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Low Cost Carrier-Tigerair Australia
Strategies, Safety, Sustainability and Growth of Low Cost
Carriers
Prepared By:
Student Name: Dongyangyang Liu
Student ID: Z5057896
School of Aviation
UNSW Sydney, NSW, 2052, Australia
Abstract
In today’s dynamic aviation industry, the increasing traffic demand driven the
industry booming, in addition, the booming has significantly increased
competitiveness between airlines, therefore, different airline business model has
been developed in order to gain competitive advantages. In general, there are
two main types of airline carriers, Low Cost Carriers (LCCs) and Full Service
Carriers (FSCs), these two types of airline applying different business strategies.
This paper is focusing on LCCs’ business strategies, safety perspective,
sustainability and future growth. Tigerair Australia, as one of the LCCs operate in
Australia’s domestic market, this paper will use this Airline as example to
illustrate above areas of LCCs.
Table of Contents
Abstract..........................................................................................................................2
Introduction...................................................................................................................4
LCCs’ Business Strategies..............................................................................................5
Network Design...................................................................................................................................................5
Airline Scheduling Planning...........................................................................................................................6
Pricing Strategy ...................................................................................................................................................7
NO Discount on Safety..................................................................................................8
Tigerair’s Strategy..........................................................................................................8
Tigerair’s Rivals..............................................................................................................9
Sustainability and Growth of LCCs..............................................................................10
Conclusion....................................................................................................................11
Reference List..............................................................................................................13
Introduction
In the Pacific region, Tiger Airways was established and operated since 2004 as
the low-cost-carrier of Singapore Airline, the Airline is 49% held by Singapore
Airline, 24% held by Indigo Partners, 16% held by Irelandia Investment Ltd and
11% held by Temasek (Poon and Waring, 2010). Tiger Airways Australia
operating as Tigerair Australia, is one of the Low Cost Carriers (LCCs) operating
in Australia’s domestic airline market, it started its operations since 2007. Now
Tigerair Australia is fully owned by Virgin Australia Holdings (CAPA, 2013).
According to BITRE data, by the end of 2014 Calendar Year, Tigerair Australia
had total of 22,787 scheduled operations, with 22,456 flown, resulted a rate of
cancellation of 1.5%, which match the industry’s average; and the airline’s On
Time Performance for the year were 77.8% for departure operations and 75%
for arrival operations. Tigerair Australia’s business model is LCC that is designed
to remain operational simplicity, low operational cost and positioning. The
airline is generating revenues through the provision of additional products and
services. Low cost carrier refer to those air services providers focus on minimize
their cost in order to achieve low fares to compare with competitors, and this is
their competitive strategy on the particular low cost carriers market place (Air
Transport and Airport Research, 2008). This paper will focus on LCCs’ business
strategies studies; include the model’s network design; LCCs scheduling planning
and pricing strategy. Then, in the recent year, there is numbers of deadly
accident happened and some of them involved LCCs, therefore, safety concern
has been raised to this particular business model, however, LCCs are sharing the
same skies with FSCs and implementing same standards, without doubt, there is
no discount on safety! Finally, this paper will discuss some innovative ideas that
may help LCCs to seeking revenues without establish too much ancillary
products, also illustrate sustainability and growth of LCCs.
LCCs’ Business Strategies
Network Design
Network design is important to both LCCs and Full Service Carriers (FSCs). Most
commonly LCCs develop their network structure that promoting operations
connectivity. Congestion can be another important issue to LCCs, because they
have to improve and achieve their operational efficiency in order to meet certain
level of productivity, so airport congestion will slowdown their turnaround time
and result reduction in their productivity, an airport with heavily congestion
issue directly increase airline services cost as crews working hour extended,
more fuel burnt on ground and requires longer aircraft block times, even more
seriously, congestion could affect aircraft’s number of flight per day (Forsyth,
2006). Kincaid and Tretheway said that, every additional 15 minutes delay for
each flight at a it’s hub airport will lead an average loss of approximately a hour
productive service each day for each aircraft; a decrease in airline capital
productivity of roughly 10%, and the requirement in fleet that is approximately
10% greater than would be the case if the airport were uncongested (Kincaid
and Tretheway, 2009). LCCs prefer smaller non-hub airports rather than large
hub-airport, apart from the congestion issue; smaller airports normally charge
less than other large hub-airports. Other factors such as geographic location;
environmental condition and capacity of the airport can contribute varies in
airport charges (Pavlyuk, 2012), for example when an airport located in hot
climate will result in aircraft have to takeoff with lower Maximum Takeoff
Weight (MTOW) due to hot air is less dense, hence airline operations’ unit cost
will increase, and productivity will decrease. Tigerair Australia has made a few
changes to its network to enhance its competitive advantage with the Australian
LCC market; it introduced two additional A320 aircraft to the fleet, increasing the
total fleet of 13 aircrafts. In order to increase its fleet utility and the company’s
productivity, it established six additional routes to its network, achieving 11% of
its fleet utilization compare to previous year. According to Virgin Australia’s
Annual Report for FY 2014, Tigerair Australia has carried over 3 million
customers and 21,000 flights across Australia’s 14 destinations and 22 routes,
increased its average revenue load factor compare to the previous FY 2013. In
the future, the company will continue to focus on measures, which enable it to
maintain cost efficiency to income ration and improve yields and margins,
ensuring operational safety, reliability and sustainability in the LCC market
(Virgin Australia, 2014).
