A Study on Low Cost Carrier Business Models

A Study on Low Cost Carrier Business Models

Christakis Street Kevin van Schaik Khaled Fahkra Firaol Likassa

538432X 7192274 7158920 6967159

05 November 2012

2 TABLE OF CONTENTS

LIST OF TABLES

3 LIST OF FIGURES

4 ABSTRACT The success of the Southwest Airlines business model was noticed across the world, and led to the establishment of many other low-cost carriers. The business model that these carriers have adopted is largely based upon the model that Southwest Airlines used. However, through the years, the business models have started to evolve and the low-cost carriers throughout the world have changed the business model to suit their needs and those of the region in which they operate.

The purpose of this study is to examine how the low-cost carrier business models have evolved since the original Southwest Airlines model and how variation occurs between different geographical regions and the reasons behind these variations. This is important because it allows current airlines to compare themselves with other low-cost carriers with other airlines within the region in which they operate. It also allows any new low-cost carriers that are starting up to gain an insight into the typical model within their region.

The study was performed through the analyses of seventeen leading airlines throughout seven geographical regions in the world. An explanatory approach to research this issue was taken, and through a review of the existing literature it was found that there are several key characteristics for a low-cost carrier. Quantitative data was collected mainly from existing literature and publicly accessible information on airline websites.

As a result of this study we have found that there are several characteristics that are very similar between all of the low-cost carriers analysed, however there were also some characteristics that were specific to each airline or region. Common characteristics include the airline fleets which are largely based upon the respective Boeing 737 and Airbus A320 families, but also the use of secondary airports as destinations which occurred approximately for 24% of the total worldwide destinations served by the low-cost carriers studied. Some characteristics that were specific to each airline or region were the baggage policies and the inflight and pre-flight services offered by the airlines.

Throughout our research the geographical regions of the low-cost carrier locations have been analysed with great emphasis. There are many variables between the regions regarding cultural, economic, political, and social factors, among others, and these factors determine what people expect from the low-cost carriers. These expectations therefore influence the business decisions made by the low-cost carriers.

5 CHAPTER ONE: INTRODUCTION 1.1 Background The United States of America (USA) has pushed for “unrestricted international operating rights with market forces determining frequencies and fares” (Pustay 1992-3) since the Convention on International Civil Aviation in Chicago, 1944. Other states represented at the Convention did not support this due to their fear of market dominance by airlines from the USA. With this setback the USA had to look at creating bilateral agreements with individual states instead, but these were still severely regulated and did not truly allow for true competition. Eventually the bilateral agreements led to the creation of an Open Skies agreement with the Netherlands in 1992 which granted both states unrestricted landing rights on each other’s soil.

Throughout the 1970s and 1980s, however, President Carter of the USA pushed for domestic deregulation of the transportation industries, beginning with the Airline Deregulation Act of 1978. The domestic deregulation has led to the onset of the low-cost carrier airlines through the establishment of Southwest Airlines which embraced the key factors in what later became Porter’s (1980) cost leadership strategy. This cost leadership position had been achieved through the focus on faster gate turnarounds that led to higher aircraft utilization rates, a single class of service without meals on board, a common fleet, and a point-to-point route network comprising of mainly short haul routes, and direct or online bookings avoiding the use of travel agents (Box & Byus 2009).

The success of the Southwest Airlines business model was noticed across the world and led to the establishment of many more low-cost carriers today. We have selected seventeen lowcost carriers, including Southwest Airlines, which we believe to be leaders in their respective regions. We are comparing the evolution of the business model throughout seven different regions in the world.

1.2 Aim The study conducted will demonstrate the evolution of the LCC business model since its inception in the early 1970’s as well as determining how and why the different LCC business models vary between geographic locations. In total it looks at 17 airlines from Australia, North America, South America, Europe, Africa and Asia. The method used in determining these variations will be by looking at the evolutions of a minimum of two LCC’s in each geographical region of the world. By the end of the study, this research aims to achieve an understanding of how LCC business models are applied and why they have been applied in

6 a particular way. Various characteristics of low-cost carriers are listed in the literature review of study and these characteristic are then further used to compare the chosen airlines and how they differ from one another in terms of operations.

1.3 Research Question The low-cost carrier business model is one that has not been the same since the start. If you know your history you will note that the first of the world’s LCC’s was Southwest Airlines, which has set the benchmark since its birth. The research that will be conducted will help us understand how the low cost carrier airlines of today’s market differ from that of the original Southwest’s business model. Also, a vital aspect of the study is to compare the leading low cost carriers of each region.

Variations between different locations will help in the identification and analysis of the respective low-cost carrier’s characteristics. Characteristics such as pricing strategies and turnaround times help to define the airlines and will assist in the comparison and process.

African LCCs would have different business models to that of Europe or Australia. There are a lot of parameters to assess, such as economies of scale and many more. All of which will be discussed in more detail throughout this study.

1.4 Scope This research will focus on the characteristics of LCC’s of airlines that are based in the 7 regions of the world, these being Africa, Asia, Australia, Europe, Middle East, North America and South America. It will further elaborate on the evolution of these characteristics that has taken place within each airline. The data collected will span a period of approximately 40 years from the early 1970’s where Southwest Airlines was established as a low-cost carrier in the USA until the present day. As stated above, it will illustrate how the airlines have evolved in terms of operations in regards to LCC business models. The data collected during this study bases itself on the amount of data that was available in relation to the low-cost airlines selected.

7 1.5 Significance The significance of the study is such that it provides a framework for selecting the appropriate low-cost carrier business model in a specific geographical region.

This study is important to both existing and start-up airlines. It is important to the existing airlines because it allows them to analyse their business model against the prevailing model in their region. Furthermore, it is important to start-up airlines because it allows them to select the most suitable business model for their region, in line with consumer expectations.

Airlines would benefit from this study in two key ways. Firstly, it provides airlines with a broad overview of business models in the different geographical regions. Secondly, it allows airlines to assess their position within their region and also compare themselves with their counterparts in other regions.

1.6 Structure Chapter 2 will contain a review of the literature that can be associated deregulation and the beginnings of the low-cost carrier business model. Specifically, this part of the chapter will be derived from the literature that involves discussions about the process of deregulation around the world. The review will provide a historical account of how the governments of the regions being researched have carried out the deregulation process. Chapter 2 then continues by reviewing the literature with regards to the current stage of the low-cost carrier business model. The business model will be defined, as well as a specific review of each of the individual characteristics that make up the low-cost carrier business model.

Chapter 3 will begin by explaining the types of relevant research strategies that are available to choose from. Information will also be provided about the way in which the research will be structured as well as a discussion of where the information will be gathered from. The methods that will be used to carry out the research for Chapter 4 will also be covered, including the data analysis techniques that will be employed.

Chapter 4 will contain all of the data that will be gathered in relation to each of the individual characteristics that are going to be identified in Chapter 3. This data will be accompanied by detailed analysis, which will provide clear explanations of the data gathered. Tables will be used to present the data gathered, some of which will be supported by diagrams. These diagrams will assist the reader in understanding the data being presented, by providing them with a visual representation of the information contained within the tables that they support.

8 Finally, Chapter 5 will contain a discussion of the conclusions that will have been made after the research has been conducted and the data has been analysed. The implication of the findings will be discussed, alongside a discussion of the significance of the findings. The limitations of this study will be acknowledged, which will be supported by suggestions for what further studies could be conducted in order to provide answers for the issues that remain unsolved as a result of this study.

9 CHAPTER TWO: LITERATURE REVIEW This chapter examines the relation to the current study, in particular with regard to deregulation and business model and characteristics of low-cost carriers. The chapter also reviews the literature on the origins and outcomes of deregulation in a selected number of states, drawing on areas of competition as well as pre and post deregulation.

Deregulation as stated by our review, is a key factor in the birth of the low-cost carrier model.

Throughout the course of this review, you will notice in-depth analysis and discussions that outline not only regulation, but also the deregulation of many regions’ air culture. An example of an aspect that is to be highlighted is the extent of the deregulation in the regions. For example, some countries may have different legislations and are only partially deregulated.

Some, however, have put into place the deregulations laws, but have not benefited as much as other regions. These issues will all be addressed in the deregulation section of the literacy review.

The next step would be to define an LCC, however before defining an LCC and determining some of the characteristics, it is important to assess the differences between LCC’s across the vast regions of the world. The countries that where reviewed are as follows: •

Australia

•

China

•

Brazil

•

United States of America

•

United Arab Emirates

•

South Africa

As stated before, comparing the regions is a vital part of assessing the LCC business model on a global scale, and how it has morphed and evolved into what it’s like today. Identifying the business model of a low cost carrier is another one of our main aims. We have thoroughly discussed what the outline of the business model may be.

When outlining a model as broad as an airlines low-cost carriers business model, it is important to expect many variables, especially considering that we are analysing and comparing the different regions of the world.

10

To further help identification of the LCC business model, it is vital to break down and analyse some of the characteristics of an LCC. This in-depth analysis will include many different variables that, once again, will vary from region to region. For example, one characteristic worth discussing is fleet structure of an airline. Knowing what aircraft an LCC use for their operations may help when drawing conclusions to their general operational costs.

2.1 Deregulation Deregulation, is an important factor in the evolution of the LCCs business model. It has ultimately shaped the newly competitive market of today’s airline industry across the world.

During the course of this review, we will be discussing, analysing and correlating some of the elements and events that led to the commencement and outcome of deregulation in seven geographical regions. Some of the key aspects that will be discussed in terms of the effect of deregulation on the airline industry are briefly listed below: •

Competition – given that deregulation gave the right for new, privately owned airlines to be brought into the market, competition was the most immediate effect. Some of the main and most drastic effects and changes to the industry were due to the competition;

•

Pre/post deregulation – This will be discussed in more depth, but will outline the immediate effect of deregulation;

•

Differences in operations across different regions – the business model of an LCC will differ from region to region.

This makes the research and analysis of deregulation vital. Deregulation is highly relevant in understanding the bigger picture.

2.1.1 Regulation In a regulated industry, such as most of the aviation industry prior to 1978, it is the government, not the companies themselves that determine how the companies are allowed to operate within the industry (Morrison & Winston 1989). For example, during the regulation of their aviation industries, the United States of America and Australian governments implemented a two airlines policy. This was where only two airlines were permitted to operate on any one route between major airports, new airlines were not permitted to operate on existing routes that were already serviced by two airlines, and existing airlines were not permitted to expand operations to a routes already serviced by two airlines (Morrison &

11 Winston 1989). Airfares were also set by an independent airfares committee, meaning that all airlines had to charge the same price on a particular route, leaving no room for direct airfare competition. There were also limits on the capacity each airline could carry and there were strict controls on aircraft acquisition and importation. These sorts of parallel operations, with two airlines operating on all routes, charging a predetermined price led to the airlines offering very similar flight schedules, limiting passenger choice for flight times. This led to very little competition between airlines and relatively high airfares (compared to fares in the later deregulated industry). Discount fares were occasionally offered, although they were “often hard to obtain” and provided only a small discount (Grimm & Milloy 1993).

2.1.2 Deregulation The lack of competition between airlines under regulation meant that airfares were higher than what was possible in a competitive environment and flight schedules were not optimised to best suit the customers' needs (Grimm & Milloy 1993). This prompted a move towards the deregulation of the aviation industry, the United States being the first major country to do so in 1978 (Grimm & Milloy 1993; Morrison & Winston 1989).

All government control over the airlines' operations was ceased and the Two Airlines Policies in countries like Australia were eliminated. Independent committees no longer controlled airfares, allowing new carriers to operate on any route they pleased and existing carriers to expand to already serviced routes. This increased competition between the airlines, as they were now able to set their own airfares to attract more customers. Because of this, airfares rapidly decreased soon after deregulation occurred and flight schedules were altered to achieve more profitable (low-cost) or more convenient (full service) services (Grimm & Milloy 1993). Grimm and Milloy also found that Australian airlines generally introduced many more discount fares at a much lower price than the discount fares prior to deregulation (1993).

Although the difference between full service fares and discount fares became greater, with full fares even rising, consistent with the higher costs involved in offering an on demand service. The capacity offered on Australian domestic flights increased substantially within the first few years of deregulation, and average times between flights decreased.

2.1.2.1 United States of America Government regulations since the 1919 Paris Convention have prevented the globalisation of the airline industry because the Convention reserved “complete and exclusive sovereignty over the air space above its territory” (De Murias 1989) to each contracting state. This is because the chief concern of contracting states at the time was their national security, due to the First World War. The United States of America proposed a multilateral commitment to “unrestricted international operating rights with market forces determining frequencies and fares” (Pustay 1992-3) at the Convention on International Civil Aviation in Chicago, 1944.

This was not supported by the other contracting states because open skies was feared to be dominated by airlines from the United States (Pustay 1992-3). The majority of contracting

12 states were instead supportive of granting only First and Second Freedoms of the Air, providing airlines with the right to overfly foreign states and the right to land for technical reasons respectively. If contracting states desired any other Freedoms of the Air these were to be negotiated bilaterally on the basis of “fair and equal opportunity for the airlines of both Contracting Parties to operate the agreed service on the specified routes between their respective territories” (Doganis 2002). The Convention also prevents airlines from one Contracting State to operate domestically within another Contracting State in Article 7, and also prevents Contracting States from exclusively granting or seeking permission to do so (Convention on Interntational Civil Aviation 1944). There has always been a critical view on the high regulation of the aviation industry, and The Economist has said that: The very industry that has shrunk the world physically is itself one of the least "global". There is no global market, no global allocation of capital, no global competition between airlines; indeed, set beside other industries such as cars, personal computers or hotels, there are no truly global companies ('Blue skies, red ink, black future' 1995).

Prior to deregulation, the airlines could only compete on service offerings such as seating configurations, food, ground services, type of aircraft, and geographical coverage.

Throughout the 1970s and 1980s, the United States President Carter pushed for a deregulation of the domestic transportation industry, which began with the Airline Deregulation Act of 1978. The Act resulted in management decision making without significant regulatory restrictions now becoming possible. In the early years after deregulation, new carriers entered the marketplace and began intensive price competition.

Rose notes that “under deregulation, price competition outweighed service competition” (1981) and that airline marketing departments placed an emphasis on price, rather than the level of service provided. Deregulation in the United States led to the flexibility for airlines to set their own fares and introduce price increases with immediate effect.

