Where Is the Low-Cost Concept Going?
The “low cost” concept is not new. It dates from 1971, the year Herb D. Kelleher created Southwest Airlines, then confined to the state of Texas, to 1978, the year President Carter introduced Open Skies in the United States. This decision freed up energies and allowed any airline to serve any route by putting on the market the fares it wanted. We are now used to fare freedom, but it only dates from that year and the adoption of freedom to operate really opened up air travel to new layers of customers when it was then reserved for the “rich”.
The arrival of “low-cost” carriers was a real shock for the incumbent operators, who were used to practices that allowed them not to be too careful about their costs. They quickly saw the danger without really wanting to admit the new reality: new players could make money by selling services on the basis of one-way trips and not round trips, and by putting on the market rates that were often 50% lower than the usual prices. This was incompatible with the habits of traditional airlines which, in order to become competitive, had to review both their operations and the management of their staff while maintaining a higher quality of product than that of the new entrants. In short, sacrifices had to be made that the traditional operators did not want to admit.
However, traditional customers began to prefer a lower service against very competitive fares, especially for short flights. This is how Europe became a real opportunity for newcomers. EasyJet demonstrated the validity of the concept in 1995 and around the same time, Michael O’Leary took over Ryanair with the success we know. And little by little, new “low cost” carriers have spread to all continents. To date, 183 airlines operate on this model: 14 in Africa, 41 in America, 71 in Asia, 47 in Europe and 10 in the Middle East. They have become essential and use a considerable number of aircraft, for example, 809 for Southwest, 651 for Ryanair or 356 for EasyJet. And Airbus’ largest order was placed by the Indian low-cost IndiGo with 500 aircraft.
It would seem at first glance that this model will dominate future air transport. Nothing is less certain. First of all, Covid has passed through and the frustration of passengers deprived of their trips has been such that they have accepted considerable fare increases to have the right to travel by plane. And then traditional airlines have gradually put on the market fares that are competitive with those of “low cost” even if this was more cosmetic than real. Finally, “low cost” airlines have also aged and, like their traditional counterparts, have increased their charges under pressure from unions largely supported by the administrative authorities. This is how we have seen social conflicts set in because employees are demanding to be treated like their colleagues in traditional airlines.
Faced with this phenomenon, the “low costs” are themselves having to adapt their concept. Instead of fighting over prices, they are now deciding to do so on the quality of their product. Southwest, for example, has just announced the opening of about forty lounges in airports. While one of the bases of “low costs” was to do without the distribution channel and not to issue tickets, we see these operators entering into “interline” agreements with traditional carriers, which means the obligation to issue tickets and to use GDS to give access to their inventory to travel agents. Add to this the announcement of price increases, which is very new even if the pretext is the Gulf War.
For their part, traditional operators are rethinking their product and modernizing it in a sense of greater comfort. American Airlines has just announced the transformation of its “business class” which will look very similar to what was the first class before. The European incumbent operators are reintroducing their first class into service, all with more modern and incomparably more comfortable aircraft than those of previous generations.
The interface between the terminals and the planes still needs to be rethought. The boarding procedures, which consist of cramming passengers for very long minutes into the gangways, are questionable, to say the least.
The customer is winning the game and he is becoming the real challenge for operators, whether they are “low cost” or traditional. And that’s good.