Airline Scheduling Planning
Airline Scheduling Planning playing a major role in order to built airline’s long-
term profitability. Scheduling determining where and when the airline will
operate their fight, as discussed above, LCCs are paying significant high attention
to their cost, they must be very conscious on efficient scheduling (Schlangenstein,
2013). The design of an airline’s network normally based on maximize Origin
and Destination (O&B) converge with maximum allowed numbers of flight
routes (Jacobs et al., 2011) to maximize its operational efficiency. The scheduling
also needs to be consisting with the cost and availability of cabin and cockpit
staff, as well as aircrafts maintenance scheduling, in another term, airline should
evaluate scheduling for the best efficient, evaluate aspects such as financial
objective, customers objective, cost and productivity objectives for existing staff,
innovation and development objectives (Robertson, 2013). Efficient schedules
allow airline to achieve better match supply and demand. On another hand, the
cost of operating the schedule will include the cost of the number and type of
aircraft used (Jacobs et al., 2011). When comes to fleet strategy, as it will directly
impact operations’ efficiency and performance, also operational cost. So, increase
fleet utility/productivity is a major part of network design. Then, the choice of
fleet is also important to LCCs, most likely Boeing 737-700/800 or Airbus
319/320 are LCCs favorites, because of the usage of newer homogeneous
medium sized aircrafts usually have better economic on fuel usage, maintenance
cost and personnel costs (Vidović, Štimac and Vince, 2013). Also using typical
fleet allow airline to simplify their maintenance work, as fleet are same, the
procedures; requirements; technologies and maintenance personnel training are
most like the same, which allow airline for no needs to deliver additional effort
and fund to maintain different types of aircraft. In addition, by using typical fleet
they have same design, capacity and operational commonality, which allow flight
crews and cabin crews with much easier transfer between fleet (Clark, 2007). In
addition to fleet selection, newer aircraft model are more likely popular as the
fuel consumption is less and maintenance cost is less, which reduce their
operational cost. However, it depends on LCCs available fund and their fleet
strategy, some LCCs rather than pursuing low operational cost, they prefer older
aircrafts, as it is cheaper option when purchasing their fleet, low expenses may
overcome the cost in the future operations (e.g. Delta Airline U.S.).
Pricing Strategy
On pricing, LCCs pricing policy is usually very dynamic (Vidović, Štimac and
Vince, 2013), LCCs offer significant discount fare for early booking, which attract
the price sensitive traveler; LCCs most likely use on-line booking system, in that
case LCCs will not need to establish sales facility and employ sales staff, which
avoided that cost. Whether in FSCs market or LCCs market, pricing has always
represented an important factor in the carriers’ choice (Malighetti, Paleari and
Redondi, 2009), FSCs normally design their airfares based on different fare
classes; discount system with limitation; customers loyalty and overbooking
techniques. LCCs’ airfare generally only covers purely transport fee, which
means customers are only paying the minimum required service for their
journey-‘Point to Point’. Normally LCCs earn extra revenue by selling their
additional services such as, check-in bags if customer wish to have more than
carry-on bags; if customer do not want to wait in queue while boarding the
aircraft, they can choose to pay extra fee to jump the queue and board the
aircraft first (e.g. Tigerair); seat selection can be one of option, customers can
choose their preferred seat by pay extra fee, otherwise seat will be randomly
allocated. According to Malighetti, Paleari and Redondi (2009) the success of a
LCC is based on a fragile balance between fare levels, load factors (L/F) and
operating cost, the structure of LCCs revenues and the determination of prices
are almost likely as important as the minimization of operating cost. Travel by
air is no longer as an exotic product for most consumers and it is more likely just
means of getting from one point to another, another fact is that more consumers
today become more price sensitive and willing to trade off other ‘unnecessary’
elements for lower airfare.