Historically, the Civil Aeronautics Board would take under advisement any requests for general fare increases, and a relatively long time period elapsed between an increased fare request and its approval, but as fuel expenses continued to climb, the Board responded quickly to fuel surcharges and without this prompt action by the CAB, it was doubtful whether the carriers would have been able to absorb these spiralling costs” (Rose 1981).

Airlines were seen to revise their routes through careful market analysis. Some airlines opted to expand their route network. More carriers chose to drop unprofitable routes for the first time, and it appeared to be the popular approach that airlines took. A study by the Civil Aeronautics Board shows that mid-size cities were hit the hardest between April 1980 and April 1981, with some 40 cities losing their entire scheduled airline services (Rose 1981). The trend seemed to continue through pricing strategies, as the initial response to deregulation

13 was a general drop in airfares in order to compete in the new market. After the initial period after deregulation, airlines returned to the traditional approach of reducing selected fares only and increased fares on some routes. Discounted fares became scarcer and airlines generally increased their restrictions on these fares. The overall inflation-adjusted fares did fall at the rate of 6.4 per cent per annum from 1978 to 1985 despite a 45 per cent increase in fuel costs. The success of the US deregulation had spread abroad to Europe, where, in 1986, the Single European Act was created to remove barriers within European air transport and investment (Ramamurti & Sarathy 1997).

2.1.2.2 Europe Since the Airline Deregulation Act of 1978, the air transport industry in the United States became much more competitive in terms of operating costs compared to their European counterparts (Dobson 2010; Ramamurti & Sarathy 1997; Wang 2004), with Dobson reporting that European operating costs were up to 40 per cent higher than in the United States.

Whilst the United States controls its own airline policies, the European policies are determined both by the European Commission as well as each states own government. This leads to each state creating different policies in the interest of their own national carriers. The introduction of the Single European Act of 1986 was a joint response to the Airline Deregulation Act of 1978 (Ramamurti & Sarathy 1997). The Act focuses on removing barriers within European air transport and investment without reducing these barriers for nonEuropean airlines (Ramamurti & Sarathy 1997). The Single European Act further resulted in a three-stage liberalisation package for the air transport industry across Europe (Dobson 2010; Wang 2004).

Package one came in the form of two Directives in 1987 that targeted airfares, capacity, and market access (Dobson 2010; Wang 2004). The package was focused around airfares and European airlines were now able to offer lower airfares and to match the fares charged by charter operators (Ramamurti & Sarathy 1997). A ‘double approval’ rule was introduced, where both states had to approve of the airfares set by the airlines (Dobson 2010). There were also regulations which changed the application of competition and cartel practices (Dobson 2010). These changes allowed for multiple airlines from one state to serve particular routes and also reduced market-sharing arrangements in bilateral agreements (Ramamurti & Sarathy 1997). A Flight International analyst stated that “where liberal arrangements already exist, the new latitude will have little effect […] but it will oblige hitherto less liberal states to approve a wider range of promotional fares” ('Europe's new rules: substance or illusion?' 1988). There was also acceptance of multiple designation fifth freedom rights, and the extension of third and fourth freedom rights on regional routes to include major European airports (Dobson 2010). The first package was deemed by Dobson to show progress towards liberalisation, but “there were many qualifying conditions that restricted market impact” (2010).

14 Package two became effective in 1990 and diluted more proposals from the European Commission. The change from the ‘double approval’ to the ‘double disapproval’ system was postponed, as was the change to operating and route licenses (Dobson 2010). When these changes became effective in 1993 and 1992 respectively, it was argued by Ramamurti and Sarathy that it was an “end to all capacity restrictions, unrestricted fifth freedom rights, and mutual recognition of airline licenses among EU countries” (1997) as well as creating the pathway for cabotage rights to be introduced (Dobson 2010). Package two did not show significant progress toward liberalisation as most of the European Commission’s proposals were postponed (Dobson 2010).

Package three came into effect on 22 June 1992 after the failed attempts by France, Germany and Italy to further postpone liberalisation of the European air transport market (Dobson 2010). Market access was now relatively unrestricted, with fifth freedom rights between most European airports now being possible along with the introduction of seventh freedom rights (Dobson 2010). The rules regarding national ownership had been abolished as the concept of European Community carriers was introduced (Dobson 2010; Wang 2004).

Package three also introduced the licensing provisions, where all member states had to grant a license to any airline which meets the standards (Dobson 2010; Wang 2004). Full introduction of the cabotage rights has been announced, but not put in place until 1997 due to the persistence of France, Germany, Greece and Italy to delay the introduction (Dobson 2010). Package three seemed to be the biggest leap toward liberalisation, at a time when Europe was expected to be a truly single market where the European Commission negotiated bilateral agreements on behalf of Europe as a whole already (Ramamurti & Sarathy 1997), but this was not possible until 2007, when Europe and the United States signed the first stage of a two stage open skies agreement, with stage two being signed in 2010. The open skies agreement provides for any European or American airline to fly between any European or American point (Dobson 2010).

2.1.2.3 Australia Prior to the deregulation of the Australian aviation industry, the Two Airline Policy ensured that the domestic aviation market was only serviced by two airlines: Trans Australia Airlines (government owned) and Ansett Airlines (privately owned). The international routes were served by QANTAS (also government owned) and this was the only airline permitted to service international routes. Competition between QANTAS and the domestic carriers was literally non-existent as the two domestic carriers were not allowed to service international routes, and QANTAS was not allowed to service any domestic routes. What little competition there was between the two domestic carriers was further limited by the regulation of airfares by the Independent Air Fares Committee from November 1981 until deregulation removed airfare restrictions. The government also regulated market entry, aircraft acquisition, flight

15 frequency and passenger capacity limitations, which left the airlines offering fewer flights at higher prices than what was possible in a deregulated industry (Grimm & Milloy 1993).

In 1987, following criticism of the Two Airline Policy, particularly from customers suffering under relatively high airfares; the government gave notice that the Two Airline Policy would be eradicated in 1990, and that government regulation over airfares, passenger capacity and route entry would also be removed. This would allow existing airlines to operate on new routes and open the market to new airlines that would be able to compete with existing airlines by utilising the new freedom of airfares (Grimm & Milloy 1993).

Immediately after the government ceased control over the airlines, competition increased dramatically, with a new airline, Compass, opening and operating cheap flights on only the densest routes. The had in-flight service exceeding that offered by the existing domestic carriers, whilst providing full-fare tickets at a 20% lower price. One notable feature of the Australian domestic aviation market that Compass took advantage of, is that a new airline can access a relatively large portion of the passenger market by operating out of just a few major airports (Grimm & Milloy 1993).

The increased competition saw a marked decrease in the cost of discount airfares being offered by all of the domestic carriers. Frequency and quality of services also increased dramatically, allowing customers much more flexibility when booking flights, and allowing them to book flights at shorter notice. However, the prices of full fare tickets rose, as customers were now being charged for the convenience of on-demand services (Grimm & Milloy 1993). The increase in services and decreased discount fares saw patronage growing to record levels in 1991 with domestic carriers reporting a 35% increase compared to 1990, and a 27% increase on the previous record in 1988, despite an economic recession.

2.1.2.4 China Prior to 1978, the Chinese air transport system was heavily regulated by the Civil Aviation Administration of China (CAAC), controlling all aspects of the industry, including; market entry, airfares, aircraft purchasing, flight frequency, and even passenger eligibility for air travel. The CAAC not only regulated the industry, but took control of airlines on behalf of the state, and was responsible for their day-to-day commercial operations (Lei & O’Connell 2011).

From 1978 to 1986, a series of reforms in the Chinese Aviation industry saw more decision making powers move to regional aviation bureaus and the CAAC became more market orientated. From 1987, six new airlines were created from the six regional aviation bureaus, and several regional airlines were created to service routes between province capitals and major cities throughout China. At this point in time, all airlines were still owned entirely by the state, regional carriers were owned by their respective regional bureau, while the major

16 airlines were owned by the CAAC. The CAAC no longer participated in the day-to-day commercial operations of the major airlines, which was further indication that the industry was moving from strict regulation to partial deregulation. In 1997 the regulation of airfares was ceased, which saw intense price wars between competing airlines as had happened in the US, however in 1998 the industry saw its first monetary loss since 1978, immediately after airfare deregulation. This loss of approximately US$250 million prompted a re-regulation of airfares by the CAAC in 1999 (Lei & O’Connell 2011).

The Chinese government was still determined to further deregulate the industry, and in 2002 the nine state owned airlines were forced to consolidate into three airlines; China Eastern, Air China and China Southern. Ownership of these new airlines was moved to the newly created State Assets Supervision and Administration Commission and the CAAC exclusively managed regulatory functions. The domestic aviation market was the opened up to private companies and several privately owned airlines were established. The degree of regulation was relaxed compared to previously, however market entry, airfares and flight frequency were still regulated by the CAAC (Lei & O’Connell 2011).

2.1.2.5 Brazil Regulation of the Brazilian Domestic Aviation industry ended in December of 1996. Prior to this, the Brazilian government heavily regulated everything; competition was restricted, service frequency was regulated, aircraft purchasing was restricted by the Civil Aviation Department (DAC) at a price designed to cover average industry operating costs with an additional 12% profit margin fixed airfares. This price fixing resulted in airfares being much higher than those offered on similar routes in deregulated regions; for example, the cheapest fare to fly from New York to Washington was US$56, where a route of similar length within Brazil cost US$142. These excessive airfares saw very low passenger numbers and as such, the Brazilian airlines were frequently unprofitable; according to a 1995 study by McKinsey, the average Brazilian accumulated only 7% of the air-miles of the average American at the time ('Reach for the open sky' 1994). These problems, along with the evidence that deregulated aviation industries work well, which were currently working, prompted a decision to deregulate the Brazilian aviation market.

The decision to deregulate the industry saw the government remove itself from the operation of the airlines; restrictions on route availability were lifted and compulsory minimum fares were removed. This led to a rapid decrease in airfare prices, as the competition between the airlines sky rocketed, seeing price cuts of up to 60% occurring on the most competitive routes. Passenger numbers across Brazil were up by 18% within 3 months of full industry deregulation, compared to the same period in the previous year. Brazil's major domestic carriers saw huge increases in profits, and were able to expand by purchasing new aircraft.

This allowed them to operate on additional domestic and international routes and run services as frequently as they saw fit, using the new found freedoms that deregulation

17 brought with it. The decision to deregulate Brazil's aviation industry completely revolutionised Brazil's Transport industry by making flights more accessible. This was done by decreasing airfares and increasing flight frequency, which can all be attributed to direct competition between airlines, which was previously avoided under a regulated industry ('Reach for the open sky' 1994).

2.1.2.6 United Arab Emirates When comparing the UAE’s aviation sector to any of its neighbour countries such as Qatar or Kuwait, you will notice that not only do the airlines of the UAE compete on a global scale, but there is also a lot of internal competition. Deregulation in the UAE has not had the same impact as it has on Europe. In Europe, deregulation has spawned many LCC’s and other full service carriers (FSCs) completely independent from the state.

One of the major influences of the deregulation of the UAE’s aviation sector is the “open skies agreements”. They are helping the UAE move one step closer to complete deregulation of the aviation market. The UAE has now signed open skies agreements with many countries and is currently in the process of negotiating more agreements (InterVISTAS-EU 2009). The open skies agreements should help private airline investors to operate with more leniency in the UAE than in previous decades.

However, the level of deregulation in the UAE is still quite strict, with foreign ownership and control of airlines still limited and restricted to 49% (InterVISTAS-EU 2009) although similar rules apply to all business in the UAE, it still limits how open a privately owned airline would operate.

There are five major government owned airlines that operate in the UAE. The two FSCs in the list below are not only the dominant forces of the UAE, but also provide significant competition on a global scale.

These are the following: •

Emirates – Dubai (FSC)

•

Etihad – Abu Dhabi (FSC)

•

Air Arabia – Sharjah (LCC)

•

Fly Dubai – Dubai (LCC)

•

RAK Airways – Ras Al Khaimah (LCC)

(InterVISTAS-EU 2009) Deregulation has allowed the evolution of the LCCs, allowing private airlines to operate and compete in terms of ticket and operational costs, with the dominant forces such as Emirates and Etihad. This however has not happened in the UAE.

18 The LCC’s in the UAE have the highest market share of all the LCC’s in the GCC (Gulf Cooperation Council) with Sharjah’s Air Arabia being the largest by market share and flydubai close behind (Rizvi 2011).

All the LCC’s of the UAE are all government owned and operated and they are competing with privately owned Deregulated companies such as Jazeera airways and NAS air. The UAE LCCs are still the highest and most dominant LCC’s in the GCC. The government owned airlines are doing a lot better due to the financial backing provided by the government.

However, even though deregulation in the UAE has not had a profound affect yet, its predicted that it may affect the future in drastic ways (Rizvi 2011).

Saj Ahmed, a chief analyst at FBE aerospace London told Khaleej times (a popular GCC based newspaper) the following:

The GCC market is one in which many sceptics believe demand is not inelastic and sadly these people are wrong. The pertinent factoid to remember here is that from any hub in the GCC, a five-hour flight radius puts low-cost airlines there within the reach of over 2.2 billion people. Factor in how many airports can be serviced in this footprint as well as those destinations that have untapped physical resources to cater for that demand and that equals a market where the current crop of players will have more than enough room to manoeuvre and even allow further new entrants to step in if they feel the need to, as has been opined frequently by Qatar Airways, for example (Rizvi 2011).

Saj Ahmed has raised an interesting point. The GCC is not as advanced as Europe or North America in terms of competition and frequency of private LCC’s. However, there is room for much expansion and deregulation is important to leave room in the future for airlines to cater for the available demand. Considering the location of the Middle East, there is Europe, Africa and Asia in close proximity.

Although the leaders and government of the UAE have lent towards deregulation, there is still a lot of control and more so than other deregulated regions. An example of this would be the previous 49% equity rule; this rule would have to be amended if mass expansion and full utilization of the deregulation is to take place.

According to InterVISTAS, here are some of the following impacts of future deregulation on the UAE’s Market.

