The Analysis of the Operating Structure of Airlines - Essay Example

?Low cost carriers Introduction The rising cost of living and conducting business has led to the emergence of a group of airline companies that are categorized under the low cost carriers or budget airlines that have low fares and less comfort services as compared to other airlines. As the airline has tremendously reduced cost of tickets, the companies charge an extra cost for the foods, seat allocated and luggage of the traveller to help offset the low price of fare charged. The analysis of the operating structure of airlines with low cost or budget carriers has grown with growing interest in the business models of these kinds of carriers. In this paper, an article published in the air transport management journal discussing the airport choice factors considered by low cost airlines in Europe will be evaluated while relating the relevance of the practice to tourism and hospitality. The passenger attitude determines the success level and indices of any project introduced into the market and thus the success of such a project in the end. An article published in the same journal on a case study conducted to evaluate the perception of passengers on low cost airlines and full service carriers will be evaluated. Articles on low cost carriers According to Smith and Potter (2005), the success of the low cost carriers, an increasingly significant means of transport in Europe, is influenced by the choice of the airport. This determines the success or failure of the airline with the increasing competition in the airline industry put into consideration. The authors thus conducted a survey of eight European airports to ascertain the influence they have on the success of the different low cost carriers that uses its runways. The significant growth in the number of low cost carriers in Europe who are known to use regional or secondary airports has increased the competition among different airports that agitate to secure their services. This competition has been exploited by the low cost airlines to demand for reduced service cost thus enabling them to reduce their services tremendously and fit the budget of majority consumers. With the increasing competition for the low cost airlines by regional airport, most of these carriers have been enabled to put a number of factors into consideration when choosing the best airport to use. A number of factors are shown in this paper to influence the choices made these airline carriers when choosing the airport of choice. Ryanair, one of the main low cost airline companies in Europe has a number of considerations that it makes when choosing the airport of choice. These factors include the airport charges that each airport levies, the ability of the carriers and the planes to make a quick turnaround, presence of simple terminals and rapid check-in facilities. The availability of good passenger facilities and accessibility influences the attitude of the passengers when the airline company thus considers choosing the best airline and it. According to this evaluation, Smith and Potter (2005) generated from their study the impact that an airport catchment area has on the choices made by the airline companies. Regional or local airports that are located in areas where the demand for low cost carriers is high is considered highly by low cost airlines as this translates to increased passengers available to use the airlines. The services offered by low cost airlines fall under a specific niche and thus making low cost airlines sensitive to airports with the potential demand for their specific niche of services. Slot times for takeoff affects operation of an airline especially the low cost airline thus making it an important consideration for LCCs when choosing their airport of choice. Airports with convenient takeoffs, landing and turnaround schedules attract the services of most low cost airlines in Europe as compared to other airports that do not. Such slots must also be readily available during the day for the planes to enable the LCCs maximize fleet utilization. The fees charged by the airports on the low cost airlines has little influence on the choice of airport that an LCC will make based on the findings of this study. Most of these airline companies already have their bases and roots within these airports thus making it quite expensive for them to make a complete move a new airport that may be charging lower costs. O’Connell and Williams (2005) conducted a case study to find out the perceptions of passengers on low cost airlines as compared to the full service carriers in Europe. In this case study, two low cost i.e. Ryanair and Aer Lingus and two full service carriers, i.e. Air Asia and Malaysia Airlines were used mainly due to their significant influence in the region. The increasing competition between the low cost airlines and full service carriers has greatly intensified in both Europe and the United States. The rising number of low cost carriers has resulted into increase loss of customers by full service carriers to their competitors. This paper thus attempts to establish the perception of the passengers on the low cost carriers and the full service airline companies and the key drivers that propel the two different business models in the airline industry. The business approaches adopted by the low cost airline carriers in Europe especially Ryanair and easyJet has led to significant increase in the number of domestic passengers who today use low cost airlines as