Low-cost carrier
A low-cost carrier (also known as a no-frills or discount carrier) is an airline that offers low fares but eliminates all unnecessary services. The typical low-cost carrier business model is based on:
- a single passenger class
- a single type of airplane (reducing training and servicing costs - often the Boeing 737)
- a simple fare scheme (typically fares increase as the plane fills up, which rewards early reservations, known as "yield management")
- unreserved seating (which encourages passengers to board early)
- direct, point to point flights with no transfers
- flying to cheaper, less congested secondary airports
- short flights and fast turnaround times (allowing maximum utilization of planes)
The first successful low-cost carrier is generally acknowledged to be Southwest Airlines in the United States, which pioneered the concept when founded in 1971 and has been profitable every year since 1973. With the advent of aviation deregulation the model spread to Europe as well, the most notable successes being Ireland's Ryanair, which began low-fares operations in 1991, and easyJet, formed in 1995. As of 2004, low cost carriers are now edging into Asia, led by operators such as Malaysia's Air Asia.
Low-cost carriers pose a serious threat to traditional 'full service' airlines, since full-service carriers cannot compete on price and, when given a choice, most consumers will opt for low price over other amenities. From 2001 to 2003, when the aviation industry was rocked by terrorism, war and SARS, the large majority of traditional airlines suffered heavy losses while low-cost carriers generally stayed profitable.
Many carriers have opted to launch their own no-frills airlines, such as KLM's Buzz, British Airways' Go, and United's Ted, but have found it difficult to avoid cannibalizing their core business.
In Canada, Air Canada has found it difficult to compete with new low-cost rivals such as Westjet and Canjet despite their previously dominant position in the Canadian market: Air Canada declared bankruptcy in 2003. In Finland the competition went in a different direction, as the national carrier Finnair lowered prices so that the low-cost competitor Flying Finn was forced to cease its operations.
In New Zealand, Air New Zealand chose to buy their low-fare competitor, Freedom Air, instead of competing against them.
On 5 May, 2004 Singapore launched ValuAir.
See also: List of airlines, List of low-cost airlines
History
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