A key question for airline management, governments and related policy-makers is
whether the very successful, largely short-haul LCC business model can work over
long-haul sectors? British Airways' 2007/08 annual report suggested that this market
had already been effectively served by charter carriers for a number of years. But successful LCCs in Europe and Asia have serious plans to enter these markets.
The LCC business model has managed to lower unit costs by 50-60% or more
Compared to network carriers by simplifying processes (including cutting out frills),
Higher labour and asset productivity, and fierce negotiation with labour and outside
Suppliers. Some of that gap has since been eroded.
On the market side, some very low fares became possible as a result of the lower cost
Base, and a different approach to pricing and distribution. A price-elastic market
Ensured that a sufficient number of passengers could be generated to 80% or more
Load factors year-round using economic sized aircraft. This was possible because of the
Simplified fare structure, one-way pricing and very transparent web-based distribution.
How do these supply and demand-side aspects translate to long-haul success? On the
Cost side, the following problems arise:
- Fuel is a much larger part of long-haul costs, and there is less scope for large
Reductions in fuel bum per passenger
- There is less opportunity for greater labour and aircraft productivity much of the
LCC advantage here lies at the two ends of the route, and these costs account for a
Smaller share of the total
- Seat factors are already very high on long-haul routes
- Some aspects of the simplified product would become more complex: scheduling
(eg night curfews), in-flight catering, transfers, air cargo