compared to the full service carriers. From this survey, it was noticed that low cost carriers attracted a higher number of young passengers below 24 years who are mostly travelling for non-business related reasons like visiting friends, family or even educational trips. The fact that full service carriers offer more products and services that are not offered by low cost airlines make them more attractive to the older passengers. The positive perception on full carrier airplanes was mostly generated from the business elites who require additional services while travelling to enable them conduct their businesses with ease. Low cost airlines appeal more to leisure travellers who mostly travel on groups thus gaining discounts from the airline company. The booking system as adopted by Ryanair allows for most of its customers to book online as compared to the Aer Lingus whose customers use travel agents to make their bookings. For passengers who value the extra services offered by full service airlines, they posted a great attitude towards the carriers as opposed to the low cost carriers who only offer the additional services at an extra cost. Easy access to the airports has also come out clear as a major contributing factor to the airline that passengers develop a positive perception and attitude towards. The prices flexibility of the low cost airlines has also made it a carrier of choice among large non-business passengers who would value saving an extra coin. Ryanair has a strategy that it developed to enable it maintain its customers since 2002 when other low cost carriers entered the market and increased the market competition. While opening its new base in Bergamo in 2003, the airline offered a cool 100,000 free seats to its regular customers at a time when its closes rival EasyJet had just announced half-yearly losses (Francis et al, 2003). This is attributed to the great public image and respects that Ryanair commands among its loyal customers who view the passenger airline as a better alternative to full service carriers within the region. From this study, it is evident that no particular airline either full service carrier or the low cost carriers is preferred as a result of the prices but due to the flexibility it offers the passengers. The youths and other passenger category that are on non business missions have also been shown to prefer the low cost carriers as compared to the full service carriers that is the airline of choice for the elderly and most business travellers due to the extra services provided by the airlines. From the analysis of the above two papers published in the journal of air transport management, O’Connell and Williams (2005) who presented a case study on passenger perceptions of the two different airlines came out as more persuasive as compared to Smith and Potter (2005) who analysed the choice factors in choosing the airports by airlines companies. This position has been taken due to the in-depth analysis that O’Connell and Williams took in their case study that involved a study of four airline companies that operates in the Asian airs. With the comprehensive analysis of Ryanair and EasyJet as two low cost carriers that operate in the region, the writers demonstrated the way competition and great service delivery affects passengers’ choice of low cost airlines (Francis et al, 2003). The writers also present a historical timeline of the low cost carrier’s development especially in the Asian market and how this has contributed to the attitudes and perceptions of the passengers on these airlines. Dobruszkes (2006) published an article in science direct that analysed the European low cost airlines and their operational networks. In this article, the author evaluates the effects of the transport networks on the performance of the low cost airlines especially in Europe where such airlines dominate with 18% of total seats controlled by the LCC. The existence of low cost carriers and their contribution to the development of air transport is also evaluated in this paper in relation to both business and leisure travels in Europe and other Asian countries like Malaysia (Smith and Potter, 2005). This paper is thus beneficial due to the input it has added to the desire to understand the factors that influences the operations and profitability of low cost carriers and how they compete favourably with other full service airlines. Mason (2000) also provided a study to establish the utility that passengers place on the prices, airline reward schemes, flight frequency and other in-flight comfort service attributes when choosing their airline of choice. The effect of the company size of the low cost carriers is also analyzed to ascertain to what extent it influences the selection of these utilities by the travellers (Mason, 2000). The introduction of the low cost airlines in Europe has revolutionized air transport in the continent given life back to smaller airports that were almost idle due to less air traffic into and out the airports. Low cost carriers have a number of characteristics that separates them from the mainstream carriers and makes it easier for a passenger to choose their preferred airline basing their judgments on available facts. Low cost airlines tend to focus on minimal operational costs thus charging less ticket prices for its passengers while at the same time trying to maximize efficiency. While full service carriers dominate, major airports like Heathrow and Amsterdam, low cost carriers operates within secondary and regional