•

Traffic Deregulation of the market has been forecast to increase traffic to/from the UAE by 7.4 million annual passengers. An increase in Origin/Destination traffic of 27% (InterVISTAS-EU 2009)

•

Employment

19 Considering employment in aviation is directly related to the size of the enterprise in charge, deregulation and mass expansions of aviation in the United Arab Emirates have positive benefits for all employed stakeholders in the company. If you think about it, not only do you have the direct jobs such as navigation aids, and airport support staff, but you also have such aspects as the people who refine the fuel, the people making the food, the people cleaning the planes. According to the Inter Vistas report, approximately 70,000 direct fulltime equivalent jobs in the aviation industry can be generated given the market access liberalization. (InterVISTAS-EU 2009)

•

Tourism Tourism is UAE’s highest form of income, and a major beneficiary in the UAE aviation industry. Not only will tourism bring in more jobs (as stated above) and room for business development. Tourists bring with them disposable income, and spending it in the UAE will increase GDP, market size, and possible investors. Deregulation would see approximately 1.8 million more tourists visiting every year, and with Dubai in a state of financial turmoil, this would be very important to them. (InterVISTAS-EU 2009)

•

Passenger Passengers will benefit greatly from deregulations of UAE’s skies. This is due mainly to competition. With competitors, there will obviously be price wars, which mean cheaper prices for the general public.

20 2.1.2.7 South Africa In a presentation conducted by the Leadership and Policy Seminar ITLS, University of Sydney on 18 May 2010, the University of Johannesburg claims that the deregulation of the aviation industry in South Africa took place in 1991, where prior to that a government-owned airline called South African Airways (SAA) had a market share of more than 95%. “The first airline to enter following deregulation was Flitestar Airlines, which entered the market in October 1991 with new A320s and ATR 72 aircraft” (University of Johannesburg 2010).

Flitestar Airlines ceased operations in April 1994 due to financial difficulties. The subsequent airline to enter in competition with SAA (1992) was Comair on the Johannesburg-Cape Town route, which is the densest route in South Africa. Services were soon expanded to Johannesburg-Durban and between Durban and Cape Town.

In 2006, SAA established Mango, a new low-cost airline in direct competition with the private sector operators and SAA itself. LCCs in South Africa mainly compete on the Golden Triangle routes, between Johannesburg, Durban and Cape Town, with Mango also operating from Bloemfontein to Durban and Cape Town. The University of Johannesburg 2010 lists the following to be the new entrants since deregulation in 1991, “Flitestar, BAComair (although well-established on the non-major routes before deregulation), Sun Air, Phoenix, Nationwide, Mango, 1Time and Kulula.com”.

21 2.2 Business Models We live in exponential times, with rapid developments in technology and connectivity along with population increasing at a substantial rate, the methods in which organisations operate their services is through thorough planning and modelling. This has been made possible by the art of business modelling.

There are many different definitions of a business model. The words “business” along with “model” both have very specific meanings, “In combination that meaning mirrors many of the possible applications of the business model concept” (Osterwalder 2005). Some of these are listed below: •

A business model defines “the firms logic for creating and commercializing value” (Osterwalder 2005)

•

'Business model' is a term often used to describe the key components of a given business (Hedman & Kalling 2003)

This being said, we can say that a business model is a vital component in the planning process of starting or running an enterprise. A business model is the rationale behind all that which a business does.

An example of a business model within the industry would be that of Jetstar. Jetstar was set up as an competitor for Virgin Australia, which was a very successful airline that started up in 2001 and offered a premium coach experience at a relatively lower cost. Unable to compete, Qantas decided to create a new sister airline which had a different business model to Qantas. Jetstar’s business model had initially started as an ultra-low cost budget airline that operated domestic flights within Australian territories. (lindgardt et al. 2009) That being said, we have three separate business models to very briefly compare: •

Qantas – premium airline with international and domestic operations (Qantas.com)

•

Jetstar – low fare airline now becoming an international enterprise and is operating to different parts of Asia. (Qantas.com)

•

Virgin Australia – premium experience at a relatively low cost (lindgardt et al. 2009)

22 2.2.1 Competitive Strategies A competitive strategy either takes offensive or defensive action against competitive forces in order to create a defendable position in the market (Porter 1980). Porter has identified three strategies – overall cost leadership, differentiation, and focus – that allow firms to achieve a defendable position. Porter (1980) highlights that the successful implementation of the competitive strategies requires different resources and skills for each of the strategies and “as a result, sustained commitment to one of the strategies as the primary target is usually necessary to achieve success”. However, Hill (1988) argues that there are in fact many instances where the establishment of a sustained competitive advantage requires firms to apply both overall cost leadership and differentiation because of a lack of a “unique low-cost position”.

Whilst low cost is the running theme throughout Porter’s (1980) strategy, quality, service, and other areas of business cannot be ignored. “Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on” (Porter 1980).

Sometimes, an industry can be revolutionized through cost leadership due to the conventional way of competing in the industry and competitors being either financially or perceptually unprepared to make the change to lower their cost base (Porter 1980).

Creating a product or service that is deemed unique throughout the industry is Porter’s (1980) second strategy. There are many different approaches a firm can employ to achieve differentiation: “design or brand image, technology, features, customer services, dealer network, or other dimensions” (Porter 1980). A firm would ultimately need to differentiate using several approaches to achieve the best result, however differentiation does not mean the firm can simply ignore costs – they are just not the primary target (Porter 1980).

Focusing on a specific customer group, product or service, or geographic market allows firms to serve their customers very well and in turn increase its service effectiveness or efficiency, or both, compared with competitors who compete in the broader market. Porter (1980) highlights that focus, like differentiation, can take many forms, but that it results in the firm achieving differentiation due to an increased level of service in the market or cost leadership in serving the market, or both. “Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve one or both of these positions vis-à-vis its narrow market target” (Porter 1980).

2.3 Characteristics of Low-Cost Carriers There are many characteristics that set low-cost carriers apart from full service carriers.

These differences in characteristics are what make the business model of low-costs carriers.

In order to understand how low cost carriers operate at a lower cost base to their full service

23 counterparts, we have conducted research by reviewing the literature that has been written from many perspectives around the globe. This part of the literature review examines the opinions of others in relation to the characteristics. The main characteristics discussed include:

•

Route Structure – hub and spoke versus point-to-point network;

•

Use of secondary airports – reasons for using secondary airports instead of primary airports;

•

Aircraft turnaround times – ways to improve aircraft turnaround times;

•

Fleet structure – how aircraft selection is different from full service carrier;

•

Pricing Strategies – strategies employed by airlines to obtain/retain market share;

•

Outsourcing of services – outsourcing of maintenance repair and overhaul services including the four levels of outsourcing;

•

Pre-flight and inflight services – analysis of services provided to passengers; and

•

Charges for baggage – baggage revenue and how airlines profit from it.

Examination of these characteristics shows how low-cost carriers operate differently from full services carriers. Many people have made similar claims in relation to each characteristic, whilst others have provided alternative insights. By analysing the opinions of the many people who have done previous research in relation to the characteristics of low-cost carrier, we can gain a significant understanding of the importance of each characteristics.

2.3.1 Route Structure & Use of Secondary Airports A major part of the LCC business model is the use of a point-to-point (P-P) route structure.

Much research has been carried out studying the benefits of using such a network (Gillen 2005). The aim of a P-P structure is to provide passengers with the option to fly directly to their destination, without having to transit in a crowded hub airport. By avoiding these crowded (and usually expensive) airports, LCCs can reduce their turnaround times (including taxiing), thereby allowing them to maximising utilisation of their aircraft. This provides the airline with the option to increase the frequency of certain routes, or start new routes without the need for increasing their fleet size.

Gillen and Morrison (2005) have found that the P-P structure allows airlines to spread out their staffing requirements more evenly throughout the day; whereas, the hub and spoke system usually involves aircraft arriving and departing the hub airport in waves. Gillen and Morrison (2005) stated the theory that “the busiest time of the day drives the number of gate agents, ticket agents, security screeners, ground handlers (and their equipment), maintenance technicians, bridges, and gates required for a given shift.”

In essence, the busiest time of the day for a hub and spoke system would be during in one or all of the ‘waves’ experienced at the hub airport. Therefore, the massive increase in activity

24 requires a high number of staff to provide services such as ground handling, aircraft maintenance, catering and gate boarding. In between waves, there is a lot less work required of the employees; therefore all of the extra staff required for the massive influx of passengers would be wasting away the revenue gained by the airline by sitting around and with nothing productive to do. This is where the ability to spread out staff becomes beneficial. By spreading out the staff, LCCs can make use of part-time, casual and/or temporary employees who only come in when required. By making use of temporary employees, LCCs can increase their staff numbers during peak holiday periods (e.g. 2 months during the summer). When the temporary contracts expire, the airline can either invite them to stay longer, or to come back during the next holiday period without the need for retraining them.

Similarly, Graham (2009) states that by avoiding concentrated network hubs, they can maximise the number of direct connections between the points in each of the local hub and spoke systems. For example, if British Airways offer a flight from London Heathrow to Rome and also another flight to Madrid, then an airline, such as Ryanair would be highly likely to schedule direct flights between Madrid and Rome.

This lower level of the average concentration of a LCC’s flight network compared to a FSC’s hub and spoke network has been demonstrated by Reynolds-Feighan (2001) as part of their research into traffic distribution of LCCs and FSCs in the United States.

The LCC linear P-P network has led to many new city pairs being served. A considerable amount of these new city pairs are located far away from large metropolitan areas and are instead serving the more regional and rural towns due to the reduced operating costs for an airline (Graham & Shaw 2008). This has also expanded the market between many regional towns. However, there are also many city pairs which connect secondary airports in major cities. One would expect a FSC to fly from the largest airport in a city (e.g. London Heathrow) to the equivalent of another city/island (e.g. Heraklion in Crete). In order to compete, a LCC would be most likely to fly from one of London’s secondary airports (e.g.

London Luton, Stansted, or Southend) to an airport in a smaller town (e.g. Chania) in Crete.

Even though this route would be aimed at competing with the FSC alternative, it can also provide the LCC’s customers with a new holiday destination, which may not have been accessible before. By creating these new city pairs with regional airports, it has the potential to boost local economy and tourism markets at the regional destinations.

An example of making use of secondary airports can be seen on the island of Cyprus.

Previously, the three airlines based on the island were a now defunct LCC called Helios Airways, a now defunct charter carrier called EuroCypria Airlines, and the FSC Cyprus Airways, which is the only Cypriot owned carrier remaining. Since the fall of the other airlines, Ryanair has set up a hub in Paphos airport, the secondary airport on the island, to attempt to fill in the low-cost void.

25 The key point for an LCC to take into consideration when designing their route structure is to design it in such a way so that when all of the routes are combined, then it is compatible with a “one size fits all” fleet philosophy (Graham & Shaw 2008).

2.3.2 Aircraft Turnaround Times In order for LCCs to maximise their aircraft utilisation rate, they are always aiming to reduce their aircraft turnaround times to the shortest possible. As defined by the International Air Transport Association Airport Handling Manual (1997), turnaround time is the time for an aircraft to complete full offloading, loading and where required, catering and cabin cleaning procedures.

Airports, such as Amsterdam Schiphol and Singapore Changi, have built facilities to accommodate LCCs. Singapore built a dedicated budget terminal, which is separate from the three main interconnected terminals. However, this will be closed in September 2012 to make way for a much larger ‘hybrid’ terminal that will have no aerobridges and will be able to accommodate the 777s operated by Singapore’s new LCC, Scoot. Amsterdam took a slightly different approach to build a pier out of the current terminal building. These are both designed to achieve turnaround times of less than thirty minutes.

A survey was carried out by London Gatwick Airport to find out the most significant causes of delayed turnaround times. It found that aircraft ground handling operations were the cause of 25% of total delays, following air traffic control related issues which cause 30% of total delays (Wu & Caves 2000).

Many mathematical models have been formulated, for example by Wu and Caves (2000), to simulate the aircraft turnaround performance of airlines and also to simulate a ‘trade-off’ situation which occurs when an airline wishes to minimise turnaround times without infringing upon the punctuality of the schedule.

Delays cost airlines large amounts of money per minute and the ground handling operations are the easier of the two main contributing factors that can be managed efficiently. This 25% of total delays can be managed and reduced by following strategies such as outsourcing the ground handling and by having a common fleet so that aircraft can be interchanged if one has a technical malfunction. Another way to reduce ground handling time is by requesting gates at the terminal instead of remote parking spots; however the airports would likely charge more money for this option.

2.3.3 Fleet Structure Traditional legacy carriers usually have a fleet of many aircraft types. For example, Emirates currently operate A330, A340, A380s, B747F and B777 aircraft (Planespotters.net 2012).

There are many cost implications from operating these different aircraft types, some of these include pilot training for each type of aircraft, cabin crew training (both customer service and emergency simulators) for each type of aircraft, and employment of engineers that are

26 qualified and familiar which each type of aircraft. These cost implications are greatly reduced by following the original LCC model introduced by Southwest Airlines.

Part of the original LCC model is fleet commonality. Ryanair is the perfect example of this.

They currently have almost 300 737-800 aircraft all with common specifications. Another form of fleet commonality is to make use of aircraft within the same family. Such is the case with Easyjet, who make use of A319 and A320 depending on passenger demand on each route.

Flight and cabin crew deployment flexibility, standardisation of ground equipment and maintenance procedures are just some of the operational benefits that lead to lower costs (Alamdari & Fagan 2005). Brϋggen and Klose (2010) explain these benefits in detail, including the initial cost of getting the aircraft: Flight operations: The smaller the number aircraft types, the lower the number of reserve crews needed (for crew illness, etc.). Flexible swaps of crews are possible with one type. Significantly less crew training is also required.

Maintenance: Less spare parts (engines, wheels, etc.) are need with common fleets, with consequential lower expenses for storage, capital intensity of stock, and costs of obsolescence. Standardized maintenance processes lead to reduced labor costs; mechanics can work faster and need to be familiar with only one type of aircraft.

Aircraft servicing: With fleet standardization, ground handling can be standardized, simplified and consequently more cost-efficient. Airlines can benefit from economies of scale in standardized ground handling equipment and from less training of labor.

Less diversity in equipment, reduces capital requirements.

Aircraft capital: In general, an airline ordering several planes of a single type will pay a lower price than the same airline ordering a mixture of planes from different manufacturers.

Merkert and Hensher (2011) also agree with Brϋggen and Klose (2010) and have said: Having a more homogenous fleet enables airlines reportedly to keep crew, training, maintenance, purchasing, safety and other costs low, and it also increases the airlines’ market power when negotiating with aircraft manufacturers and suppliers.

