TIMES ARE CHANGING: LOW-COST CARRIERS ARE NO LONGER HUNTERS BUT PREY!
Low Cost Business
Without a doubt low cost airlines have dramatically changed the aviation industry in recent years. However, times are changing. Most of the legacy carriers, network and charter airlines have done their homework. They have developed new products, harmonized their fleets, tightened their processes, discovered the internet as a sales channel and reduced their costs significantly. Also they have joined the battle for cost-conscious short-haul passengers.
A low price can no longer be considered to be a unique selling point because there are simply too many competitive offers coming more and more from flag carriers. Also most customers have now realized that a cheap flight can become quite expensive due to direct and indirect additional charges.
However, flag and network service carriers are not the only competitors. Classic charter airlines are also becoming highly aggressive in terms of pricing. Quite often traditional charter airlines like Condor in Germany now sell more than 40% of their seats through the web. But there is also pressure inside the LCC community. Although the expected blood bath has not yet taken place, the battle for passengers is getting tougher due to airlines expanding their fleets, adding new routes or merging.
How are low cost airlines responding to these challenges?
Basically they employ four strategies:
HYBRID BUSINESS MODEL
Fewer airlines are now sticking to a purely low cost model with point-to-point routes and seat-only business over the internet. Today we are seeing more hybrid models which, in addition to offering low cost, are also beginning to offer networks and connecting flights. Code sharing is being practiced with partners and fixed quotas are being negotiated with tour operators.
Because many airlines are unable to differentiate themselves based on price and brand, many of them have rediscovered the idea of offering “frills”. Seat reservations, catering or frequent flyer programs are used to help make travel more comfortable in the hope that the customer will remember flying with them when booking the next flight.
The realization that customer sales and ticket sales are two different kettles of fish and that a route often only becomes profitable due to add-on sales has always been a cornerstone of low-cost airlines. Hence everyone is competing to find the most creative ways of getting more money out of their customers.
CUSTOMER RELATIONSHIP MANAGEMENT
Price-sensitive customers are seldom loyal to a brand. But if the price itself is no longer a unique selling point, customer retention and customer relationship management suddenly take on greater importance.
A hybrid business model, ancillary revenues, additional services or more intensive customer care have one thing in common: They make things much more complicated and present the internal organization with major problems. The reason is quite obvious: Most of these types of activities contradict the basic approach of low cost with simple, tight processes and a high degree of flexibility at all times.
PROLOGIS is highly experienced in supporting airlines to establish or change their processes and systems to be capable of managing a much higher level of complexity and new strategies in business. This applies to nearly all areas that are critical to the success of an airline, such as route planning, purchasing, financial controlling, distribution or revenue management.
Do you have any questions or would you like more information?
We look forward to hearing from you!
Contact: Jürgen Krumtünger