Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries. The airline industry exists in an intensely competitive market.

1. 1 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
Airtravel remainsa large andgrowingindustry.Itfacilitateseconomicgrowth,worldtrade,international
investmentandtourismandistherefore central tothe globalizationtakingplace inmanyother
industries. The airline industryexistsinanintenselycompetitive market.
Whenair travel startedinthe 20th century it wasveryexpensive.Onlythe richpeople could afford
travellingbyplane.Astime wentonbetterplaneswere built.Theywere faster,quieter andcouldcarry
more people overlongerdistances.Inthe 1980s a new type of airline emerged,Budgetairlineswhich
offeredticketsthatwere muchcheaperthanthose of other carriers.The budgetairlinesare alsocalled
as ‘lowcost airlines’ (LCA) or‘no-frills’airlines. They givepassengers verybasicfacilityof travelling
throughair withno luxuryof entertainment,food,magazines,free internetduringthe journey.

2. 2 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
Ryanair,an Ireland-basedBudgetairline,hasbeenknowntogive ticketsawayforfree.How canthese
LCA be so cheap,howtheyoperate inorderto sustain?They manage thisby cuttingcosts whereverthey
can. To ensure theirsurvival andprosperity, manytry tocut costs aggressivelyto reduce capacity
growthand to increase loadfactors. Whenan aircraftis delayedata gate eitherwithenginesoff oron,
the airline notonlyincursoperational costsbutalsohasto foregorevenue. Hence,airlinesalwaystryto
maintainthe schedulesof the plane. Generally,theyattractpassengersfromdifferentmode of
transportlike passengerstravellingthroughTrain- firstclassACorthrough FirstclassAC bus. Some
measureswhichtheytake toreduce theircost are:
 homogeneousmedium-sizedfleet
The usage of youngerhomogeneousmedium-sizedfleetresultsinhighcostsavings. UsuallyBoeing737-
700/800 or Airbus319/320 resultsinlowerfuel, maintenance andpersonnel costs. Higherseatdensity
inthese aircraftalsoresultsinlowerunitcostsfor all cost categories

3. 3 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
 Provisionof One Class of service
LCA eliminatethe differentclassesinthe aircraftwithonlyone economy classconsistingof all basic
seatingarrangement. Theynearlyabolishedthe businessclass. Thisincreasestheircapacityof carrying
passengerperride.
 Landingon SmallerorUn-congestedAirports
Uncongestion,smallerairportsusuallycharge lowerfeesthan largerestablishedairports. Solanding
there will save theircost. Theyattemptstocontrol airportaccess andservice chargesbyfocusingon
airportsthat offercompetitive costterms. Butagainstthissometimesthere isnoalternativeforthe high
cost airports.Eg: There isno alternative for Chatrapati ShivajiAirportatMumbai.Fleetneedstolandat
thiscongested&expensive airportonly,if apassengerneedstogoto Mumbai.
 Point-to-PointFlying
LCA prefertoprovide direct,non-stoproutes againsthub-and-spoke model.Throughthisthey saves
theircost of providingservicesforconnectingpassengers,includingbaggage transferandtransit
passenger’s assistancecostsetc.
 Sellingof Ticketsonline
A lotof moneycanbe savedbysellingticketsontheirownwebsiteinsteadof througha travel agent.So
LCA encourage theircustomerstobookticketthroughtheirwebsitedirectly.
 Stickingtoshort-overhaul distances
Flyingforshort-overhauldistance i.elessthan2to 3 hoursenhancesthe maintenance strategyof the
airlines.The capacityof a fleetremainmaintainforlong-time due toflyingovershortdistances.
 ReducingTurnaroundTime
Reducingairplane turnaroundtimesmeansmore efficientairplane utilization,particularlyforairlines
that emphasize point-to-pointroutes. So,airlinesalwaystrytoturnaroundthe plane assoonas possible.