This explains in large part, we believe, why particularly low cost carriers such as Ryanair and Southwest have only one type of aircraft (in this case the Boeing 737) in service. However, there are other airlines such as China Eastern and Air India that have a large range of different families of aircraft (more than 10) in their fleet.

Combination of these benefits make it possible for the total cost base to be as low as practicable, without infringing on the safety responsibilities of the airline.

27 2.3.4 Pricing Strategies to Obtain Market Share As previously mentioned, LCCs tend to make use of a single fleet type, thereby saving money by only needing to maintain one type of aircraft. However, cost-saving methods are just that, they do not generate any additional revenue. In order to increase revenue to cover rising fuel costs, amongst other things, airlines have begun to charge passengers for ancillary services.

LCCs are famous for charging for any of these ancillary services other than the basic ticket, including:-

•

Baggage

•

Food & Drinks

•

Credit card surcharge

•

Seat selection

•

Preferred seat selection (e.g. exit rows)

•

In Flight Entertainment (some LCCs charge for use of portable media players, e.g. iPads)

•

On-board internet

•

Priority boarding

Nicholas Ionides, Vice President of Public Affairs at Singapore Airlines has said that: Cost-cutting initiatives have been taking place across the company but nothing that touches the customer has been affected. We are a premium full-service carrier and this is the market niche that we retain. We don’t play in the budget end of the market.

Some people have asked whether we should have adapted our business model, but our premium positioning is now being rewarded with renewed growth and improving yields (Tyler 2010).

Interestingly, Singapore Airlines is one of the major shareholders of Tiger Airways, and has also started up a new long haul LCC called ‘Scoot’ that utilises 777-200s from Singapore Airlines. This shows that full service carriers are beginning to recognise the success of the low-cost carrier business model and are investing accordingly. Qantas is another example of this; they have created the Jetstar brand in Australia and have been expanding the brand into Asia (Jetstar Asia) and continue to do so (Jetstar Japan, Jetstar Hong Kong & Jetstar Pacific Airlines).

28 Even though most FSCs produce their largest yields from premium class sales, they still wish to prevent LCCs from stealing their economy class passenger market where possible. In order for FSCs to prevent their prices from rising too much, a lot of them have also started to charge for preferred (exit row) seat selection and have limited the passengers in economy to only one piece of checked baggage.

Some FSCs airlines have taken parts of the LCC business model and applied it to their own model, by created specialised pricing structures to provide more basic low-cost services. An excellent example of this is the Trans-Tasman route and what Air New Zealand has done with their ticketing options. Their ticketing options in price order are:-

•

Seat – Seat only with limited IFE access;

•

Seat+Bag – Seat only with limited IFE access and 1 bag;

•

The Works – Seat with full IFE access, 1 bag and meal;

•

The Works Deluxe – Seat with full IFE access, 2 bags, meal, premium check-in, lounge access, 2-3 inches extra legroom and guaranteed empty seat next to the passenger;

•

Business – Offered only on wide body aircraft, 50 inch pitch (B767) or lie-flat seat (B777 & B747), full IFE access, 3 bags, premium food + drink, amenities kit, premium check-in and lounge access (Gross & Lück 2011).

The ‘Seat’ and ‘Seat+Bag’ tickets are designed to compete with Virgin Australia’s and Jetstar’s economy class; ‘The Works’ and ‘The Works Deluxe’ are designed to compete with Qantas’ full service economy and Virgin Australia’s premium economy, and Business is designed to compete with the highest level of service offered by all three Australian airlines.

Air New Zealand’s pricing strategies have assisted them in maintaining their market share.

Jetstar have taken a slightly different approach. They offer on-board food purchasing for all economy fares between on the Trans-Tasman routes. They also offer prepaid luggage, depending on how much luggage the passenger wants to pay for (15-40kg) as well as optional bundles which include seat selection and increased ticket flexibility.

According to Gross and Lϋck (2011), Qantas, along with Freedom Air, lost market share when other low-cost carriers (along with Emirates) entered the market. Whereas Air New Zealand has gained market share, as seen in the table below: Airline Air New Zealand Qantas Emirates Freedom Air

2003 37% 33% 3% 18%

2004 36% 28% 7% 15%

2005 40% 25% 8% 13%

2006 42% 21% 9% 10%

2007 42% 19% 11% 9%

29 Pacific Blue Jetstar Other

0% 0% 9%

6% 0% 8%

7% 0% 7%

7% 6% 5%

8% 6% 5%

Table : Trans-Tasman Aviation Market Share 2007 (Gross & Lück 2011) In order for full service carriers to retain their market share, some of them (such as Air New Zealand on the Trans-Tasman routes) have adjusted their pricing strategies or implemented completely new strategies accordingly. In order for LCCs to obtain market share, they usually have different prices for tickets on the same flights that undercut the legacy carriers by a noticeable amount. Gross and Lϋck (2011) have said that set specific low price contingents are determined for each route. The amount of seats offered at these price contingents usually average at about a quarter of the available seats, but can be as low as 10% or as high as 70% of the seats. The remaining ticket prices will go up in steps and may even exceed the price of the legacy carriers. These steps at which the prices increase are a lot bigger in Europe and can create a substantial gap between the minimum and maximum ticket price. However, this gap appears to be minimal in Oceania (Gross & Lück 2011), most likely due to the lack of competition when compared to Europe and the US.

2.3.5 Outsourcing of Service Al-kaabi, Potter, and Naim (2007) explain the main business models used for airlines’ maintenance, repair and overhaul (MRO) activities. They further go on to mention the four levels of MRO outsourcing that are identified, from fully outsourced to fully in-sourced. The four types of MRO models are given as; fully integrated, where MRO is a core activity for the airline, partially outsourced, where only a few activities are outsourced.

The third level of MRO outsourcing is mostly outsourced, where most of the airlines’ MRO needs are outsourced and only critical activities are performed internally. The final type is wholly outsourced, where outsourcing of all the MRO activities is done.

Table 2 indicates the SWOT analysis given by Al-Kaabi et al (2007){Al-kaabi Hamad, 2007, Journal of Quality in Maintenance Engineering Emerald Article: An outsourcing decision model for airlines' MRO activities@@author-year} with regards to MRO models and outsourcing of services. They also mention that a wholly outsourced model provides an airline with the opportunity to focus on its core competency of flying passengers, while noncore activities like MRO are outsourced, along with mentioning that low-cost airlines and new airline entrants representing the majority of airlines using this business model.

30 MRO Model

Strengths

Weaknesses

Opportunities

Threats

Fully Integrated

Profit Centre Better control of MRO activities Large Knowledge base

Inflexible Structure Tolerance to market demands Not focused

MRO fluctuating demands OEM market penetration New technology adaptation

Partially Outsourced

Tailored in respect to available capabilities Profit centre Excellent level of expertise

Slightly rigid system, Tolerance to market demands, difficulties in managing MRO activities unstable

Mostly Outsourced

Model is Dynamic with MRO market supply and demand, MRO activities tailored to support airline own operation provide more control over essential activities

Airline dependent on suppliers Short term prospective

Completely Outsourced

Efficient, Cost focused, Take advantage of suppliers pool, Suits new entrant and low cost airlines

Dependency on suppliers availability, performance measures mostly based on cost dependent on suppliers performance

Utilising capabilities and expertise to expand Focusing on new markets Alliance or joint venture to optimise capabilities Securing long term contract, Focusing on specific MRO activities, Providing creative support package to other airlines, integrating suppliers by VMI Turning in house capabilities to core competency, Supplier base reduction, long term relationship with key suppliers Retaining essential MRO activities, long term contracts with key suppliers

Under optimised capacity technology advancement s change in aircraft types demand

Dependency on suppliers, performance, Selection of MRO activities to outsource is vital, Relationship with suppliers Model is very dependent on suppliers performance, could be costly if suppliers availability is low, Risk of supplier opportunism

Table : MRO models and Strengths, Weaknesses/Limitations, Opportunities analysis (Al-Kaabi et al 2007)

31 2.3.6 Pre-Flight & Inflight Services The business model to be chosen by LCCs commonly consists of single class, high density seating and a minimised service on-board and at the airport (Richardson, Ashley & Sinclair 2005). Richard and Ashley (2005), give the statistic that LCCs had 4% of domestic and European passengers in 1996, where subsequently in the following 9 years to 2005 the share of LCCs increased to 45% of all domestic and European passengers. This limited ‘frills’ on-board airline business model is again suited to short-haul flights and LCC’s. Wheras, legacy carriers tend to offer more frills based on both the higher cost of travel for the passenger and also the distance of the travel.

In an effort to attract high yielding traffic, some LCCs are starting to add frills to their product. Air Asia X for example is introducing lie-flat seats on its long haul network.

Jazeera Airways, a Kuwait-based LCC, introduced a business class product complete with complimentary food and beverages in 2009 (De Boer & Browning 2010).

2.3.7 Charging for Baggage Dr Frankie O’Connell (2009) an Airline Consultant from Cranfield University did a study regarding ancillary revenues. In the study under taken, Dr O’Connell states that Las Vegas based Allegiant Airlines has become the global leader in amassing ancillary revenues as this had accounted for 23% of its total revenues in 2008. Allegiant Airlines is an American Low Cost airline. Dr O’Connell elaborates on ancillary revenues to be including separate charges for items such as checked baggage, priority boarding in the case of unassigned seating, premium seating and on-board sales of drinks and food. These are all ways of gaining revenue for LCCs. Esmé Deprez (2009), from business week air savings advocates the fact that with travel demand sagging, charges for checked baggage, food, staff assistance, and anything else carriers can think of are becoming key revenue sources. Increasingly, the airlines' goal these days is to have the fare be just one piece of the travel experience and to segment every other aspect, from drinks to baggage, HBO to legroom. Both FSCs and LCC’s have gotten into the act of including these fees (Deprez 2009).

32 2.4 Low-Cost Carrier Definition The term ‘low-cost carrier’ was brought about when Southwest Airlines had successfully embraced what later became Porter’s (1980) cost leadership strategy. Southwest Airlines had achieved its low-cost leadership position through the focus on faster gate turnarounds that led to higher aircraft utilization rates, a single class of service without meals on-board, a common fleet, and a point-to-point route network comprising of mainly short haul routes, and direct or online bookings avoiding the use of travel agents (Box & Byus 2009). The term ‘lowcost carrier’ has since been used to describe an airline with a low-cost leadership position.

33 CHAPTER THREE: RESEARCH METHODOLOGY The purpose of this chapter is to present the assumptions under this research whilst also introducing the research strategy and the data collection techniques applied. The chapter defines the scope and limitations of the research design, and situates the research amongst existing research techniques.

The assumptions underlying this research come from the explanatory technique. This further develops upon information gathered by a descriptive approach. The research strategy adopted was to conduct multiple case studies of seventeen airlines using quantitative data.

The main data collection technique used in this study is secondary data collected from their respective websites, annual reports, and other accessible sources.

The chapter highlights three key points about our research methodology. The first point is the examination of the explanatory research approach. This highlights the benefits of using the explanatory approach for our research. The second point is about the research strategy and highlighting the advantages and disadvantages of qualitative and quantitative data. Finally, the third point deals with the research design and covers the reasons for selecting organisations, data sources, data collection and analysis techniques, data validity, and a brief summary of the methodology adopted.

3.1 Research Approach There have been three research approaches considered for this project. These are exploratory research, descriptive research and explanatory research (also known as analytical research).

Exploratory research is useful when there is little or no available information about the chosen topic. The initial research question is usually open-ended (e.g. what do passengers think about airlines that fly between Australia and New Zealand?). Therefore, it is usually used as the first part of a series of studies, so that the researcher can gain understanding to design and carry out more extensive studies. The primary point of exploratory research is to allow researchers the chance to obtain more pertinent information. The researcher can then use this data to clarify the research question and help them form an initial hypothesis about the topic (Lettyann 2012).

Descriptive research is primarily concerned with answering the ‘What?’ (AECT 2001) as well as the ‘Who?’ questions. The researcher gathers data that describes events, which can be collected and organised by making use of visual aids (e.g. tables, graphs, charts, diagrams, etc). This is done to help the researcher get the point across in a clear and efficient manner so that the reader(s) can easily understand (AECT 2001). The initial research question is

34 close-ended, i.e. more specific than for exploratory research (e.g. Which airlines fly from Australia to New Zealand and what aircraft do they use?).

Explanatory research builds upon the previous approaches, but further develops the information gathered. This involves building on the specific descriptions of the airlines that would be gathered by descriptive research. It does this by explaining how and why the airlines do what they do (e.g. How are the Trans-Tasman airlines different? Why are they different?). The explanatory approach allows the researcher to discover causes and underlying mechanisms in an attempt to understand how and why events occur the way they do.

After careful consideration, we have chosen to do explanatory research. We have begun with the specific research question ‘How has the LCC business model evolved since its inception? How and why does it vary between different geographical locations?’ Therefore, the most logical choice would be to follow the explanatory research approach. This is because our primary concerns are to answer the ‘How?’ and ‘Why?’ as well the ‘What?’ and ‘Who?’ as can be seen in our question.

3.2 Research Strategy 3.2.1 Qualitative Qualitative research is used for subjects that are difficult to quantify, such as Art or History.

The School of Social Sciences at the University of California (2012) have produced lecture notes that state that qualitative research is “a process of inquiry with the goal of understanding a social or human problem from multiple perspectives; conducted in a natural setting with a goal of building a complex and holistic picture of the phenomenon of interest.”

A key point of this statement is that the research is conducted in the ‘natural setting’ of the topic being researched.

The lecture notes continue by clarifying the above statement and some of the main characteristics of qualitative research include: •

Multiple realities exist in any given situation -- the researcher’s, those of the individuals being investigated, and the reader or audience interpreting the results; these multiple perspectives, or voices, of informants (i.e., subjects) are included in the study;

•

The researcher interacts with those he studies and actively works to minimize the distance between the researcher and those being researched;

•

The researcher explicitly recognizes and acknowledges the value-laden nature of the research;

35 •

Research is context-bound;

•

Research is based on inductive forms of logic; categories of interest emerge from informants (subjects), rather than being identified a priori by the researcher;

•

The goal is to uncover and discover patterns or theories that help explain a phenomenon of interest; and

•

Determinations of accuracy involve verifying the information with informants or "triangulating" among different sources of information (e.g., collecting information from different sources) (University of California 2012).

