Low cost carrier competition strategies
Low cost carriers (or LCCs) emphasize cost reduction and control to compete with legacy carriers. They offer competitive pricing to customers. The common cost-cutting strategies adopted by these carriers can be broadly classified into the following categories:
- Fleet: LCCs own relatively newer aircraft of a single type. For example, Southwest (LUV) operates the largest Boeing fleet in the world, with a total of 680 aircraft comprising 614 Boeing 737s and 66 Boeing 717s. Jet Blue (JBLU), another low cost carrier, operated 194 aircraft comprising Airbus 320s and 321s and Embraer 190 aircraft. Its legacy competitors, Delta (DAL), United (UAL), and American (AAL) operate a diverse range of aircraft including combination of Boeing, Embraer, and Airbus aircraft. With aircraft from a single brand or manufacturer LCCs are able to reduce training and maintenance costs. The cost savings is enhanced by the use of younger fleets which are more fuel efficient.
- In-flight services: LCCs don’t offer all services provided by a legacy carriers like free meals and drinks. However, some of these services are available at an extra price. They have high density seating arrangements with fewer galleries and toilets because they cater to shorter distance routes. Also, they don’t provide seat reservations.
- Network: By using the point-to-point model, LCCs stay away from busy and expensive hubs that legacy carrier’s use. LCCs manage to operate from smaller airports through which ground times and delays are reduced. Smaller airports are usually less congested and enable a higher number of trips and aircraft utilization which leads to cost reduction.
- Marketing and human relations: Since LCCs offer lower fares, it requires lesser marketing efforts to sell tickets. Most of the tickets are sold directly through websites which saves commission costs on sales through travel agents. LCCs also have lower labor costs compared to the legacy carriers.
Although they have lower cost structures compared to legacy carriers, LCCs have been facing increasing pressure from rising fuel costs. Continue reading the next sections in this series to learn more about Southwest’s fuel costs.