The turnaroundtime for a short-haul flightisdefinedasthe time foran aircraftto complete full off-
loading,loadingandwhere required,cateringandcabincleaningprocedures(InternationalAirTransport
Association,1997). The average turnaroundtime of anyLCA is 30 minutes.
 Fuel Efficiency
LCA triesto use theirfuel inaveryefficientwaywhichinvolvesbuyingof fuel-efficientfleet,fillingfuels
fromplaceswhere fuelsare cheap(if the cheaperfuelsplacesfallsamongtheirroutes),etc
 OperatingAircraftforMaximumHoursPer Day
Theyusuallyoptforoperatingtheiraircraftformaximumtime. Anaverage 15-17 hrs/ day make
maximumutilizationof theiravailable resourceandhelpthemtoearnmore.
 OtherCost Reductions
Higherdensityseating,aswellasbyeliminatingall formsof free in-flightservicessuchascatering,
entertainmentduringthe flight,magazines,etc ormake themchargeable whendemandedcanreduce
theircost.

4. 4 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
However,notall LCA have appliedall the above listedaspectsof savings. ForExample,EasyJet-abritish
airline,isamongthose LCA thatoperate frommajor hubs(Amsterdam, Madrid,Munich,ParisCDG, etc.).
The main challenge tothese LCA isto make theirbusinessmore cost-efficientwiththe low ticketfare.
So, some budgetairline companieshave revolutionized itsbusinessmodel.Itissaidthatyou can’t make
moneyinthe airline business.Hightaxesonfuel,absence of cheapersecondaryairportsandcrowded
metro-airportsmake profitsimpossible.SomeLCA thatmade profitshave provedthiswrong. Letshave
a lookat the operationsof some well-knownbusinessesinthisLow CostAirlineindustry.
1. SouthwestAirlines
SouthwestAirlinesCo.isa majorU.S. airline headquarteredinDallas,Texas. Theyare the world’s first
successful no-frillscarrier.Theypioneeredwaysof reducingoperatingcoststhatare now usedall over
the world. Theymostlyfocusonkeepingtheiroperationssimple. Theyserve mainlydomesticairroutes
consisting93 destinationsin40 states.Theyevenoperate totheirneighboringcountrieslikeAruba,
Jamaica,and The Bahamas. andfive near-international countries. Toreduce costs, Southwestfill its
planeswithmore seats andmake sure each flightis packedandflew itsaircraftmore oftenthanfull-
service airlines.
Southwestairlineshave afrequentflyerprogramme called‘RapidRewards’.This givesbenefitsto
frequenttravellersof Southwest byhelpingthemtoearn pointsintermsof ‘miles’fromtheireach
travel,whichcanbe utilize toearnthema free ticket orto upgrade theirclass. Thisattract more
travellerstotravel fromthe particularairline.
The airlinesflyonlyBoeing737s family fleetwhichresultsinall mannerof cost-savingefficiencies. They
onlyneedtotrain theirmechanicsonone type of airplane. They alsoonlyneedextraparts of inventory
for that one type of airplane.If incase theyhave toswapa plane outat the lastminute formaintenance,
the fleetistotallyinterchangeable—all the airline’son-boardcrewsandgroundcrewsare already
familiarwithit.
SouthwestAirlines followsthe free-seatingphilosophywhich letyousitwhere youlike,they don’t
assignseatson the flights.Theyprovideon-boardseatingarrangement where they distribute the
available boardingpositionon first-come,first-servebasis.Passengersevenhave the optionstoupgrade
theirboardingpassavailable onthe check-incounter,whichwillbe chargedheavily.AnevenBritish
airwayfollows the same strategyof open-seating. The “free-seating”philosophy contributestothe
reductionof operatingcostsbecause itencouragespassengerstoboardthe plane earlierandthus
additionallyreduce delays. Italsoprovesbeneficial when incase if aplane isswappedout,anda new
one’sbroughtinwitha differentseatconfiguration,there’snoneedtoadjustthe entire seating
arrangementandissue newboardingpasses.