Others, such as the Colorado State University (2012) and Spradley (1979) agree with what has been said, i.e. the research is conducted on the ‘front line’ and researcher is immersed in the environment of the subject(s). Spradley (1979) continues by saying that qualitative research is more focussed on the individual and that the research design is able to be evolve (i.e. open-ended) and does not involve starting with a hypothesis to test.

3.2.2 Quantitative The School of Social Sciences at the University of California (2012) have defined quantitative research as “an inquiry into an identified problem, based on testing a theory composed of variables, measured with numbers, and analyzed using statistical techniques; the goal is to determine whether the predictive generalizations of a theory hold true.” It was previously stated that qualitative research is about reaching an understanding of a social problem from different perspectives and does not test a hypothesis. On the other hand, the key point of this statement is that quantitative research is more focused with gathering statistics and raw data to prove a hypothesis.

Once again, the lecture notes continue by clarifying the above statement and some of the main characteristics of quantitative research include: •

Reality is objective, “out there,” and independent of the researcher -- therefore reality is something that can be studied objectively;

•

The researcher should remain distant and independent of what is being researched;

•

The values of the researcher do not interfere with, or become part of, the research -- research is value-free;

•

Research is based primarily on deductive forms of logic and theories and hypotheses are tested in a cause-effect order; and

•

The goal is to develop generalizations that contribute to theory that enable the researcher to predict, explain, and understand some phenomenon (University of California 2012).

36 Others, such as the Colorado State University (2012) and Spradley (1979) agree with what has been said, i.e. the research is conducted at a distance from the ‘front line’ and researcher is only observing the environment of the subject(s) and not affecting it in anyway.

Spradley continues by saying that quantitative research is started with a hypothesis (or close-ended question) and that the objective is to explain how and why specific phenomena occur (1979). He also complements his comments on qualitative research by saying that the research design is “structured and well-tested”.

Even though we have not stated a hypothesis, the research is close-ended and is about finding out how and why the low-cost carrier model is different in each geographical region.

Therefore our hypothesis is that the there are differences between regions and we are setting out to find the differences and explain why they occur.

After careful analysis of the three research approaches as well as qualitative and quantitative research, it can be seen that the explanatory approach is quantitative. The main evidence being that both the explanatory approach and quantitative research methods have the following in common: •

The research question is close-ended;

•

Close-ended question suggests that there is a hypothesis to prove;

•

Data to be acquired will be from official sources (statistical); and

•

Research will be conducted from a distance from the subjects.

3.3 Research Design 3.3.1 Reasons for selecting organisations We have split up the world into seven geographical regions in order to analyse the different passenger markets of Africa, North America, South America, Asia, Europe, Oceania, and the Middle East. From each of these regions we have selected two low-cost carriers with the exception of North America, Europe, and Asia, where we selected three due to the sheer size of the air transport industry in those regions. We wanted to ensure we had a representation of the low-cost carrier business model through well-established airlines.

This led us to looking at two key factors when selecting the airlines, fleet size and destinations served. We did not create a benchmark for each of these factors, but we did choose airlines that were well-established within their respective region.

The airlines that we chose for each region are: o

Africa o

Fly540

Fly Five Forty is headquartered in Nairobi, Kenya and operates domestic and international flights from its based at Jomo Kenyatta International Airport.

Fleet size: 13 Destinations: 15

37 o

kulula.com

Kulula is headquartered in Johannesburg, South Africa and operates on major domestic routes from its base at OR Tambo International Airport and a limited number of international flights.

Fleet size: 10 Destinations: 5

o

North America o

Southwest Airlines

Southwest Airlines is headquartered in Dallas, United States and operates domestic routes only with key focus cities served many times daily.

Fleet size: 577 Destinations: 77

o

jetBlue Airways

JetBlue is headquartered in Long Island City, United States and operates domestic routes mainly from its base at John F. Kennedy International Airport and international routes from its gateway at Orlando International Airport.

Fleet size: 176 Destinations: 74

o

WestJet Airlines

WestJet is headquartered in Calgary, Canada and operates domestic and international routes from its main bases at Calgary International Airport and Toronto Pearson International Airport.

Fleet size: 99 Destinations: 81

o

South America o

GOL Transportes Aéreos

GOL is headquartered in São Paulo City, Brazil and operates domestic and international flights from its three main hubs at São Paulo's Congonhas Airport, Rio de Janeiro's Galeão International Airport, and Brasília International Airport Presidente Juscelino Kubitschek.

Fleet size: 106

38 Destinations 67

o

Volaris

Volaris is headquartered in Santa Fe, Mexico City and operates domestic and international flights from its two main hubs at Benito JuĂĄrez International Airport and Guadalajara International Airport. It also operates domestic routes only from its hub at Tijuana International Airport.

Fleet size: 37 Destinations: 37

o

Asia o

AirAsia

AirAsia is headquartered in Sepang, Malaysia and operates domestic and international flights from its main hub at Kuala Lumpur International Airport.

Fleet size: 74 Destinations: 89

o

Spring Airlines

Spring Airlines is headquartered in Shanghai, People’s Republic of China and operates domestic and international flights from its hub at Shanghai Hongqiao International Airport.

Fleet size: 33 Destinations: 34

o

Lion Air

Lion Air is headquartered in Jakarta, Indonesia and operates domestic and international flights from its hubs at Juanda International Airport and SoekamoHatta International Airport.

Fleet size: 84 Destinations: 52

o

Europe o

easyJet

easyJet is headquartered in Luton, United Kingdom and operates domestic and international flights from nineteen operational bases throughout Europe.

Fleet size: 214

39 Destinations: 131

o

Ryanair

Ryanair is headquartered at Dublin Airport, Ireland and operates domestic and international flights from forty-nine operational bases throughout Europe.

Fleet size: 298 Destinations: 167

o

airberlin

Air Berlin is headquartered in Berlin, Germany and operates domestic and international flights from its hubs at Berlin-Tegel Airport and D端sseldorf International Airport.

Fleet size: 140 Destinations: 149

o

Oceania o

Tiger Airways Australia

Virgin Australia is headquartered in Melbourne, Australia and operates domestic flights from its hubs at Melbourne Airport and Sydney Airport.

Fleet size: 11 Destinations: 9

o

Jetstar Airways

Jetstar is headquartered in Melbourne, Australia and operates domestic and international flights from its hubs at Melbourne Airport, Brisbane Airport, Sydney Airport, Gold Coast Airport, and Cairns Airport.

Fleet size: 67 Destinations: 35

o

Middle East

40 o

flydubai

flydubai is headquartered in Dubai, United Arab Emirates and operates international flights from its hub at Dubai International Airport.

Fleet size: 25 Destinations: 53

o

Air Arabia

Air Arabia is headquartered in Sharjah, United Arab Emirates and operates international flights from its hub at Sharjah International Airport.

Fleet size: 35 Destinations: 86 3.3.2 Data sources and collection Our research is based on the evolution of the LCC’s business model. This includes different airlines, in different regions, with different stakeholders. The given research will ultimately assist us in comparing the business models of the selected airlines.

The research will help us identify the norms in the business models. Although the airlines we are analysing have slightly different models, there will be some similarities and this is what we are going to research.

Is there a standardized LCC business model and if not, what do the LCC’s across the globe do the same way. These findings will conclude what a business model of a LCC is and some of the stages involved in evolving or running an LCC. To provide an adequate answer to our question, we must present a rational argument with an adequate amount of research. We need some very specific information from the airlines we have chosen to analyse. Some of the information can be as simple as fleet size, whereas, other forms of data may be a harder to obtain, such as pricing strategies.

Below is some of the key data that will be further collected throughout the duration of the research: •

Route network

•

Fleet structure

•

Pricing strategies

•

Pre-flight & Inflight services

•

Target market and Airlines Reach

•

Immediate competitors

•

Staffing structure and size

41 During our research, we have concluded that there are many adequate data collection methods. However not all are as suitable for our specific research question. Below we will discuss some of the data collection techniques that are widely used among independent researchers.

We would like to address the forms of data collection that we will not be using, as certain ethics clearances would need to be prompted. These are as follows: •

Observations of people

•

Surveys

•

Questionnaires

•

Interviews

From the literature it is evident that there are certain data sources that are preferred, and these are listed below. However in our research the main data source used is information found on airline websites.

•

Observations of the operational side of the enterprise: Although this form of research is not often said to be scientific observation, it is an important and key source of data. When evaluating the evolution and business model of an LCC, it is important to observe the way a business operates. “In the observation method the researcher collects information by his own direct observation, without asking from the respondent.” This ultimately means the researcher draws their own conclusions from the information that is available from everyday operations. This will be one of the most available data sources to us, as we will be able to observe and analyse how the selected LCC’s operate. With our observational research we will ultimately set out certain hypotheses and explore the correlations between the variables. This method is inspired by Peter Forster (Sapsford & Jupp 1996).

•

Official Airline webpages: A lot of the information that we will be gathering should be available on the official websites of the airlines being researched. Some of the vital information that can be found on the websites is as follows:

•

o

Fleet size

o

Ticket prices

o

Route network

o

Business aims and objectives

Government Statistics:

42 Governments often collect data on all fields of business and compile the data for statisticians to make sense of. The information is often very raw and is freely available to independent researchers. Below, we have extracted two key points of governmental statistics from a Pratt and Loizos study: o

National and local government departments often possess enormous piles of raw data in the form of statistics, which have often not been processed.

o

Many governments make the statistical information available through a government publications office (Pratt & Loizos 1992)

•

Unpublished university manuscripts: As evident by our initial global LCC research, we have concluded that the low-cost carrier business model has been adapted to many airlines across the globe in various different regions. The information on some of the third world or poor regions may be hard to obtain from the conventional research methods. The LCC’s that operate in some of these third world countries are the only deregulated airlines that operate due to the lack of disposable income. One of the alternative methods is to use unpublished university manuscripts, or information provided by educational and research institutions. According to a Pratt and Loizos study, “Third world students will often write short studies of their own communities, or of another in which they have some contact through family or other connections.” “These can provide good sources of information on otherwise poorly documented districts or communities, and may provide real insider knowledge from the writer’s commitment and long Familiarly with local people.“ (Pratt & Loizos 1992)

•

Published literature: As previously stated, some of the methods for obtaining the data can mean that ultimately the information will be identified from various techniques. However it is important to note that this is not the first study on the selected topic and many researchers have previously published great data. It’s important to check what has already been published on the area to be studied.

Even some of our previous research can be useful. For example, in the literacy review, we have conducted thorough research on some of the key aspects of some main airlines, regions and regulations. This prior research can and will be very effective in helping us with our main research. Many people often carry out new research without first checking what information already exists. There are different sources of useful information, though the reliability and availability of particular

43 sources will vary from country to country.

•

Swinburne Library Database: The Swinburne database is accessible by all students. It is a thorough user-friendly system of information on many different topics. One of them being aviation and legislation. The type of information provided on the data bases include the following: o

EBooks,

o

Dictionaries and encyclopaedias,

o

newspapers,

o

Standards

o

Theses.

The above formats are all previously researched and formatted publications and articles.

3.3.3 Data analysis “Data analysis is a body of methods that help to describe facts, detect patterns, develop explanations, and test hypotheses. It is used in all of the sciences. It is used in business, in administration, and in policy” (Levine 1997).

There are two types of data analysis; qualitative and quantitative. As previously mentioned in the research strategies, qualitative research involves the information being obtained by the researcher being on the ‘front line’. Also, quantitative research involves acquiring the information by making observations from a distance and by the researcher isolating themselves from the environment. The main difference between the two types of analysis is that by using qualitative analysis techniques, the information obtained is not expressed numerically, whereas quantitative analysis techniques involves gathering the raw data and displaying them in graphs, tables, charts, etc. As we are following the explanatory approach, we will be using quantitative research strategies and data analysis techniques.

Our main aim is to draw the following conclusions in order to compare the LCC’s between different regions and also to get an outline on how an LCC would evolve and some of the elements that the airlines would face during the evolution. Below are some of the main rational and key conclusions that we hope to have by the end of our data analysis.

•

Route network: Route network studies can sometimes help us understand an airlines business model. For example, if an airline is operating to and from London Heathrow, we can

44 assume that there costs are generally higher than an airline that operates in and out of Gatwick. Small indications such as this will ultimately help us when analysing our gathered data.

•

Fleet structure: The type of aircraft that is used in an airline’s fleet also helps us understand a bit more about their business model and what there aims and objectives are. Different aircraft have different capacity, fuel efficiency, turnaround times and many more vital elements. An LCC would most likely operate aircraft that are narrow body and are very fuel efficient.

•

Pricing strategies: Pricing strategies may include elements such as how many premium class seats are available on-board the flights, and how many fare codes there are for economy class.

Some airlines like to set their prices according to the distance flown and calculate a profit for every mile flown, where as some will be willing to make a loss on certain routes if it helps there brand name. This will ultimately help us identify a LCC and may be the single most important aspect of our research.

•

Pre-flight & inflight services: As discussed previously, the pre-flight and inflight services will greatly differ from airline to airline. Generally the level of services provided will depend on the cost of the ticket and the model of the airline. However, this may not always be the case and hopefully the research we conduct will help us link these services to the business model.

•

Target market and Airlines Reach: What is the general target market of an LCC? This will help us identify the type of people that an LCC would be trying to cater to, and identify some of the key marketing tools used in order to reach their target audience. An airline’s reach is also a very important factor in the equation. For example, new LCC’s that are being launched in the Middle East are estimated to have 2.2 billion people within a 5-hour

45 flight radius from any hub in the GCC (Rizvi 2011). This is vital when assessing the success of an LCC in a certain region.

•

Immediate competitors: The competitions will be different in each region. For example, African LCC’s will not have as many direct and immediate competitors as their European counterparts. We would like to assess this information in order to help us understand weather or not competition is good for an LCC, and how it would adversely affect each individual airline.

•

Staffing structure and size: Often in most business enterprises, the number of supporting staff would directly reflect the level of service. Considering an LCC’s business model is to save costs at any necessary stage, it is important to assess the staffing structures of the airlines.

3.3.4 Summary Our research into the LCC business model and strategy will encompass 2-3 airlines from each of the seven different regions that we have selected and will include data gathered about their characteristics that were identified in the literature review, these being: •

Route Structure & Use of Secondary Airports;

•

Aircraft Turnaround Times;

46 •

Fleet Structure,

•

Pricing Strategies to Obtain Market Share;

•

Outsourcing of Services;

•

Pre-Flight & Inflight Services; and

•

Charging for Baggage.