airports like the London airport where the traffic movement is lower (Vidovic and Steiner, 2006). The provision of single class service and point to point services also makes low cost carriers common among a given class of travellers who are on a leisure mission for its cost is tremendously reduced as compared to the other airlines. Full service carriers offer a number of services to their passengers on board which includes meals, drinks among others, low service carriers however no service to onboard travellers thus lowering the costs incurred by the travellers. Low service airline has contributed immensely to the development of airline transport and increased considerably the total volume of passengers that today use airlines as their preferred means of transportation (Muqbil, 2006). Due to the nature of full service carriers, their choice of airport is more restricted as compared to low cost airlines that can use smaller airports. Before the development of the low cost airlines, the smaller airports in Europe were a reserve of private and chattered airlines, which resulted into very low volume of operation in these airports. However, the introduction and growth of low cost airlines has provided a new lease of life for these airports as the traffic has increased significantly as compared to how it was previously. Gatwick, Luton and Stansted airports today enjoy high traffic and make significant profits as compared to how they performed previously before the introduction of low cost carriers (Mason, 2000). The growth in low cost carriers has also had a significant negative impact on the performance and output of full service carriers in the continent. It is estimated that the low cost carriers today account for over 18% of the total passenger seats in the regional and this has eaten into what was traditionally the customer base of full service airlines like British airways. This means that the dominance that was once enjoyed by full service airlines has significantly dropped and this has translated into contracted outputs and company profits. Full service airlines adopted a pricing mechanism that was influenced by a number of factors including the cost of fuel, the economic situation of the countries they operate in and other international regulatory factors (Muqbil, 2006). This increased the prices charged by full service carriers and made air transport expensive. However, the entry of new players into the industry in the form of low cost carriers has resulted into tremendous shifts and increased competition for the available customers. Increased competition because of the entry of the low cost airlines has resulted into reduced costs of transport as compared to how it previously was. Flight time flexibility is an important aspect that influences the choice of carrier made by leisure travellers and low cost airlines have capitalized on this to increase their influence and the market share they control. This has made it possible for leisure travellers to fix their travel times with the flexible schedules offered by these low costs airlines to suit their schedules (Vidovic and Steiner, 2006). The short fixes offered by the low cost airlines translate into busy schedules for both the crew workers and the airport staff. A number of researches conducted on low cost airline companies have shown that most LCC workers tend to be more fatigued and work under intense pressure as opposed to their colleagues at the full services airlines. Such employees are also paid less despite the enormous workload that they are assigned to making low cost airlines falling under low remunerators in Europe (Olipra, 2012). Low cost airlines also influence the air transport markets and the competition among the small airports who struggle to offer their services to the airline companies. Due to their low cost models, low cost airlines are at a better position to negotiate for contracts that result into the significant reduction of aeronautical revenues. This makes it prudent for airports to compensate by levying more on commercial revenues from the increase in passengers. This has created major issues among the airport operators, the passengers as it results into exertion of more pressure on the passengers because of a contract that is negotiated without their inputs (Olipra, 2012). The liberalization of the aviation market as a result of the increased number of low cost carriers has resulted into decreased prices charged on the air tickets and increased destinations plied by the airlines. The airfare and tariffs have also changed from the traditional control of regulatory bodies and are currently influenced by forces of demand and supply in the market. As the demand for low cost carriers rises due to reduced fairs, competition with full services carriers has also resulted into reduced rates charged by these companies resulting into increased number of air travellers. This has significantly increased the volume of tourists into and out of the United Kingdom and other countries like France that have liberalised their aviation market to allow for the introduction of low cost airlines (Wang, 2005). The recent growth and increase in the volume of travellers that use low cost airlines has resulted into a change in the European travel patterns according to a market intelligence report of the European travel commission. Low cost carriers have thus opened more cities that are now frequented by travellers, a deviation from the traditional cities like Barcelona and Madrid in Spain. The United Kingdom