NO Discount on Safety
In today’s aviation market, the rising number of traffic demand and passenger,
the LCCs business model is a very successful model and benchmarked by many
newly established airlines, the LCCs market growth is significant, in 2013, LCCs
occupy about 23% of the global aviation market share while FSCs occupy 73%
(Isreal, 2014). In addition, recently two LCCs had accidents, Germanwings Flight
4U 9525, which crashed in French Alps on Tuesday morning the 24th March this
year, 144 people on-board and 6 crews were killed; In January, AirAsia Flight
QZ8501 crashed into the Java Sea after a potential updraft made the plane climb
too fast. These unfortunate accidents have raised travelers concern; some people
may ask if LCCs are earning revenues by cutting budget of safety. But in fact,
LCCs get their savings from efficiency and less cost for services rather than by
skimping on safety issues (Mangla, 2015). In most places, there are local
government authorities regulating the aviation industry by implementing
international standards, which established by International Civil Aviation
Organization (ICAO), in Australia, it is Civil Aviation Safety Authority’s (CASA)
responsibility to ensure all air operators meet their standard in order to operate
in Australia. In 2011, CASA took action to suspend Tiger Airways Australia
operations, due to numbers of serious incidents and safety concerns about the
airline, the action resulted significant impact to the travel plan of the public and
created a major news story in Australian media (Civil Aviation Safety Authority,
2012). Until the next year, Tiger Airways Australia met CASA’s safety standard
and resumed operation (Baker and McKenzie, 2014). The example is telling that
regulatory are not palter on safety performance, LCCs are implementing the
same safety standards as FSCs, when facing safety issues, there is no exception, it
is just unfortunate that accident happened to LCCs, customers paying less to
LCCs for less customer services but not less in safety.
Tigerair’s Strategy
Tigerair Australia’s CEO, Rob Sharp stated that it is not about cutting corners to
operate LCCs but simplifying (Flight Safety Australia, 2015), the airline has three
bases, Sydney Melbourne and Brisbane, generally every night employees return
home, which contributing stability, allows airline to be able to manage fatigue
and offer employees the stable lifestyle while working with Tigerair. Another
feature of Tigerair Australia will be its contract-out, including maintenance, it is
enhancing airline’s safety by allowing it concentrate on other areas, Tigerair
Australia has fleet of 13 Airbus A320 aircrafts, by this fleet strategy, Tigerair
Australia chose typical aircraft model to operate, which simplified the airline’s
functioning; as mentioned, Tigerair Australia outsourcing maintenance also leads
cheaper cost as only single type aircraft being used (Thomas, 2013). In October
2013, Tigerair Australia awarded BAE System a 5 years contract to provide base
maintenance support to its fleet, also Sharp stated that it is a strategic
partnership with BAE and an opportunity to strengthen the airline’s operational
performance (Thomas, 2013). According to CASA’s requirement, it is mandatory
to have Safety Management System (SMS) for any air operators to operate within
Australia, for Tigerair Australia, apart from compliance with regulation,
organizational safety culture is even more important. Tigerair Australia using
video to record massages about safety to interact staff, ensure they understand
safety better and enhance their safety awareness, also value their role in creating
safety (Flight Safety Australia, 2015).
Tigerair’s Rivals
As the aviation market booming, the market competitiveness becoming greater,
in 2003, Qantas has established their Low Cost Subsidiary (LCS) JetStar, JetStar
as a domestic LCC that offer low airfare and limited in-flight service, operate with
single class domestic flight, it was established as part of Qantas dual-brand
strategy, while Qantas serves as FSC and JetStar serves as LCC, it helps its parent
company Qantas to compete with Virgin Australia, on another hand, Qantas used
JetStar to access LCCs market and expand market share, so JetStar has became
Tigerair’s the biggest rival in the market. This brings out another subject relative
to LCCs – Sustainability and Growth of LCCs. Tigerair Australia is fully owned by
Virgin Australia Holdings as the airline’s LSC to compete with Qantas and JetStar
in Australia’s domestic market (CAPA, 2013).