This data will be collected through observations of enterprise operations, airline webpages, government statistics and relevant published literature. The majority of the research sources contain secondary data, which complement our explanatory research approach in that most of the data has been gathered by another party. This data should allow us to answer why the LCC business model is the way it is, compare each region's LCC business model, and explain why they do or do not exist.

47 CHAPTER FOUR: FINDINGS From inception to present, the research that was done was strictly based on leading Low cost carriers in each region. The next section of the given research is to analyse the given data and form of comparative analysis of the results. Throughout the next section a comprehensive study on the results of the given characteristics will be done. The selected regions will be compared to the best of the group’s ability. Although some information that is to be analysed may not be available due to constrictions which will be discussed further in the conclusion.

The results section will include the following characteristics:

•

Route Structure – hub and spoke versus point-to-point network;

•

Use of secondary airports – reasons for using secondary airports instead of primary airports;

•

Aircraft turnaround times – ways to improve aircraft turnaround times;

•

Fleet structure – how aircraft selection is different from full service carrier;

•

Pricing Strategies – strategies employed by airlines to obtain/retain market share;

•

Outsourcing of services – outsourcing of maintenance repair and overhaul services including the four levels of outsourcing;

•

Pre-flight and inflight services – analysis of services provided to passengers; and

•

Charges for baggage – baggage revenue and how airlines profit from it.

4.1 Use of Secondary Airports The literature review highlights the importance of the use of secondary airports due to the relatively cheaper operating costs associated with these airports. Secondary airports are those airports that are not currently the main airport used for scheduled services in a particular area. Whilst keeping that in mind, it is also important to highlight the accessibility of the airport because the assumption has been made that airports on an island are primary airports, such as those airports situated in the Canary Islands in Spain, because they are often the only airport easily accessible to residents. Traditionally a low-cost carrier would mainly fly to secondary airports and fly to a select few primary airports. This was perceived to be the case by many people, and throughout research of each airline’s destinations it is possible to show how low-cost carriers have evolved with their destination choices in Table 3 below.

48

Primary vs. Secondary Airports Region Africa

North America

South America

Asia

Europe Middle East Australi a

Airline Fly540 Kulula.com Southwest Airlines jetBlue Airways WestJet GOL Transportes AĂŠreos Volaris AirAsia Spring Airlines Lion Air easyJet Ryanair airberlin flydubai Air Arabia Jetstar Airways Tiger Airways

Number of Destinations 15 5

Fleet Size 13 10

Primary Airports 15 4

Secondary Airports 0 1

77

577

62

15

74

176

60

14

81

99

69

12

67

106

57

10

37 88

37 74

24 78

13 10

34

33

30

4

52 131 167 149 53 86

84 214 298 140 25 35

36 103 72 115 47 71

16 28 95 34 6 15

35

67

29

6

9

11

8

1

Table : Primary vs. Secondary Airports (Air Arabia 2012; AirAsia 2012; airberlin 2012; CHINA-SSS.COM 2012; easyJet 2012a; ERA Air Safety Work Group 2005; Fly540 2012; flydubai 2012; GOL Transportes AĂŠreos 2012; jetBlue Airways 2012; Jetstar Airways 2012b; kulula.com 2012; Lion Air 2012; Ryanair 2012c; Southwest Airlines 2012; Tiger Airways 2012; Volaris 2012; WestJet 2012)

Figure : Available Aircraft per Destination Detailed analysis was carried out on the destinations of each airline and the number of destinations were compared with the fleet size of the airline in order to obtain the number of aircraft the airline has available per destination, which can be seen in Figure 1 above. Whilst this is not able to show directly how many different routes an airline has, it does show how saturated their entire network is through the number of aircraft available per destination. The level of saturation is directly related to the number of aircraft available, and the higher the number of aircraft available, the higher the level of saturation. The level of saturation can be assumed to mean that an airline with a highly saturated network operates on a large number

49 of the routes that are possible between all of their destinations. It can further be assumed that there would be many point-to-point routes that are created as the level of saturation increases. The level of saturation is also able to provide a general idea of the frequencies that an airline is able to operate on a route (for example, three times daily).

Figure : Percentage of Primary vs. Secondary Airports

Each of the destination airports was also categorised as a primary airport or a secondary airport. This was done by looking at passenger numbers, geographical location, accessibility, and other airlines that use the airport. Whilst the expectation would be to see a high usage of secondary airports this was not the case, as can be seen in Figure 2 above. The use of primary airports compared to secondary airports appears to be around 80% to 20%, with the exception of Fly540, which uses solely primary airports and Ryanair which uses approximately 45% primary airports and 55% secondary airports. It should be noted that this does not actually represent the true usage of primary and secondary airports. It is based purely on the primary and secondary airport designations compared to the total destinations served by the airline. A more accurate and true representation would be made by determining how many Available Seat Kilometres (a measure of an airline’s passenger carrying capacity) are originating and / or destined for a particular airport. This will provide the researcher with accurate information regarding the capacity made available for each destination.

Figure : Ratio of Primary & Secondary Airports in Africa

Further analysis of each region was performed with regard to primary and secondary airport usage by airlines in order to create a trend and analyse the differences within each region.

Figure 3 above shows the average use of secondary airports in red compared with primary airports in blue for the Africa region. This is a significant number of primary airports, however it is assumed that, due to the relatively small aviation market in the African region, this number is manipulated by a lack of secondary airports that are suitable for regular scheduled services.

Figure : Ratio of Primary & Secondary Airports in North America

The North America region appears to be more in line with the previous estimate of an 80% primary airport to 20% secondary airport split, as seen in Figure 4 above. From the three

50 North American airlines taken into consideration WestJet had the lowest use of secondary airports, at just 15%, whilst Southwest and jetBlue were equal with 19%. The main factor to consider is that there are very few secondary airports within North America once our factors of primary and secondary airports have been taken into account. Communities within North America, particularly the United States, are often larger than, for example, Australian communities. The airports located within the major metropolis regions may be hundreds of kilometres away for these communities, so whilst many airports appear to be smaller airports that offer a lower operating cost to airlines, they are definitely not secondary airports because of the amount of people within the community that utilise the airport once the service was made available.

Figure : Ratio of Primary & Secondary Airports in South America The trend seems to continue within the South America region because this region also appears to be in line with the estimate previously made, as seen in Figure 5 above. Whilst the region does have many small airports located throughout it, the distance away from a larger airport within a metropolis is simply too much to classify as accessible and therefore many of these small airports are classed as primary airports. These airports may, however, just serve as a ‘feeder’ airport to another airport where the passenger is able to continue their journey. However as the low-cost carrier model is focused on point-to-point services this also happens and many airports are linked by more than one other destination.

Figure : Ratio of Primary & Secondary Airports in Asia The Asia region appears to start to deviate away from the trend a little, as seen in Figure 6 above, because of the higher use of primary airports. One explanation for this could be due to the high number of islands within the region on which airports are located. This boosts the primary airport number as it is generally the only accessible airport for those living on that island.

Figure : Ratio of Primary & Secondary Airports in Europe

The European region is the second region where there is a significant deviation from the trend, as seen in Figure 7 above. The reason for this higher usage of secondary airports is because most European cities have developed multiple airports throughout the years and with the expansion of the low-cost carrier industry these airports have had an immense boost in traffic. Throughout Europe it was also seen that low-cost carriers create routes that were

51 previously not flown and this creates new and interesting holiday destinations that are now easily accessible to travellers. The most interesting statistic from the European region was by far that from Ryanair because that was the only airline that flew to more secondary airports than primary airports, with a split of 43% primary airports to 57% secondary airports. The other two European airlines that were analysed, easyJet and airberlin, were actually in line with the trend. However this does not mean that the Ryanair statistic should be ignored, as Ryanair is the biggest European low-cost carrier in terms of destinations served and the size of the aircraft fleet.

Figure : Ratio of Primary & Secondary Airports in the Middle East Figure : Ratio of Primary & Secondary Airports in Australia The Middle Eastern region and Australian region, like the Asia region, appear to deviate away from the trend established earlier, as seen in Figures 8 and 9 above. The reason for this deviation away from the trend is most likely due to the relatively small aviation industries within these regions. Whilst the Middle East has profited from the expansion of not only the low-cost carrier airlines in the region but also the flag carrier airlines such as Emirates, Etihad Airways, and Qatar Airways, the industry is still relatively new and still experiencing growth of 11.9% in 2011 compared to the worldwide average of just 6.4% in 2011 (International Civil Aviation Organization 2012). Similarly, Australian air travel is increasing due to the entry of Asian and Middle Eastern airlines into the international market, making air travel more affordable for the population whilst also making travel to Australia more affordable for tourists. Australia also heavily promotes itself as a tourist destination, which countries in the Middle East are beginning to do also.

Overall, there are not many secondary airports constructed in both the Middle Eastern region and Australian region as most cities rely solely on one airport to serve the airlines. However, as the industry is experiencing rapid growth, airports will find it increasingly difficult to accommodate airlines and this should push governments and corporations to either expand the current airport or create secondary airports to accommodate the growth.

Figure : Global Ratio of Primary & Secondary Airports To conclude, all of the airlines have been analysed together and this analysis is quite close to the estimated 80% primary airport to 20% secondary airport split that was predicted before.

52 The European airlines alone contribute approximately 39% of the destinations. Therefore, due to the significantly different primary airport to secondary airport split within the European region, we see a slight deviation away from the 80% primary airport to 20% secondary airport estimate with an increase in the usage of secondary airports.

53 4.2 Aircraft Turnaround Times As stated previously, to maximise aircraft utilisation rate an LCC must consider and assess their aircraft turnaround times. Ensuring that your airline has minimal turnaround times can have many advantages, such as lower cost and customer service.

According to the International Air Transport Association Airport Handling Manual (1997), turnaround time is the time for an aircraft to complete full offloading, loading and where required, catering and cabin cleaning procedures.

The main concern with aircraft turnaround times is ultimately cost. Some possible remedies have been discussed; however, they may cost the airline even more money for a more efficient turn around.

Also considering London Gatwick airport had concluded that 25% of total delays where due to aircraft ground handling operations (Wu & Caves 2000), it seems vital to assess turnaround times in depth.

4.2.1 The Variables 4.2.1.1 Aircraft Selection As stated previously, a common trait of low-cost carriers is to use a common fleet. A LCC may use aircraft from the same family such as Boeing 737 or Airbus A320 in order to help streamline maintenance and ensure that transition from one aircraft to another can be done without any irregularities occurring. This being said, they have standardised there maintenance so as to ensure once again that maintenance can be done in an orderly and prompt manner.

4.2.1.2 Outsourcing of Services LCCs are not limited to domestic operations, but also operate internationally. That being said, there is a vital need for specialists to be available at the destination aerodrome in order to assess any problems or to do standard checks. Once again aircraft standardisation’s plays a big role here as smaller jet manufacturers may not have as many service centres as larger companies.

54 4.2.1.3 Inflight Services Although this may have less relevance then the two points above, it still plays a big role in aircraft turn-around times when dealing with an LCC. The flight length may dictate the frills offered on-board. This includes but is not limited to the following: •

Food and Drinks on board the aircraft

•

Cushions and covers for passengers to sleep

•

Number of staff on board

•

Cleanliness of the aircraft for next flight

•

Checking IFE systems

The most relevant of the above bullet points is the food and drink catering on-board. When stopping for a turnaround, if food is to be served, it must be loaded correctly using certain equipment. This may vary from airline to airline and will affect the turnaround time of the aircraft.

Considering however that most LCCs have adopted the limited frills on-board service, we will ignore this factor in our analysis of turnaround times. The respective LCCs will ultimately try to minimise delays when loading or unloading the possible frills on board.

4.2.2 Advantages To understand why the respective airlines and aircraft manufacturers work hard to ensure turnaround times are kept to a minimum, detailed analyses have been carried out below: •

Less delays – being delayed at a terminal after a long flight can be a very stressful situation for a passenger to be put in. At times this can result in loss of customer loyalty as it reflects mismanagement and poor dispatching. Ensuring that the aircraft is ready to operate will save airlines money.

•

Planning issues – when conducting a schedule for an airline with many routes and aircraft, one problem or delay can ultimately carry through to the rest of the schedule.

This can be acceptable if the delay was caused by factors out of the dispatchers’ hands, such as weather phenomena or passenger issues. That being said, when it

55 comes to planning an aircraft schedule, turnaround times are always a key factor that should be taken into thorough consideration.

•

Cost – every second spent at an aerodrome as expensive large as Singapore or London Heathrow can cost the airline a lot of money. Parking and other fees will apply. Faster turnaround times means less time on the ground and lower fees. The airlines attempt to cover this by including levies in the ticket prices, however, delays are not completely covered by these levies. Therefore, profit margins will only be breached if the aircrafts time in the air is maximized.

•

Curfews – Missing a curfew can cost an airline hundreds of thousands of dollars. A perfect example of this would be the Emirates curfew breach at Sydney’s KingsfordSmith Airport. The respective aircraft had defied repeated warnings by air traffic controllers not to fly after 11pm resulting heavy fines and also a thorough investigation (Saulwick 2012).

4.2.3 Safety Targeted Awareness Report & Minimum Safe TurnAround Times Rushing the turnaround of aircraft may seem like a way of saving money, however, it is very unsafe according to the Safety Targeted Awareness Report (STAR) created by the Air Safety work group of the European Regions Airline Association, which states: “Flight schedules that include: Inadequate time for a turnaround(s) can be considered as a hazard. As most schedules rely on a standard turnaround time, many local factors are not always considered, and the chances are high that some turnaround times will be inadequate.”

(ERA Air Safety Work Group 2005) The STAR also states that the hazards can be reduced by basing assumptions on known conditions such as aircraft type or location. They have split them into avoidable and variable.

Please see the extract below for more information: Unavoidable factors include the following (this list is not fully comprehensive):

56 •

Flight planning

•

Preparation and checking of load sheet

•

Crew change

•

Aircraft cleaning

•

Refuelling

•

Catering replenishment

•

Airframe change

•

Load characteristics

•

Security checks and searches.

Variable factors, because they are unpredictable, cannot be included in a calculation.

