Surname 1 Student Name Professor Name Subject Date Is Low-Cost Carrier the answer to everything?

Introduction Low-cost carriers airline service has been defined by air transport experts to depict the unique service they offer to their customers and even their employees. Karivate (1) in his paper Low-Cost Carriers and Low Fares define low cost carriers as an airline the operates a pointto-point network, pays employees below industry average wage and offers no frills service Mincova (12) on the other hand defines a low-cost carrier as an airline that offers no frills or discounts. He describes them as budget or cheap flights as they generally offer lower ticket fares and fewer comforts. For revenue lost in decreased ticket prices, low cost carrier may impose charges on extra food, seat allocating, extra luggage or priority boarding. The similarity in the two definitions is that both definitions refer to the reduction in fares in exchange for eliminated traditional services for the passengers.

Background of Low-cost carriers The low-cost carriers can confidently be said to have been pioneered by Pacific Southwest Airlines together with Southwest Airlines in the United States (Grahama and Vowles, 110). The idea of low cost carriers was to give customers an attractive choice of low priced flights compared competing airlines and even to car and train travel services. Initially,

Southwest Airlines could only offer the service in Texas before the 1978 Aircraft Deregulation Act which liberated air transport market in terms of flight routes and the corresponding flight prices between different states in the US. Similar, the European low cost carriers started with the

Surname 2 freeing of the air transport market in the European Union. The liberation of the market meant that airlines were legally permitted to connect between two foreign countries. Basically, the liberalization of air transport eliminated government control on airlines thereby allowing airlines to connect to a third country/state and even within foreign countries/states. The airlines could decide on how to offer their services in terms of service packages and prices without government regulations of interferences.

Difference in perceptions between Low-cost-carriers and Legacy The main difference between low cost carriers and legacy carriers is embedded in the focus on price ticket and the traditional services. Dresner(30) states that while the low cost carriers entail offering of the lowest possible ticket process and allowing other services to be determined by the customers ability to pay for them, the legacy carriers on the hand provide full and higher level of service such meals and entertainment. The following table shows states the difference between the e features of the two airline carrier types;

Source: OConnell, John F and George Williams. "Passengers perceptions of low cost airlines andfull service carriers:A case study involving Ryanair, Aer Lingus, Air Asia andMalaysia Airlines." Journal of Air Transport Management 11.1 (2005): 259272.

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The principle difference in the passenger perceptions between the low cost and legacy carriers relies on the low fares in low-cost carriers versus additional product services offered by legacy services. Passengers choosing low cost carrier consider the price factor as the most important element and plan their traveling choices based on the least expensive air ticket fares. The brand reputation of low-cost carriers heavily depends on low fares. In contrast, though passengers using legacy services are also concerned about price, they are willing to tolerate higher fares on additional airline products on offer by legacy carriers (OConnell and Williams, 271). Furthermore, low-cost travelers are willing to travel via secondary airports in acceptance of no frills as an exchange for low fares while the legacy airlines are perceived as complex services with a wide range of products as a strategy to justify high fares.

Trends of Air Asia and Southwest Airlines One of the leading low-cost carrier is Air Asia, this is a Taiwanese aircraft service company established in 1993 by a government owned cooperation DRB-Hicom. Since its first international flights launched in 2003, the company has experienced tremendous growth from a local carrier to be ranked as one of the fastest growing company in Asia operating 61 domestic airlines and more than 108 international destinations with its main hub stationed at Kuala Lumpur international Airport. Air Asias long-haul segment has peopled the company to greater heights. Under the company tagline flying possible for everyone the company has gained world class reputation by point-to-point networking to long-haul business and cost efficiencies. As a result, over the last few years, Air Asia and other Asian low-cost carriers have been quickly expanding and even encroaching into the market share of legacy service carriers. The trend shows indicates no sign of reducing the momentum as Air Asia and other LCCs carry on

ordering new aircraft at a very high rates. According to the World Airline Awards(1) Air Asia

Surname 4 was ranked the best Low-Cost Airline for the third time concecuively. Air Asia perfomance is majorly based on cost efficiency as a result of maintaining a simple aircraft fleet by eliminating overheads characterised by legacy airlines. Another world class LCC is southwest. This is an American Airline company considered to be the first pioneer of low-cost airline services back in 1971. As mentioned earlier in the short history of the industry, the company was founded on a revolutionary concept where airlines could lower the ticket price by eliminating some overhead costs. According (Fortune Magazine(1 ) Southwest has grown to become the Worlds most admired company as of 2011 and the largeast domestic carrier in terms of total paasagers in 2010. The company has depended on the populairty of the low-cost programs to stay profitable for more than 40 years. Southwest has

recently acqured another smaller aiirline-AirTran and it is expected that the company will continue rise through integration of AirTran into its own syatems (Kho, Aruan and Tjitrahardja(13). Another reason for SouthWests recent growth is attributed to its aggressive marketing campaigns in boosting its market share. Ulike other airlines, Southwest does not impose extra charges on seat selection, telephone reservations. The retension of such features at not additional cost help in atracting moreccuatomers.