Sustainability and Growth of LCCs
In today’s dynamic aviation industry, the winner is always the one who retaining
most repeat business, FSCs applying numbers of strategies to protect their
market shares from competitions and retaining customers (GILLEN, 2006), such
as frequent flier program, encourage customers to fly with them again by
awarding point. It is equally important to LCCs retain attractiveness to repeat
customers and be more attractive to new customers (Sarker, Hossan and Zaman,
2012). LCCs need to think about their Customer Relationship Management (CRM)
strategies, many LCCs today tend to focus on cutting services and quality, in
order to squeeze greater revenues from ancillary products, for example Tigerair
Australia, introduces carry on baggage fee for passengers wanting to carry more
than 7 kg, it named cabin+ option that increase the allowance to 12 kg. The
cabin+ option charges start from $18 for shorter fight such as from Sydney to
Melbourne; and $23 for longer flight such as from Adelaide to Sydney. If an LCC
paying too much attention on ancillary products to gain revenues and ignored
customers’ satisfaction, customers will choose another airline when they feel
they are not satisfied (Sarker, Hossan and Zaman, 2012). According to Sarker,
Hossan and Zaman (2012), they believe LCCs should continue with their low cost
model with attractive airfare, also enhance their customer service. Another
finding from studies was from a report released by Productivity Commission’s
Research Paper, the paper focused on Australia’s International Tourism Industry,
it illustrated the visitor types in Australian regional tourism, according to the
report, backpacker is one of the main stream traveler source in the domestic
market, as backpackers have greater tendency to travel to more regional areas
than other types of visitor, in 2013-2014, 68% of backpackers traveled at least
one regional area, the majority of backpackers are youth travelers, and they tend
to have a lower expenditure than other types of visitors (Productivity
Commission, 2015). Therefore, the domestic LCCs could target this tourist source,
design a travel package including low airfares for them to travel further in the
regional areas, offer low cost accommodation (i.e. cooperate with
accommodations) and ground transport (i.e. establish car rental facility or
cooperate car renters). Another interesting idea is to ‘rent out’ aircraft exterior
and interior of fuselage for advertising, enabling LCCs to earn additional
revenues (Sarker, Hossan and Zaman, 2012). These can be better sources for
additional income rather than under-cutting customer service and attempt
provide a lot of options with fees apply. On another hand, environmental factors
could result significant impact to LCCs and their sustainability, such as fuel price,
rising in fuel price was considered with a significant impact on airlines’ ability to
remain low airfare and still profitable, so it is important to LCCs to develop
appropriate strategy to deal with unpredictable rising in fuel price, for example,
Southwest Airline U.S. has an unique purchasing strategy, and that is the airline
aiming to purchase their supplies at a lower price; a significant application is the
strategy that they use for purchasing fuel, to avoid the rising fuel price
Southwest locks in the prices it pays for jet fuel months or even years ahead of
time, in the event of rising fuel prices, this will helps them to avoid increase its
fares and distributing the expense to its customers (Hojatti et al., n.d.). Overall,
sustainability of LCCs and identify the market future growth is significantly
important for any LCC in the field, as discussed before, as the nature of this
business model, low cost is the majority, but overly cutting customer services
and comfort to seeking revenue will make the LCC loss market share, therefore,
LCCs should re-think about seeking more revenues without too much cost
reduction, be sustainable and compatible.
Conclusion
This paper discussed Tigerair Australia’s three major features as LCCs, firstly,
network design is important to both LCCs and FSCs, especially for LCCs, the
business model requires operators maximize flight connectivity in order to
increase productivity, for LCCs network design, they prefer to operate in
secondary airports as these airports charge less and less congestion, this will
result in lower cost for LCCs, also make their faster turnaround time. Tigerair
Australia operates over 14 destinations and 22 routes in Australia, which
enhanced its average revenue load factor compare to the past. Another highly
related feature is fleet strategy, which contributes LCCs direct operational cost,
as different aircraft types have varies costs, Tigerair Australia only use A320 for
fleet, which is cheaper to fly and lower maintenance cost. Then is LCCs’ pricing
strategy, as the business model designed to provide low airfares, therefore, the
airfare is more likely cover the cost of transfer from point to point, so LCCs are
seeking additional revenues by other ancillary products. Further more, as safety
is the first majority in aviation industry, there is no exception for LCCs, they must
comply the same standard as FSCs, Tigerair Australia was suspended by CASA in
2011 due to incidents occurred by its operations, then resumed service until it
meet CASA’s requirements. Finally, this unique business model are so successful
in today’s airline industry, but there is still improvement and development
required for LCCs, in order to remain sustainability and competitive in the future,
as mentioned, so many LCCs under-cutting services and customers comfort to
gain more revenues, it may disappoint some customers and not able to retain old
customers, in the end they will loss market share, therefore, LCCs should
innovate their business strategy, in order to gain additional revenues without
cutting customers enjoyment.
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Low Cost Carrier-Tigerair Australia
Strategies, Safety, Sustainability and Growth of Low Cost
Carriers
Prepared By:
Student Name: Dongyangyang Liu
Student ID: Z5057896
School of Aviation
UNSW Sydney, NSW, 2052, Australia

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Low Cost Carrier Tigerair Australia-Strategies, safety, sustainability and growth of LCCs

  • 1. Low Cost Carrier-Tigerair Australia Strategies, Safety, Sustainability and Growth of Low Cost Carriers Prepared By: Student Name: Dongyangyang Liu Student ID: Z5057896 School of Aviation UNSW Sydney, NSW, 2052, Australia
  • 2. Abstract In today’s dynamic aviation industry, the increasing traffic demand driven the industry booming, in addition, the booming has significantly increased competitiveness between airlines, therefore, different airline business model has been developed in order to gain competitive advantages. In general, there are two main types of airline carriers, Low Cost Carriers (LCCs) and Full Service Carriers (FSCs), these two types of airline applying different business strategies. This paper is focusing on LCCs’ business strategies, safety perspective, sustainability and future growth. Tigerair Australia, as one of the LCCs operate in Australia’s domestic market, this paper will use this Airline as example to illustrate above areas of LCCs.