Variable factors include the following: •

Crew debriefing

•

Crew recovery

•

De-icing and other non-scheduled maintenance tasks

•

Security issues

•

Training.

The list of variables and other factors are not particular for aircraft type and will be discussed later. The STAR has created a Minimum Safe TurnAround Times (MSTAT) calculation method which helps airlines in calculating the minimum safe turnaround times. The calculation method takes into account any non-ideal situations, which includes: •

No computer load-sheet: + 5 minutes

•

No Ground Engineer for pre-flight inspection: + 5 minutes

•

Crew Change: +20 minutes

•

Cleaning by crew: +10 minutes

•

Refuelling: +10 minutes

•

Security aircraft search: +10 minutes

•

More than 50 passengers: +12 minutes (ERA Air Safety Work Group 2005)

We will be using the MSTAT along with manufacturers minimum estimated turnaround times to draw a conclusion.

57 For the purpose of this analysis, it is safe to say that all airlines will conduct 4 of the 7 variables in the MSTAT calculations. Computer load-sheets along with, crew change and +50 passengers will be the aspects that vary from airline to airline, the rest will be standard.

Table 10 in Appendix A summarises the airlines in question along with the MSTAT variables.

All of the calculated totals have not been added in addition to the 35 extra minutes due to standard operation procedures, such as security checks and aircraft cleaning. Whilst doing their tasks one after the other can lead to turnaround times in excess of an hour, several of the tasks can be carried out simultaneously, such as cleaning and refuelling, thereby reducing the turnaround times. With the data available, it was not possible to calculate the actual turnaround times, as this varies significantly depending on each airline’s strategies and schedules.

Most of the LCCs being researched operate without any electronically computer integrated inflight entertainment system. This is typical of an LCC as some of the entertainment systems can weigh a lot and greatly reduce payload. They are also very costly to maintain and time consuming. Leaving them out of the cabin can be a benefit in terms of turnaround times.

Most of the LCCs operating in more densely populated regions, such as Europe and North America, operate aircraft that can fit more than 50 people. This seems like the more rational option due to economies of scale, meaning that more passengers on-board will result in a lower Cost per Available Seat Kilometre (CASK). This will result in a reduction in ticket prices, thereby increasing market share.

A business or enterprise as large as that of an airline would ultimately be aiming for maximised profits and revenues. However, there is an exception in the aviation industry as safety is paramount above all else.

Now considering some of the above aspects are safety issues it is vital that they are carried out, taking into account cost and time. Also, in regard to passenger capacity, the selected airlines have opted to have aircraft with 50 or more seats. This is a sensible business move for an LCC as it, once again, increases economies of scale, meaning that the more passengers they have, the cheaper the operating costs are per passenger. Being able to provide a customer with the cheapest ticket is ideal for any of today’s leading LCCs and will be further discussed in the pricing strategies findings.

Despite the direct correlation between cost and turnaround times, airlines will still have to carry out all the necessary tasks and turnaround times will be vary across the globe. All the

58 problems and complications of aircraft turnaround times can be avoided with proper planning and dispatcher consultancy.

59 4.3 Fleet Structure 4.3.1 Historic Fleets In order to understand how the low-cost carriers have evolved around the world, it is necessary to take a look into their past at their previous fleets. Table 11 in Appendix B provides a summary of the variety of aircraft that have been used by the LCCs since the 1970s. The combined historic aircraft market share and in particular the A320 and 737 variants have been analysed in further detail below.

As per the typical low-cost carrier business model of a common, narrow body fleet, it can be seen that the majority of the chosen airlines have followed the original example set by Southwest Airlines. However, there are a few exceptions to this. The historic fleets contain a larger variety of aircraft. For example, Air Asia previously had Boeing and McDonnell Douglas aircraft, as well as Airbus, whereas, their fleet is now solely Airbus. Another point to note is that many of the airlines’ previous fleets contain much older aircraft. A likely reason for this, as well as the slightly inconsistent fleets, is that when the airlines first began their services, it was cheaper to obtain older aircraft and use them to grow before they could afford to renew their fleet. Some of these airlines, such as easyJet, previously had a common fleet of a particular aircraft type (Boeing 737 family), but have since swapped to another type (Airbus A320 family).

An analysis has been carried out on the results and Figure 11 allows us to see the market share that each aircraft has previously had in each of the regions.

Figure : Combined Historic Aircraft Market Share

The data used to compile Figure 11 has been separated into the individual airlines. Figure 12 provides a visual comparison of the type and number of aircraft that were once operated by each of the airlines, but have since been retired from their fleets.

Figure : Combined Historic Fleets (by Airline) From Figures 11 and 12, it can be ascertained that the most popular aircraft were those in the Boeing 737 family, followed by the Airbus A320 family. It can be seen in the rest of the graph that regional jets were reasonably popular alternatives with low-cost carriers in the past.

60 The reason for the popularity of the 737 family would be due to the 737 family being much longer lived that the A320 family. The 737 family has been in service since 1968 and has consisted of 9 variants (not including MAX or sub-variants such as ER models) (Boeing 2012). Whereas the A320 family has only been in service since 1988 and has had 4 variants (not including upgrades such as from -100 to -200) (Airbus S.A.S. 2012b). Since the 737 has been around for a lot longer, it means that the older variants are cheaper to obtain that any Airbus aircraft, due to their age. For example, it would be cheaper for a low-cost carrier starting out in the industry to obtain a small fleet of classic 737s (-300/-400/-500) than if they were to obtain newer aircraft from the A320 family.

The Boeing 737 had the majority of the market share in Africa, Asia, Europe, North America and South America. On the other hand, due to low-cost carriers being new in the Middle East, the A320 has been more successful in that market compared to the 737. Africa has had no Airbus aircraft and the 737 only comprises approximately half of the market share. The rest of the African market was taken up by older regional jets and ATR turbo-props. African airport infrastructure would have been very limited, thus smaller regional aircraft would have allowed the airlines to provide services to the airports that couldn’t support larger aircraft. In addition, the older and smaller aircraft would have been cheaper to obtain.

In Figures 11 and 12, each of the A320 and 737 variants were grouped into their respective families due to the large number of variants being utilised. Therefore, Figure 13 has been produced to show the previous global share of each variant.

Figure : Combined Historic Popularity of Airbus A320 & Boeing 737 Variants The data used to compile Figure 13 has been separated into the individual airlines. Figure 14 provides a visual comparison of the number of A320 and 737 variants that were once used by each airline, but have since been retired from their fleets.

Figure : Combined Historic Popularity of Airbus A320 & Boeing 737 Variants (by Airline) These comparisons show that the number of Boeing 737s is more than triple the amount of Airbus A320s. As previously discussed this is due to the 737 being in service for much longer than the A320, and so making it cheaper for airlines to obtain in the second hand market.

Another reason for the larger volume of 737s is that Southwest Airlines and Ryanair ordered significant numbers of this aircraft. The A320, however, was favoured by smaller LCCs in other regions (such as Australia and Asia).

61 When looking at the Airbus A320 family, the most popular model is the A320 itself, follow by the A319 and A321. When looking at the Boeing 737 family, the most successful model for low-cost carriers has been the 737-300, which has almost the same capacity as the A319 and is the predecessor to the 737-700. The 737-200 is the second most popular model, followed closely by the 737-800, 737-700, 737-400, 737-500, and 737-900ER. A likely reason for the popularity of the 737-300 amongst low-cost carriers would be that over 1,000 of these aircraft were manufactured. Therefore they were likely to have been common on the second aircraft market and easiest to obtain.

4.3.2 Evolution of Fleets To demonstrate the direction in which airline fleets have evolved, it was necessary to gather detailed listings of the aircraft that were delivered to the LCCs being researched for several time periods. Table 12 in Appendix B combined the 1970s and 1980s due to the limited amount of LCCs in service at the time. Out of the 17 airlines being researched, only two of them were operating in those decades; Ryanair and Southwest Airlines. Figure 15 shows the aircraft that were delivered to both of those airlines from 1970 to 1989.

Figure : Deliveries from 1970 to 1989 (by Airline) It can be seen that right from the start, Southwest Airlines was dedicated to the Boeing 737 family. By the end of 1989, they already had received over 100 aircraft, compared to Ryanair only receiving 12 aircraft. The reason for this is that Southwest commenced operations in 1971 from a large city in the US. A likely additional reason is that Southwest Airlines had a much larger start-up capital than Ryanair, thereby allowing them to obtain 737s, instead of turbo props and regional jets. By comparison, Ryanair didn’t commence operations until 1985. They started out from a small airport in the town of Waterford in the Southeast of Ireland, operating a single 15-seat EMB 110 to London Gatwick. Ryanair expanded to compete with the Air Lingus’ and British Airways’ duopoly on several routes connecting Dublin to the UK. During their early years, Ryanair initially did not intend to become a lowcost carrier, however, after making significant losses, Ryanair took inspiration from Southwest Airlines and relaunched themselves as Europe’s first LCC (Ryanair 2012a).

Moving into the 1990s, Table 13 in Appendix B shows the growth in fleet and new LCCs starting in new regions. By the end of the decade, 7 out of the 17 airlines being researched were in operation. Figure 16 shows the aircraft types that were delivered to these airlines from 1990 and 1999.

62 Figure : Aircraft Market Share by Deliveries from 1990 to 1999 The data used to compile Figure 16 has been separated into the individual airlines. Figure 17 shows the deliveries that were made to each airline and also provides a visual comparison of the variety of aircraft that were delivered to each airline from 1990 to 1999.

Figure : Deliveries from 1990 to 1999 (by Airline) The two most obvious points to note are that LCCs have started up in Asia and the Boeing 737 family was the most popular aircraft for LCCs throughout the decade. Following inspiration from Southwest Airlines, the newer carriers Ryanair, airberlin and easyJet opted for a common 737 fleet.

An interesting point is the use of regional jets in North America. This is because AirTran opted for a common fleet of regional jets instead of the 737. In Asia, the graph shows that 20% of the aircraft delivered were larger aircraft than the 737. The reason for this anomaly is that only five aircraft were delivered before the end of the decade and one of them was an MD-11ER, which was likely obtained for a low price and used to operate the longest or busiest routes flown by Air Asia at the time.

Further analysis has been carried out to demonstrate the popularity of each individual variants of the 737 family. The A320 family was excluded from Figure 18 due to only being one delivery being made to the LCCs being researched during the 1990s.

Figure : Deliveries of Boeing 737 Variants from 1990 to 1999

The data used to compile Figure 18 has been separated into the individual airlines. Figure 19 includes the single A320 that was delivered and provides a visual comparison of the number of A320 and 737 variants that were delivered to each airline from 1990 to 1999.

Figure : Deliveries of Airbus A320 & Boeing 737 Variants from 1990 to 1999 (by Airline) As per the previous analysis of Boeing 737 variants, the success of the 737-300 is obvious.

Once again, this was most likely due to their price and availability on the second hand market. The 737-200 has lost popularity due to its age and the associated operating costs

63 compared to the classic 737s. The reason that only a small amount of 737NG variants (-700 and -800) had been delivered is that they were not in service until 1998 (Boeing 2012).

During the last decade leading up to 2009, the remaining 10 of the 17 airlines being researched began operations, thus opening up the low-cost carrier business model to the rest of the world in a short time. Table 14 in Appendix B shows the growth in fleet and new LCCs starting in the remaining regions. This makes it possible to produce a graph that compares all 7 regions being researched. Figure 20 shows the aircraft types that were delivered to these airlines from 2000 to 2009.

Figure : Aircraft Market Share by Deliveries from 2000 to 2009 The data used to compile Figure 20 has been separated into the individual airlines.

Figure 21 shows the deliveries that were made to each airline and also provides a visual comparison of the variety of aircraft that were delivered to each airline from 2000 to 2009.

Figure : Deliveries from 2000 to 2009 (by Airline) The most evident difference, apart from the introduction LCCs in four new regions, is the massive increase in deliveries of the Airbus A320 family. During the 2000s, the A320 family was the most popular in the new additions to the LCC market in Australia and the Middle East. However, the Boeing 737 family still made the most deliveries in the remaining regions.

Regional jets have gained popularity with the introduction of CRJs and ERJs into the aircraft market. In North America, AirTran opted for the 717 and jetBlue opted for the A320 and ERJ190, thus taking market share from the Boeing 737. Boeing 717 aircraft were also delivered to Jetstar Airways in Australia to initiate their operations.

The most stand-out region is Africa, with approximately 50% of the market being made up of smaller, cheaper aircraft.

Now that the A320 family has made a significant amount of deliveries to the LCCs being researched, it has now been included in the analysis of each variant alongside the 737 family, as per Figure 22.

64

Figure : Deliveries of Airbus A320 & Boeing 737 Variants from 2000 to 2009 The data used to compile Figure 22 has been separated into the individual airlines. Figure 23 provides a visual comparison of the number of A320 and 737 variants that were delivered to each airline from 2000 to 2009.

Figure : Deliveries of Airbus A320 & Boeing 737 Variant from 2000 to 2009 (by Airline) Compared with the 1990s, the popularity of the 737 variants has shifted dramatically from the classic 737s to the 737NG. As the revenue of the airlines that began operating in the 20th century increased, they were able to obtain new aircraft variants. The lower Cost per Available Seat Kilometre (CASK) associated with operating these newer aircraft caused the classic 737s to become superfluous. The reason for the 737-700 being so successful is due to the large order being delivered to Southwest Airlines throughout the entire decade. The 737-800 is second, most of which are deliveries that were made to Ryanair. As for the A320 family, this has gained popularity with the newer LCCs and made just over half the amount of deliveries that the 737 family made to the 17 LCCs in the same time period. For example, jetBlue has made the most significant impact on the A320, whilst easyJet saw it beneficial to move from the 737 family to the A320 family, receiving a large amount of A319s as well as several A320s to use on their busier routes. Even though easyJet received more A319s than jetBlue did with the A320, the A320 has been more successful. This is because that variant has been deemed by other airlines (such as Jetstar, AirAsia and Air Arabia) to be more suitable for their desired operations.

To assess the most recent additions to the fleets of LCCs, Table 15 in Appendix B can be used to support Figure 24, which shows the deliveries made so far in the current decade, from 2010 until the present day.

Figure : Aircraft Market Share by Deliveries from 2010 to Present The data used to compile Figure 24 has been separated into the individual airlines. Figure 25 shows the deliveries that were made to each airline and also provides a visual comparison of the variety of aircraft that were delivered to each airline from 2010 to the present day.

