pressure, which requires them to follow a different strategy other than a simple cost-leadership strategy. To differentiate themselves from other LCCs, some low-cost operators are adopting different business models that include, for instance, shifting to primary airports, starting hubbing activities, providing meals and other in-flight services, and entering alliances.

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airline, low cost, carrier, hub and spoke, model, point to point, airport, airasia, southwest, IndiGO, Ryan, in-flight, entertainment, luxury, economy, business, first class, cost, revenue, profit, lounge, empty seats, free seating, open seating, loyalty, big flyer programme, rapid reward

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