market has also remained significantly buoyant due to the large number of low cost carriers found in the country and this has contributed to the growth in new travel patterns in the United Kingdom (O’Connell and Williams, 2005). As the number of new destinations increased and more travel patterns developed, this report identified a major negative effect of low cost airlines because of the changes in the travel patterns. The new patterns have resulted into the diversion of traditional tourists from their previously preferred destinations leading to low performance of tourism sectors in these regions. It is established that destinations such as Cyprus and Malta suffered significantly from this diversion of traditional destinations as their rooms and hotels went for long without bookings (Wang, 2005). It is worth noting that the growth in the low cost airlines has significantly increased tourism in most parts of the world especially in Europe where the airlines are significantly present. This has been attributed to the fact that the flexibility and efficiency of the low cost airlines has resulted into opening of new destinations, which are frequented by leisure travellers. This has increased the total revenue generated by the tourism industries in these regions according to Olipra (2012). The flexible schedules of low cost airlines has made it possible for travellers to fix weekend, city or short break tours around different destinations plied by the LCCs. This has increased the range of motivation and the frequency of travels for private leisure reasons thus increasing the number of tourists in the countries they operate in. The flexibility of the low cost carriers booking systems that uses the internet has also made it possible for travellers to not only acquire their tickets through the internet but to also make room reservations, hire tour cars, buy travel insurance and even checks the coolest entertainment sports well in advance before they fly. In 2005, the tourism sector in Norway grew significantly during the winter season as a result of the presence of the low cost airlines in the country that were flexible enough to serve new destinations in the country (Wang, 2005). As a tradition, low cost airlines are fond of travelling to areas perceived as low air traffic regions where the regional or secondary airports are left for chattered planes. Plying the new routes open up such sites for more visitors and increased activity thus increasing the revenues earned by the hotels and entertainment joints in the area. Low cost carriers are known for their ability to infiltrate less frequented regions in a country thus opening them up for exploration and more tourism activities, which results into increased revenues for such regions. As Dobruszkes (2006) stated in his analysis of the types of airports served by low cost airlines, secondary urban airports have become more vibrant and more frequented thanks to the introduction of low cost carriers. Remotely placed regional airports have been frequently used as access points into tourist’s sites or point of departure for road tourisms. Ryanair uses the France tour for tours Loire valley, Dinard for Dinard Brittany or Pau for Pau Pyrenees. This has been attributed to increased tourists attraction to these regions of France and the United Kingdom thanks to the efforts of Ryanair and other low carrier airlines (Dobruszkes, 2006). Low carrier airlines continue to be a new phenomenon in different parts of the world as it has revolutionised air transport and improved tourism in different parts of the world. Most travellers on non-business missions will today chose the low cost carriers as opposed to the traditional full service carriers due to the cost and flexibility benefits that it gives them. Tourisms have also grown significantly due to the opening of new travel destinations by low cost airline companies. References Dobruszkes, F., 2006, ‘An analysis of European low-cost airlines and their networks’, journal of transport geography, Brussels, Belgium. Volume 14, Issue 4, July 2006, Pages 249–264. Francis, G, Fidato, A and Humphreys, I. 2003. ‘Airport-airline interaction: the impact of low cost carriers on two European airports.’ Journal of air transport management. Volume 9, Issue 4, Pages 267–273. Mason, K., 2000 ‘The propensity of business travelers to use low cost airlines.’ Journal of transport geography, Cranfield, Volume 8, Issue 2, Pages 107–119. Mobil, Imtiaz., 2006 ‘Low cost airlines changing European travel patterns.’ travel-impact-newswire [Online] Available at: [Accessed 27 August 2013] John F. O’Connell, J and Williams, G., 2005, ‘Passenger perceptions of low cost airlines and full service carriers: a case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines’, Journal of air transport management, Volume 11, Issue 4, Pages 259-272. Olipra, L., 2012. ‘The impact of low-cost carriers on tourism development in less famous destination’. [Online] Available at: [Accessed 27 August 2013] Smith, D and Potter, A., 2005, ‘An explanatory study into airport choice factors for European low cost airlines’. Journal of air transport management, Volume 11, Issue 6, November 2005, Pages 388–392. Vidovic, A and Steiner, S., 2006, ‘Impact of low cost airlines on the European air transport market’, university of Zagreb. Wang, C., 2005, ‘The effect of a low cost carrier in the airline industry, MMSS honors seminar.’ [Online] Available at: http://mmss.wcas.northwestern.edu/thesis/articles/get/548/ [Accessed 27 August 2013] Read More