  • 3. Table of Contents Abstract..........................................................................................................................2 Introduction...................................................................................................................4 LCCs’ Business Strategies..............................................................................................5 Network Design...................................................................................................................................................5 Airline Scheduling Planning...........................................................................................................................6 Pricing Strategy ...................................................................................................................................................7 NO Discount on Safety..................................................................................................8 Tigerair’s Strategy..........................................................................................................8 Tigerair’s Rivals..............................................................................................................9 Sustainability and Growth of LCCs..............................................................................10 Conclusion....................................................................................................................11 Reference List..............................................................................................................13
  • 4. Introduction In the Pacific region, Tiger Airways was established and operated since 2004 as the low-cost-carrier of Singapore Airline, the Airline is 49% held by Singapore Airline, 24% held by Indigo Partners, 16% held by Irelandia Investment Ltd and 11% held by Temasek (Poon and Waring, 2010). Tiger Airways Australia operating as Tigerair Australia, is one of the Low Cost Carriers (LCCs) operating in Australia’s domestic airline market, it started its operations since 2007. Now Tigerair Australia is fully owned by Virgin Australia Holdings (CAPA, 2013). According to BITRE data, by the end of 2014 Calendar Year, Tigerair Australia had total of 22,787 scheduled operations, with 22,456 flown, resulted a rate of cancellation of 1.5%, which match the industry’s average; and the airline’s On Time Performance for the year were 77.8% for departure operations and 75% for arrival operations. Tigerair Australia’s business model is LCC that is designed to remain operational simplicity, low operational cost and positioning. The airline is generating revenues through the provision of additional products and services. Low cost carrier refer to those air services providers focus on minimize their cost in order to achieve low fares to compare with competitors, and this is their competitive strategy on the particular low cost carriers market place (Air Transport and Airport Research, 2008). This paper will focus on LCCs’ business strategies studies; include the model’s network design; LCCs scheduling planning and pricing strategy. Then, in the recent year, there is numbers of deadly accident happened and some of them involved LCCs, therefore, safety concern has been raised to this particular business model, however, LCCs are sharing the same skies with FSCs and implementing same standards, without doubt, there is no discount on safety! Finally, this paper will discuss some innovative ideas that may help LCCs to seeking revenues without establish too much ancillary products, also illustrate sustainability and growth of LCCs.
  • 5. LCCs’ Business Strategies Network Design Network design is important to both LCCs and Full Service Carriers (FSCs). Most commonly LCCs develop their network structure that promoting operations connectivity. Congestion can be another important issue to LCCs, because they have to improve and achieve their operational efficiency in order to meet certain level of productivity, so airport congestion will slowdown their turnaround time and result reduction in their productivity, an airport with heavily congestion issue directly increase airline services cost as crews working hour extended, more fuel burnt on ground and requires longer aircraft block times, even more seriously, congestion could affect aircraft’s number of flight per day (Forsyth, 2006). Kincaid and Tretheway said that, every additional 15 minutes delay for each flight at a it’s hub airport will lead an average loss of approximately a hour productive service each day for each aircraft; a decrease in airline capital productivity of roughly 10%, and the requirement in fleet that is approximately 10% greater than would be the case if the airport were uncongested (Kincaid and Tretheway, 2009). LCCs prefer smaller non-hub airports rather than large hub-airport, apart from the congestion issue; smaller airports normally charge less than other large hub-airports. Other factors such as geographic location; environmental condition and capacity of the airport can contribute varies in airport charges (Pavlyuk, 2012), for example when an airport located in hot climate will result in aircraft have to takeoff with lower Maximum Takeoff Weight (MTOW) due to hot air is less dense, hence airline operations’ unit cost will increase, and productivity will decrease. Tigerair Australia has made a few changes to its network to enhance its competitive advantage with the Australian LCC market; it introduced two additional A320 aircraft to the fleet, increasing the total fleet of 13 aircrafts. In order to increase its fleet utility and the company’s productivity, it established six additional routes to its network, achieving 11% of its fleet utilization compare to previous year. According to Virgin Australia’s Annual Report for FY 2014, Tigerair Australia has carried over 3 million customers and 21,000 flights across Australia’s 14 destinations and 22 routes, increased its average revenue load factor compare to the previous FY 2013. In