Most of the LCA charge to check bagsthese days.But, Southwesthas resistedthe trendandoptedfor
“bags fly free”policyasa goodmarketingstrategy. The Southwest’sflightsare generallypoint-to-point.
The plane lands,goesthroughturnaround,andoftenheadsrightbackwhere itcame from.
Southwesttargetsthe domesticbusinesscommuter,notthe globetrottingjetsetter.The airline has
limiteditself intentionally,tokeepitsoperationsrunningsmoothly. Buttoovercome thisphenomenon
and to attract international flyers, Southwestairlineshave undergone several codeshare agreements
withotherairlines. Codeshare agreementisanaviationbusinessarrangement where twoormore
flightsshare the same flights. There the carrieroperatingagivenflightallowsone ormore othercarriers

5. 5 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
to marketthisflightandissue ticketsforitas if theywere operatingthe flightthemselves. Throughthis
agreementtwoormore airlines offertheirpassengersone-booking&one-ticket,andplace itscodeson
a "codeshare"partnerairline'sflights
In a departure fromitstraditional "goitalone"strategy,Southwestenteredintoitsfirstdomestic
codesharingarrangementwith ATAAirlines,whichenabledSouthwestAirlinestoserve ATA marketsin
Hawaii, Washington,D.C. andNewYorkCity.Theyalsosigneditssecondinternational codeshare
agreementonNovember10, 2008, with Mexicanlow-costcarrierVolaris.The agreementallowed
Southwesttosell ticketsonVolarisflights.AfteracquiringAirTranAirways in2011, Southwestbegana
codeshare agreementwithAirTranonFebruary14, 2013. The agreementendedafterAirTranbecame
fullyintegratedintoSouthwestonDecember28, 2014.
Alongwithmaintaininglowfare,southwestairlinedoprovide non-alcoholicbeveragesandsome snacks
as a complementary.However, theycharge foralcoholicdrinksandothersnacks. Theyprovide wi-fi and
televisionfacilitiesonaprescribedrates.
Accordingto V.P.of groundoperations of Southwestairline-ChrisWahlenmaier,they canturnaround
planesinabout25 minuteswhichisindustryleading. A simplernetworkalsomeansfewer luggage
gettinglostinthe shuffle. The simplestoperationsof Southwesthave proventhemawinner. Theseall
factors contribute totheirloweroperatingcost,andso they inreturn are able to provide low faresto
the passengers. Recently,SouthwestAirlinesquotedthattheyearnedarecord profitof $1.1 billionin
2014, the firsttime the Dallas-basedcarrierhasgone overthe $1 billionmark.
2. AirAsia Airlines
OthernoteworthybusinessinLCA industryisMalaysianAirline Company,AirAsia.AirAsiareceived
‘World’sBest LowCostAirlines 2014’ award fromworldairline Skytrax .The airlines whichhasbeen
successful inmostof the marketsit operatesin,followsthe businessmodel of offeringheavydiscount
on advance bookings. Nootherlow-costcarrierhasas many destinationsinAsiaasthey do.Not onlythe
numberof destinations,butthe frequencyof flights. Theyare servinga100 destinationsin22 countries.
Apart fromdomestic,the airlinetravels inThailand,Indonesia, HongKong, Philippines,India, UAE,
Australia,Brunei,China,Korea,Sri lanka, Bangladesh, japanandmanymore.
Theyalsoearn a highshare of itsrevenue fromancillaryservices. Againstthe otherlow-costairlines
AirAsiafollows hub-and-spoke model,havingKualaLampurastheirmainhub. Like Southwest,theytoo
include frequentflyerprogramcalled‘BigLoyaltyProgramme’.
AirAsiawhenwaslaunchedinIndia,gottheirfleet- AirbusA320deliveredattheirplace inChennai.They
savedtheirstaff efficiencybynotsendingtheirofficersandcrew members outof the system toflying
factoryat Toulouse,France.InIndiatoincrease theirrevenue they soughtpermissionfromForeign
InvestmentPromotionBoard(FIPB) for renting and leasing of aircraft. The permissionalso includes air
transportcarriers (of freight) and cargo handling.Byrenting,leasingandbycarryingair freightthey
optimizedtheirrevenue tothe maximumwiththe use of theiravailable resources.