Challenges faced by Low-cost carriers The low-cost carriers (LCC) underwent great success in late 1990s but they are now facing more challenging times. The rising cost of flues and increasing airport taxes have compounded the supply and demand challenges. The low-cost prices are no longer cheap and the passengers have become more sensitive about how they are treated (Barrett, 35). This has led to greater investment in customer care services in a bid to realize sustainable growth. LCC are also facing powerful suppliers and customers who have numerous opportunities availed by brutal competition from legacy airlines. Franke(25) concludes that the main challenge for these airlines

Surname 5 is to maintain their prices as low as possible amidst increasing operational costs and ruthless low price-hunting customers. Hence profits for LCC airlines are bound to come under pressure and therefore the cost difference they enjoy against legacy carriers may shrink with time. However, the challenges facing LCC are still under control and the profit margin is still far from being to be at the advantage of legacy airlines. Government favourism and monopolistic tendencies in favor of legacy airlines have created unfair competition for LCC. Currently, a survey by Bimal (234) shows that in the US airline industry, potential investments in small airiness and LCC are limited to 25% by ownership of voting rights and legislations are developed to prevent foreign airlines to fly within US. These are government policies that pose big challenges to existing LCCs and emerging investors in the sect

Conclusion-viability of Low-cost Carriers The advent of LCC has precipitated an aggressively free trade practice where a market dominant company lowers its prices by reducing some traditional services so as have a

competitive edge. The current airline market is characterized by new breed of broadly distributed carriers. The low-cost effect leads to the shrinkage of price. The presence of low cost carriers indicates a high degree of competitiveness and the reduction in need for concentration and capacity constrains to predict market prices. The legacy carriers are constantly adjusting to rise in the threat of low cost airlines. As much as the legacy will still struggle to remain relevant in the current market, their impact will diminish with time. Attempt by legacy airlines to hold onto

their traditional practices in a current liberalized market is bound to experience stiff completion and may eventual be phased out. Hence, Low cost carriers are a viable option for both big traditional airlines and new entrants into the market. Low cost carriers should continue

streamlining their operations, cut costs and focus in places they obtain extra revenue including meals and so forth. Wensveen and Leick in their article "The long-haul low-cost carrier: A

Surname 6 unique business model." (143) argue that as customers become cost sensitive, the premium

services need to reflect the reality on the market. Indeed legacy carriers are focused too much on the market share while their yields are drastically diminishing. Competition for this airline in the future is bound to be difficult and stiff for legacy airlines. There is need for innovation and rebranding and offer low prices with some free services without compromising security and profit returns.

Surname 7 Sources Cited Barrett, Sean. "How do the demands for airport services differ between full-service carriers and low-cost carriers? Journal of Air Transport Management 10.1 (33-39): 2004. Bimal, Patel. Flight Plan towards Financial Stability - The History and Future of Foreign Ownership Restrictions in the United States Aviation Industry. Heinonline, 2008. Dresner, Martin. "Leisure versus business passengers: Similarities, differences, and implications." Jornal of Transport Management 6.1 (2006): 2832. Fortune Magazine . "World's Most Admired Companies." 2011. Fortune. 13 September 2012 <http://money.cnn.com/magazines/fortune/mostadmired/2011/snapshots/2068.html>. Franke, Markus. "Competition between network carriers and low-costcarriersretreat battle or breakthrough to a new level of efficiency?" Jornal of Transport Management 10.1 (2004): 21-34. Grahama, Brian and Timothy Vowles. "Carriers within Carriers: A Strategic Response to Lowcost Airline Competition." Transport Reviews: A Transnational Transdisciplinary Journal 26.1 (2006): 105-126. Karivate, Sungkard. Low-Cost Carriers and Low Fares. MSC. London: University of East London Press, 2001. Kho, Charles, et al. Air Asia Strategic IT- A strategic Initiative. Group project. Melbourne: University of Melbourne , 2005. Mincova, Veronica. Low Cost Carriers - Business Model, Impacts of its Expansion and Challenges:Analysis of the European Low Cost Carriers. Bachelor Theses. London: GRIN Verlag, 2011.

Surname 8 OConnell, John F and George Williams. "Passengers perceptions of low cost airlines andfull service carriers:A case study involving Ryanair, Aer Lingus, Air Asia andMalaysia Airlines." Journal of Air Transport Management 11.1 (2005): 259272. Wensveen, John and Ryan Leick. "The long-haul low-cost carrier: A unique business model." Journal of Air Transport Management 15.3 (2009): 127-123. Worl Airline Awards. "AirAsia wins Worlds Best Low-Cost Airline award for 3rd consecutive year." 2011. Worl Airline Awards. 13 September 2012

<http://www.worldairlineawards.com/awards_2011/lowcost2011.htm>.

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Book Cited Bruff, Derek. Teaching with Classroom Response Systems: Creating Active Learning Environments. 1. New York: John Wiley & Sons, 2009.