  • 6. the future, the company will continue to focus on measures, which enable it to maintain cost efficiency to income ration and improve yields and margins, ensuring operational safety, reliability and sustainability in the LCC market (Virgin Australia, 2014). Airline Scheduling Planning Airline Scheduling Planning playing a major role in order to built airline’s long- term profitability. Scheduling determining where and when the airline will operate their fight, as discussed above, LCCs are paying significant high attention to their cost, they must be very conscious on efficient scheduling (Schlangenstein, 2013). The design of an airline’s network normally based on maximize Origin and Destination (O&B) converge with maximum allowed numbers of flight routes (Jacobs et al., 2011) to maximize its operational efficiency. The scheduling also needs to be consisting with the cost and availability of cabin and cockpit staff, as well as aircrafts maintenance scheduling, in another term, airline should evaluate scheduling for the best efficient, evaluate aspects such as financial objective, customers objective, cost and productivity objectives for existing staff, innovation and development objectives (Robertson, 2013). Efficient schedules allow airline to achieve better match supply and demand. On another hand, the cost of operating the schedule will include the cost of the number and type of aircraft used (Jacobs et al., 2011). When comes to fleet strategy, as it will directly impact operations’ efficiency and performance, also operational cost. So, increase fleet utility/productivity is a major part of network design. Then, the choice of fleet is also important to LCCs, most likely Boeing 737-700/800 or Airbus 319/320 are LCCs favorites, because of the usage of newer homogeneous medium sized aircrafts usually have better economic on fuel usage, maintenance cost and personnel costs (Vidović, Štimac and Vince, 2013). Also using typical fleet allow airline to simplify their maintenance work, as fleet are same, the procedures; requirements; technologies and maintenance personnel training are most like the same, which allow airline for no needs to deliver additional effort and fund to maintain different types of aircraft. In addition, by using typical fleet they have same design, capacity and operational commonality, which allow flight crews and cabin crews with much easier transfer between fleet (Clark, 2007). In
  • 7. addition to fleet selection, newer aircraft model are more likely popular as the fuel consumption is less and maintenance cost is less, which reduce their operational cost. However, it depends on LCCs available fund and their fleet strategy, some LCCs rather than pursuing low operational cost, they prefer older aircrafts, as it is cheaper option when purchasing their fleet, low expenses may overcome the cost in the future operations (e.g. Delta Airline U.S.). Pricing Strategy On pricing, LCCs pricing policy is usually very dynamic (Vidović, Štimac and Vince, 2013), LCCs offer significant discount fare for early booking, which attract the price sensitive traveler; LCCs most likely use on-line booking system, in that case LCCs will not need to establish sales facility and employ sales staff, which avoided that cost. Whether in FSCs market or LCCs market, pricing has always represented an important factor in the carriers’ choice (Malighetti, Paleari and Redondi, 2009), FSCs normally design their airfares based on different fare classes; discount system with limitation; customers loyalty and overbooking techniques. LCCs’ airfare generally only covers purely transport fee, which means customers are only paying the minimum required service for their journey-‘Point to Point’. Normally LCCs earn extra revenue by selling their additional services such as, check-in bags if customer wish to have more than carry-on bags; if customer do not want to wait in queue while boarding the aircraft, they can choose to pay extra fee to jump the queue and board the aircraft first (e.g. Tigerair); seat selection can be one of option, customers can choose their preferred seat by pay extra fee, otherwise seat will be randomly allocated. According to Malighetti, Paleari and Redondi (2009) the success of a LCC is based on a fragile balance between fare levels, load factors (L/F) and operating cost, the structure of LCCs revenues and the determination of prices are almost likely as important as the minimization of operating cost. Travel by air is no longer as an exotic product for most consumers and it is more likely just means of getting from one point to another, another fact is that more consumers today become more price sensitive and willing to trade off other ‘unnecessary’ elements for lower airfare.