AirAsiadoesn’thave acodeshare agreementwithanyairlines,asthey believe the relationshipbetween
passengersandairline will be hamperdue tochange of brandin the journey. The otherstrategyabout
whytheysell inexpensive ticketsisamainmethod inwhichtheytry to geta lotof usage out of the same

6. 6 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
cost of operatinga single airplane. Forexample,theyfly17hrsa daywhichis far more thantheir
competitor.
Empty Seats Options
AirAsialaunchedEmpty SeatsOption,whichmeansthatforRMB100 (US$16), you can occupythe full
row of three seatsif there are no otherpassengers. If the airline endsupsellingall the seats,they give
moneyback to passengers.If the seatsare leftunoccupied,company getanextraRMB 100. By doing
this, they estimate thatthey canearn upto US$1 millionin2012.
Theyalsoadoptedthe unique model where they burnlessfuelperpassengerthanotherairlines. They
burn twolitersof fuel forone passenger100 kilometers.Fortraditional airlines,it'sfourliters.
3. IndiGoAirlines
The nextbigexample isof IndianbasedAirlines,IndiGo. InAugust2009, while the otherairlineswere
bleedingfrommile-highdebtsanddecliningnumberof passengers,IndiGowasmakingmoney. The
airline won‘CentralAsia & India’sBestLow Cost Airlines 2014’ awardfrom worldairline Skytrax. They
are point-to-pointoperatorconnectingmultipledestinationsinAsia-Pacificandthe Middle East. The
airlinesalso servesselectedinternationaldestinations,namely Dubai,Muscat,Kathmandu,Singapore
and Bangkok.
They spendvery low on marketing and advertising.IndiGohassix-yearsale andlease backagreements
for mostof itsplanes.The leasertakesthe planesbackafterthe lease andthe airline caninductabrand
newone inits place.Takingtheirfleetonlease savestheirhuge amountof moneyforthe future
maintenance andrepair. Theyoperate AirbusA320family fleetwhichconsistsof highdensityseating.
Theyhave single aircraftwitha verysimple fare structure. The airline hasbeenable toplanits
operationstothe lastdetail overthe pastfour years.Daysbefore anaircraft isdeliveredtheyare well-
plannedaboutwhere tooperate itandusuallyhave begunsellingtickets.
IndiGowasamong the firstairlinestohave the aircrafttaxi to the terminal withone engine,shutting
downthe secondengine tosave fuel. Anotherexampleisof pilotsflyingathigherspeeds(andburning
more fuel) toreachMumbai quickly,onlytospendthe nexthalf-hourcirclingthe airport.Thiswas
curtailedandfuel burnreduced. AirbuscustomersinIndia,includingAirIndiaandKingfisher,sendtheir
pilots,crewandengineerstoToulouse tothe plant.ButIndiGopreferstohave the planesdeliveredin
Delhi.Thiscomesata marginallyhigher cost;the advantage isthat twosetsof pilotsandcrew are not
out of the systemforthe 10-15 days.
On the network, IndiGo is sticking to routeswith an averagestagelength of 1 hour,30 minutes. Ithas
dailyflightsonall itsroutes,andisthe largestoperatoron a thirdof these routes.Italignsflighttimings
to match connectionsfromMumbai andDelhi.Ithas noloyaltyprograms,yethalf of those flyingare
repeatcustomers.
The IndiGoevenhave luxuriouslounge facilities tocaterto theirpremium customerswhoallow themto
escape fromthe crowd and work& relax inpeace and quietness.Servicesinclude hotbuffet
meals/snacks&non-alcoholicbeverages,internetworkstations,wi-fi andavarietyof newspapersand
magazineswhichischargeable.IndiGoalsooffersticketlesstravel;thatmeansyoudon’t needtocarry a
ticketwhile boarding,youjustneedtocarry the confirmationpage printoutandyourcredit/debitcard
fromwhichyou have bookedyourticket.

