Costs
At the heart of the low-cost-carrier model is minimizing operating costs. The low-cost carriers profit today because they are competing against high-cost legacy carriers. When Southwest Airlines moves into US Air’s market, Southwest makes money because its average cost per seat mile is near $0.08 while its competitor’s is nearer $0.12. This difference provides Southwest a profit cushion that allows it to compete on price but still enjoys a profit margin. Several other factors contributed to the low unit costs of the LCCs. The utilization of secondary airports and older terminals reduced airport fees and also, up to a certain point it made it possible to avoid head-on competition with the legacy carriers. Also, less congested airports reduce average flight times and delay incidents. Consequently LCCs started to attract business travelers who value punctuality and frequency. The deployment of homogeneous fleets resulted in savings with maintenance, cockpit training and standby crews. Other important features of the early LCCs include innovative boarding processes that yielded shorter ground waits, no air freight, no hub services, short cleaning times and a lean sales force due to greater reliance on technology - online sales. The lack of unionization among low-cost airlines can be characterized as a myth.
CostsAt the heart of the low-cost-carrier model is minimizing operating costs. The low-cost carriers profit today because they are competing against high-cost legacy carriers. When Southwest Airlines moves into US Air’s market, Southwest makes money because its average cost per seat mile is near $0.08 while its competitor’s is nearer $0.12. This difference provides Southwest a profit cushion that allows it to compete on price but still enjoys a profit margin. Several other factors contributed to the low unit costs of the LCCs. The utilization of secondary airports and older terminals reduced airport fees and also, up to a certain point it made it possible to avoid head-on competition with the legacy carriers. Also, less congested airports reduce average flight times and delay incidents. Consequently LCCs started to attract business travelers who value punctuality and frequency. The deployment of homogeneous fleets resulted in savings with maintenance, cockpit training and standby crews. Other important features of the early LCCs include innovative boarding processes that yielded shorter ground waits, no air freight, no hub services, short cleaning times and a lean sales force due to greater reliance on technology - online sales. The lack of unionization among low-cost airlines can be characterized as a myth.
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