  • 8. NO Discount on Safety In today’s aviation market, the rising number of traffic demand and passenger, the LCCs business model is a very successful model and benchmarked by many newly established airlines, the LCCs market growth is significant, in 2013, LCCs occupy about 23% of the global aviation market share while FSCs occupy 73% (Isreal, 2014). In addition, recently two LCCs had accidents, Germanwings Flight 4U 9525, which crashed in French Alps on Tuesday morning the 24th March this year, 144 people on-board and 6 crews were killed; In January, AirAsia Flight QZ8501 crashed into the Java Sea after a potential updraft made the plane climb too fast. These unfortunate accidents have raised travelers concern; some people may ask if LCCs are earning revenues by cutting budget of safety. But in fact, LCCs get their savings from efficiency and less cost for services rather than by skimping on safety issues (Mangla, 2015). In most places, there are local government authorities regulating the aviation industry by implementing international standards, which established by International Civil Aviation Organization (ICAO), in Australia, it is Civil Aviation Safety Authority’s (CASA) responsibility to ensure all air operators meet their standard in order to operate in Australia. In 2011, CASA took action to suspend Tiger Airways Australia operations, due to numbers of serious incidents and safety concerns about the airline, the action resulted significant impact to the travel plan of the public and created a major news story in Australian media (Civil Aviation Safety Authority, 2012). Until the next year, Tiger Airways Australia met CASA’s safety standard and resumed operation (Baker and McKenzie, 2014). The example is telling that regulatory are not palter on safety performance, LCCs are implementing the same safety standards as FSCs, when facing safety issues, there is no exception, it is just unfortunate that accident happened to LCCs, customers paying less to LCCs for less customer services but not less in safety. Tigerair’s Strategy
  • 9. Tigerair Australia’s CEO, Rob Sharp stated that it is not about cutting corners to operate LCCs but simplifying (Flight Safety Australia, 2015), the airline has three bases, Sydney Melbourne and Brisbane, generally every night employees return home, which contributing stability, allows airline to be able to manage fatigue and offer employees the stable lifestyle while working with Tigerair. Another feature of Tigerair Australia will be its contract-out, including maintenance, it is enhancing airline’s safety by allowing it concentrate on other areas, Tigerair Australia has fleet of 13 Airbus A320 aircrafts, by this fleet strategy, Tigerair Australia chose typical aircraft model to operate, which simplified the airline’s functioning; as mentioned, Tigerair Australia outsourcing maintenance also leads cheaper cost as only single type aircraft being used (Thomas, 2013). In October 2013, Tigerair Australia awarded BAE System a 5 years contract to provide base maintenance support to its fleet, also Sharp stated that it is a strategic partnership with BAE and an opportunity to strengthen the airline’s operational performance (Thomas, 2013). According to CASA’s requirement, it is mandatory to have Safety Management System (SMS) for any air operators to operate within Australia, for Tigerair Australia, apart from compliance with regulation, organizational safety culture is even more important. Tigerair Australia using video to record massages about safety to interact staff, ensure they understand safety better and enhance their safety awareness, also value their role in creating safety (Flight Safety Australia, 2015). Tigerair’s Rivals As the aviation market booming, the market competitiveness becoming greater, in 2003, Qantas has established their Low Cost Subsidiary (LCS) JetStar, JetStar as a domestic LCC that offer low airfare and limited in-flight service, operate with single class domestic flight, it was established as part of Qantas dual-brand strategy, while Qantas serves as FSC and JetStar serves as LCC, it helps its parent company Qantas to compete with Virgin Australia, on another hand, Qantas used JetStar to access LCCs market and expand market share, so JetStar has became Tigerair’s the biggest rival in the market. This brings out another subject relative to LCCs – Sustainability and Growth of LCCs. Tigerair Australia is fully owned by
  • 10. Virgin Australia Holdings as the airline’s LSC to compete with Qantas and JetStar in Australia’s domestic market (CAPA, 2013). Sustainability and Growth of LCCs In today’s dynamic aviation industry, the winner is always the one who retaining most repeat business, FSCs applying numbers of strategies to protect their market shares from competitions and retaining customers (GILLEN, 2006), such as frequent flier program, encourage customers to fly with them again by awarding point. It is equally important to LCCs retain attractiveness to repeat customers and be more attractive to new customers (Sarker, Hossan and Zaman, 2012). LCCs need to think about their Customer Relationship Management (CRM) strategies, many LCCs today tend to focus on cutting services and quality, in order to squeeze greater revenues from ancillary products, for example Tigerair Australia, introduces carry on baggage fee for passengers wanting to carry more than 7 kg, it named cabin+ option that increase the allowance to 12 kg. The cabin+ option charges start from $18 for shorter fight such as from Sydney to Melbourne; and $23 for longer flight such as from Adelaide to Sydney. If an LCC paying too much attention on ancillary products to gain revenues and ignored customers’ satisfaction, customers will choose another airline when they feel they are not satisfied (Sarker, Hossan and Zaman, 2012). According to Sarker, Hossan and Zaman (2012), they believe LCCs should continue with their low cost model with attractive airfare, also enhance their customer service. Another finding from studies was from a report released by Productivity Commission’s Research Paper, the paper focused on Australia’s International Tourism Industry, it illustrated the visitor types in Australian regional tourism, according to the report, backpacker is one of the main stream traveler source in the domestic market, as backpackers have greater tendency to travel to more regional areas than other types of visitor, in 2013-2014, 68% of backpackers traveled at least one regional area, the majority of backpackers are youth travelers, and they tend to have a lower expenditure than other types of visitors (Productivity Commission, 2015). Therefore, the domestic LCCs could target this tourist source, design a travel package including low airfares for them to travel further in the