7. 7 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
Challenges
Highfuel cost, governmenttaxes,airportchargesaddstothe big challengesforthe low costairlines.
These budgetairlines are inflirtysituationswhentheyleftwithnooptionsapartfromtryingtocompete
withthese highcosts.The whole workingof low costcarrieris dependentontheiroperations;soif they
lack a small gapbetweenthem,theirwhole operationsgoesininefficientway. Theyare alsofacinga
verytoughcompetitionfromfastrailwaytransport,whichare providesthe same kindof service asair-
transport.
In conclusionwe cansay that, these lowairlinesprovedthatitispossible togrow andkeepyourmargins
high. LCCs are beingaffectedbyagreatercompetitive pressure,whichrequires themtofollow a
differentstrategyotherthana simple cost-leadershipstrategy. Todifferentiatethemselvesfromother
LCCs, some low-costoperatorsare adoptingdifferentbusinessmodelsthatinclude,forinstance,shifting
to primaryairports,startinghubbingactivities,providingmealsandotherin-flightservices,andentering
alliances.

8. 8 All contents © 2016 Effectus Solutions Pvt Ltd (CrossProf.com). All rights reserved.
airline,lowcost,carrier,hub andspoke,model,pointtopoint,airport,airasia,southwest,IndiGO,Ryan,
in-flight,entertainment,luxury,economy,business,firstclass,cost,revenue,profit, lounge,empty
seats,free seating,openseating,loyalty,bigflyerprogramme,rapidreward
Ref:
http://www.economist.com/blogs/economist-explains/2013/10/economist-explains-13
http://www.ijtte.com/uploads/2013-03-25/5d57e65e-a0a9-482fIJTTE_Vol%203%281%29_7.pdf
http://www.slate.com/articles/business/operations/2012/06/southwest_airlines_profitability_how_the
_company_uses_operations_theory_to_fuel_its_success_.html
http://www.slate.com/articles/business/operations/2012/06/southwest_airlines_profitability_how_the
_company_uses_operations_theory_to_fuel_its_success_.html
http://aviationblog.dallasnews.com/2015/01/southwest-airlines-tops-1-billion-in-annual-profits-for-
first-time.html/
http://www.dnaindia.com/india/report-leading-low-cost-carrier-airasia-to-start-operations-from-
mumbai-2021664
http://www.thehindubusinessline.com/news/air-asia-indias-first-airbus-a320-arrives-in-
chennai/article5818119.ece
http://archive.indianexpress.com/news/air-asia-tata-group-jv-seeks-permission-for-aircraft-
leasing/1082462/1
http://www.forbes.com/2010/11/03/forbes-india-how-rahul-bhatia-found-indigo-gold.html
Morandi,V.,et al.,Codesharingagreementsbylow-costcarriers:Anexplorativeanalysis,Journalof Air
Transport Management(2014), http://dx.doi.org/10.1016/j.jairtraman.2014.10.004
http://swamedia.com/releases/southwest-airlines-and-airtran-airways-begin-connecting-networks
http://www.swamedia.com/releases/e89b5d36-734b-55cc-c781-936d4b4663a0?search=ata+airlines
http://www.blogsouthwest.com/news/swa-to-offer-online-link-to-volaris-service-on-southwestcom/
https://www.southwest.com/html/travel-experience/boarding-your-flight/
http://www.britishairways.com/en-gb/information/seating/choosing-your-seat
https://www.southwest.com/wifi/?int=GFOOTER-PRODUCTS-WIFI
http://travel.cnn.com/shanghai/life/airasia-x-says-codeshare-strategy-so-last-century-117891
https://content.goindigo.in/Corporate/conditions-of-carriage#inner-10-2
http://www.aviation.unsw.edu.au/downloads/papersWu/1_JATM_2000.pdf