  • 11. regional areas, offer low cost accommodation (i.e. cooperate with accommodations) and ground transport (i.e. establish car rental facility or cooperate car renters). Another interesting idea is to ‘rent out’ aircraft exterior and interior of fuselage for advertising, enabling LCCs to earn additional revenues (Sarker, Hossan and Zaman, 2012). These can be better sources for additional income rather than under-cutting customer service and attempt provide a lot of options with fees apply. On another hand, environmental factors could result significant impact to LCCs and their sustainability, such as fuel price, rising in fuel price was considered with a significant impact on airlines’ ability to remain low airfare and still profitable, so it is important to LCCs to develop appropriate strategy to deal with unpredictable rising in fuel price, for example, Southwest Airline U.S. has an unique purchasing strategy, and that is the airline aiming to purchase their supplies at a lower price; a significant application is the strategy that they use for purchasing fuel, to avoid the rising fuel price Southwest locks in the prices it pays for jet fuel months or even years ahead of time, in the event of rising fuel prices, this will helps them to avoid increase its fares and distributing the expense to its customers (Hojatti et al., n.d.). Overall, sustainability of LCCs and identify the market future growth is significantly important for any LCC in the field, as discussed before, as the nature of this business model, low cost is the majority, but overly cutting customer services and comfort to seeking revenue will make the LCC loss market share, therefore, LCCs should re-think about seeking more revenues without too much cost reduction, be sustainable and compatible. Conclusion This paper discussed Tigerair Australia’s three major features as LCCs, firstly, network design is important to both LCCs and FSCs, especially for LCCs, the business model requires operators maximize flight connectivity in order to increase productivity, for LCCs network design, they prefer to operate in secondary airports as these airports charge less and less congestion, this will result in lower cost for LCCs, also make their faster turnaround time. Tigerair
  • 12. Australia operates over 14 destinations and 22 routes in Australia, which enhanced its average revenue load factor compare to the past. Another highly related feature is fleet strategy, which contributes LCCs direct operational cost, as different aircraft types have varies costs, Tigerair Australia only use A320 for fleet, which is cheaper to fly and lower maintenance cost. Then is LCCs’ pricing strategy, as the business model designed to provide low airfares, therefore, the airfare is more likely cover the cost of transfer from point to point, so LCCs are seeking additional revenues by other ancillary products. Further more, as safety is the first majority in aviation industry, there is no exception for LCCs, they must comply the same standard as FSCs, Tigerair Australia was suspended by CASA in 2011 due to incidents occurred by its operations, then resumed service until it meet CASA’s requirements. Finally, this unique business model are so successful in today’s airline industry, but there is still improvement and development required for LCCs, in order to remain sustainability and competitive in the future, as mentioned, so many LCCs under-cutting services and customers comfort to gain more revenues, it may disappoint some customers and not able to retain old customers, in the end they will loss market share, therefore, LCCs should innovate their business strategy, in order to gain additional revenues without cutting customers enjoyment.
  • 13. Reference List Air Transport and Airport Research, (2008). Analyses of the European air transport market. Topical Report. [online] Köln: German Aerospace Center. Available at: http://ec.europa.eu/transport/modes/air/doc/abm_report_2008.pdf [Accessed Apr. 2015]. Australianaviation.com.au, (2015). Tigerair introduces new carryon fee option. [online] Available at: http://australianaviation.com.au/2015/03/tigerair- introduces-new-carryon-fee-option/ [Accessed Apr. 2015]. Baker, R. and McKenzie, N. (2014). Safety questions hit Tigerair. The Sydney Morning Herald. [online] Available at: http://www.smh.com.au/business/aviation/safety-questions-hit-tigerair- 20140801-zzjij.html [Accessed Apr. 2015]. BITRE, (2015). Airline On Time Performance, 2014 Calendar Year Report. [online] Bitre.gov.au. Available at: http://www.bitre.gov.au/statistics/aviation/otp_annual.aspx [Accessed Apr. 2015]. CAPA, (2013). Virgin Australia and Tigerair dual-brand strategy commences as they start to coordinate routes. [online] Centreforaviation.com. Available at: http://centreforaviation.com/analysis/virgin-australia-and- tigerair-dual-brand-strategy-commences-as-they-start-to-coordinate- routes-142672 [Accessed Apr. 2015]. Civil Aviation Safety Authority, (2012). Annual Report 2011-2012. Part 1. [online] Melbourne: Civil Aviation Safety Authority, p.17. Available at: http://www.casa.gov.au/wcmswr/_assets/main/lib100173/ar1112_p1.pdf [Accessed Apr. 2015]. Civil Aviation Safety Authority, (2011). Tiger Airways Australia suspended.
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