65 Figure : Deliveries from 2010 to Present (by Airline) Even though the time period being analysed is less than three years, a significant change in the deliveries being made can already be seen. Boeing are gaining market share in Asia and the Middle East, whilst Airbus are gaining market share in Australia, North America and South America. Boeing have lost market share in Australia due to Jetstar’s Boeing 717 fleet being reassigned to Qantaslink’s fleet. They have gained market share in the Middle East and Asia due to the rapid expansion of flydubai and Lion Air in the past three years.

Meanwhile, in Europe, the market share of Boeing and Airbus has remained steady, with Boeing losing a very small percentage of their share. Airbus’ increasing popularity in the Americas is being lead by jetBlue and Volaris, who have nominated the A320 as their aircraft of choice.

Smaller aircraft continue to gain market share by deliveries in Africa, thereby the African LCCs to expand their networks to include less developed airports, making air travel available to issolated comunities at a price that is more affordable.

Figure 26 reveals the results of an analysis carried out to show the number of variants of the Airbus A320 family and Boeing 737 family that have been delivered from 2010 until the present day.

Figure : Deliveries of Airbus A320 & Boeing 737 Variants from 2010 to Present The data used to compile Figure 26 has been separated into the individual airlines. Figure 27 provides a visual comparison of the number of A320 and 737 variants that were delivered to each airline from 2010 until the present day.

Figure : Deliveries of Airbus A320 & Boeing 737 Variants from 2010 to Present (by Airline) When comparing these results with that of the previous decade, it can be seen that the popularity of each variant has changed significantly. The increase in deliveries of the 737-800 over the -700 indicates that the demand for seats on-board LCCs warrants the purchase of larger aircraft. This is further evidenced by the increase in deliveries of the similarly sized A320 over the other variants.

66 From 2000 to 2009, the 17 airlines received 535 aircraft from the Airbus A320 family and 1,034 aircraft from the Boeing 737 family. This totalled at 1,569 aircraft and averaged out as approximately 13 aircraft per month being delivered across the 17 airlines. From 2010 up until now, this average has increased to approximately 15.5 aircraft (A320/B737) per month being delivered across the 17 airlines.

A similar analysis across the entire range of aircraft being delivered to the 17 LCCs has also been carried out. From 2000 to 2009, there were a total of 1,811 aircraft delivered to the 17 airlines, which can be averaged out as approximately 15 aircraft per month. From 2010 up until now, this average has increased to approximately 17 aircraft per month.

This clearly demonstrates that the rate at which LCCs are expanding their fleets (and therefore network) is increasing significantly. This is most likely being led by a surge in the demand for cheaper fares, especially as a consequence of the global financial crisis.

4.3.3 Current Fleets As previously mentioned, legacy carriers usually have a fleet of many aircraft types. For example, British Airways currently operate a fleet of A318, A319, A320, A321, B737, B747, B767 and B777 aircraft (Planespotters.net 2012). A common trait of low cost carriers is to use a common fleet and usually narrow body aircraft. Table 16 in Appendix B contains a detailed fleet listing of the airlines that we are studying.

As per Southwest’s example, the current fleets consist of typically narrow body aircraft.

However, some airlines such as Ryanair have chosen to have an exact common fleet of only one type of aircraft within a particular aircraft family (e.g. B737-800).

Other airlines have chosen to vary their fleet slightly, so that they can use the smaller aircraft on their less popular routes. An example of this can be seen in WestJet. They have aircraft ranging in capacity from 119 up to 166 seats, which are all part of the Boeing 737 family and therefore have very similar maintenance requirements and interchangeable components.

This type of ‘common’ fleet is popular since it allows the airlines to vary capacity on their routes whilst still keeping maintenance costs relatively low.

An airline with the most varied fleet, airberlin, was originally marketed as a LCC, however it has since moved to become a low-fares airline or new-world-carrier, which is an evolved form of the LCC model but includes limited ‘frills’ instead of a typical ‘no frills’ LCC. Therefore, due to these limited services, it should attract customers who do not wish to travel with the bare

67 minimum but are still budget conscious. This slightly different approach also allows them to compete with FSCs by attracting customers who don’t wish to pay for a FSC when they do not require all the additional services provided by FSCs.

An analysis has been carried out on the current LCC fleets. Figure 28 demonstrates the current stage of LCC fleet evolution and allows us to see the market share that each aircraft has in each of the regions.

Figure : Current Aircraft Market Share The data used to compile Figure 28 has been separated into the individual airlines. Figure 29 provides a visual comparison of the type and number of aircraft that are currently being operated by each of the airlines.

Figure : Current Fleets (by Airline) From Figures 28 and 29, it can be ascertained that regional aircraft are less popular than in the past with the low-cost carriers. They have since been replaced with larger aircraft, most likely due to higher passenger demands and the lower CASK associated with operating larger aircraft. Once again, the most popular aircraft are those in the Boeing 737 family, followed closely by the Airbus A320 family.

The Boeing 737 has the majority of the market share in Africa, Europe, North America and South America. In the Middle East, the A320 has lost market share to the 737 so that they are now almost even. The A320 family is also the most preferred aircraft in Asia and Australia. In Asia, the 737 has lost its popularity in recent years and its market share in the region has been significantly compromised by the A320.

An Interesting point is that the Australian low-cost carriers have opted for an all-Airbus fleet, likely due to the additional seven inches of cabin width (Brown 2010). This has allowed the low-cost carriers to offer wider seats than their full service counterparts, who offer the Boeing 737 product. For example, Qantas offer a seat width of 17.2 inches on-board their 737s (Qantas Airways 2012), whereas, Jetstar offer 17.88 inches on-board their A320s (Jetstar Airways 2012a). The additional 0.68 inches of width takes up 4.08 out of the extra 7 inches.

68 Therefore, this leaves approximately 3 inches which can be used to increase the width of the aisle.

An interesting development is that there are now also a small amount of wide-body aircraft which are being used by the low-cost carriers that provide medium-to-long-haul flights, such as airberlin, AirAsia and Jetstar.

Another region that stands out on the graph is Africa, which has seen the slowest evolution.

They still have no Airbus aircraft and the Boeing 737 still only comprises just under half of the market share. The rest of the market continues to be taken up by smaller aircraft ranging from the 36-seater DHC-8-100 up to the 90-seater DC-9-10. As previously mentioned, this use of smaller aircraft is highly likely due to the lack of funds together with a lack of infrastructure to support aircraft the size of an A320 or 737 at a large number of airports in Africa.

Figure 30 reveals the results of an analysis carried out to show the number of variants of the Airbus A320 family and Boeing 737 family that are currently being operated by the airlines being researched.

Figure : Current Popularity of Airbus A320 & Boeing 737 Variants The data used to compile Figure 30 has been separated into the individual airlines. Figure 31 provides a visual comparison of the number of A320 and 737 variants that are current being used by each airline.

Figure : Current Popularity of Airbus A320 & Boeing 737 Variants (by Airline) The most obvious point to note is that the number of Boeing 737 aircraft is just over double the amount of the Airbus A320. Also, as with the historic cause for the higher popularity of the 737, this could be due to the regions where the 737 is more favoured have had a larger overall air transport market compared to those regions where the A320 is more popular.

However, both Asia and the Middle East have a large growth potential and if similar research is conducted in ten or twenty years, then it is possible that this graph could be more evenly spread between Airbus and Boeing.

69

As with the analysis of the historic market, When looking at the Airbus A320 family, the most popular model for low-cost carriers is the A320 itself, follow by the A319 and A321. However, the A318 has not been chosen by any of the carriers being researched and only 81 orders have been placed since it entered service in 2003 (Airbus S.A.S. 2012a). This is likely due to its limited size and the CASK associated with using this small aircraft compared to its larger relatives.

When looking at the Boeing 737 family, the most successful model for low-cost carriers is the 737-700, which is closer in size to the A319 than the A320. The 737-800 is close behind as the second most popular model, followed by the classic 737-300, 737-900ER, 737-400 and 737-600. As noted above, the deliveries of the 737-800 is overtaking the 737-700, which indicates that the LCCs have sufficient confidence to fill the larger aircraft.

70 4.4 Pricing Strategies to Obtain Market Share Like any enterprise as large and prestigious as an airline, the ultimate goal would be to increase share price and ultimately increase revenue. That being said, the LCC’s that are being analysed generally try to offer their customers the lowest costs possible in order to obtain higher market share. However, that being said, In order to increase revenue to cover rising costs such as wages and fuel costs along with curfews, the respective airlines have begun to charge passengers for ancillary services.

With any market it useful to use Edmond Jerome McCarthy’s famous 4p’s model, which includes product, price, place and promotion. Considering that an airline is ultimately an enterprise that operates in a competitive market, rationally speaking, the 4p’s theorem would be a useful one to adapt. However according to Knorr et al.

“Most companies have so far ignored the crucial importance of innovative pricing strategies as a tool to create a sustainable competitive advantage over rivals. As a result, traditional approaches to pricing, such as cost plus pricing or simply following the prices of competition prevail.” (Knorr et al. 2004) This can be rationalised by the fact that airlines, specifically LCC’s, do not have enough diversity on-board. The general customer base for an LCC’s is people with lower disposable incomes and ultimately people who want to spend less, price being the determent factor.

Essentially, airlines are limited to three management tools in order to maximise profits.

These being: •

Price

•

Volume

•

Cost (Knorr et al. 2004)

Price of the ticket is the number one catalyst to greater market share. However this factor has been saturated and will fluctuate regularly. Airlines are willing to go to price wars in order to gain higher market share percentages over competitors however this may not always result in higher profits. Volume is not a derivative that can be changed a great deal. Aircraft have payloads and can only board a certain number of passengers. When considering volume, economies of scale must also be considered. The more passengers you can fit on

71 the flight the cheaper it will be to accommodate the passengers per person. This means that the ticket pricing can be lowered due to higher overall profits. Lastly is cost. Reducing the cost of your operations, whether it be the cleaning personal or the quality of food and entertainment on board will directly correlate with the ticket price. The cheaper you can operate, the cheaper the ticket price will be.

In saying this, a conclusion can be drawn. Pricing strategies are based on ticket price.

Anything that can be done to ultimately reduce the cost of your ticket will attract more of the “LCC target market (i.e. people who want to travel for cheaper).

Unlike a legacy carrier, if there are any frills on board, they will not be included in the ticket price. Some of the ancillary services include but are not limited to the following: •

Baggage

•

Food & Drinks

•

Credit card surcharge

•

Seat selection

•

Preferred seat selection (e.g. exit rows)

•

In Flight Entertainment (some LCCs charge for use of portable media players, e.g. iPads)

•

On-board internet

•

Priority boarding

Even though most FSCs produce their largest yields from premium class sales, they still wish to prevent LCCs from stealing their economy class passenger market where possible. In order for FSCs to prevent their prices for rising too much, a lot of them have also started to charge for preferred (exit row) seat selection and have limited the passengers in economy to one suitcase.

LCC’s have ultimately been stealing FSC’s economy class market shre with promises of cheaper prices. This has resulted in many of the FSC’s creating or supporting newer LCC’s. perfect examples of this are Singapore airlines being one of the major shareholders in tiger airways, also quantas with Jetstar and have been expanding the brand into asia. An excellent example of the FSC’s reaction to the pricing structure of the LCC’s is the air new Zealand ticketing options on board there trans-tasman route. Please see below for the following seat structure: (extracted from 3.4 Pricing Strategies to Obtain Market Share)

72 •

Seat – Seat only with limited IFE access;

•

Seat+Bag – Seat only with limited IFE access and 1 bag;

•

The Works – Seat with full IFE access, 1 bag and meal;

•

The Works Deluxe – Seat with full IFE access, 2 bags, meal, premium check-in, lounge access, 2-3 inches extra legroom and guaranteed empty seat next to the passenger;

•

Business – Offered only on wide body aircraft, 50 inch pitch (B767) or lie-flat seat (B777 & B747), full IFE access, 3 bags, premium food + drink, amenities kit, premium check-in and lounge access

(Gross & Lück 2011).

Examples of airlines pricing strategies and how they’ve used them to increase market share are below: “Seat” and “Seat and bag”: as stated above is one pricing strategy. This has been adopted by airlines in response to virgin’s and Jetstar’s economy class.

“The works” and the “works deluxe”: as you know, the FSC’s have suitable economy classes with a higher tier of quality and standards. Qantas and Virgin both offer premium or slightly higher costing economy classes in order to cater to a certain share of the market. The works and works deluxe methods are an LCC’s response, trying to provide the client with the seats, 2 bags, meal and extras at a much lower cost with removed aspects. The LCC’s would adopt the works methodology.

Taking Gross and Lück’s (2011) work as an example, we see that Qantas, lost market share in the early months of 2004. This was due to the inevitability and rapid expansion of the LCC market. Alternatively, air new Zealand has gained market share for their adoption of the “works” pricing strategy. For more information please see table 1.

4.4.1 Differences in Ticket Pricing The price of a ticket can be adversely affected by the date in which it is booked. The next step of the research is to assess the correlation between timing and ticket pricing in order to understand the pricing strategy in more depth.

As seen below, there is a cumulative table that lists both long haul and short haul operations of some of the world’s leading Low cost carriers. The table includes a time analysis and has listed long haul or short haul accordingly.

73 The information given below was collected in the country of origins currency and converted to Australian dollar in October 2012, using XE currency converter

Time in Advance Short-Haul One-Way

ASAP 2 weeks 1 month ASAP

Long-Haul One-Way

2 weeks 1 month ASAP

Short-Haul Return

2 weeks 1 month ASAP

Long-Haul Return

2 weeks 1 month

Differences in Ticket Pricing Australia Middle East Air Jetstar Tiger flydubai Arabia $75.00 $54.95 $122.93 $77.82 $65.00 $44.95 $28.74 $20.53 $65.00 $44.95 $108.95 $77.82 $134.9 $452.4 $249.00 $454.53 5 2 $149.9 $200.4 $179.00 $218.16 5 9 $149.9 $149.0 $219.00 $218.16 5 5 $139.9 $174.3 $170.00 $279.36 9 7 $146.6 $98.00 $99.00 $117.92 7 $119.9 $146.6 $120.00 $117.92 9 7 $269.9 $460.3 $578.00 $523.12 0 3 $299.9 $341.6 $378.00 $274.35 5 2 $284.9 $290.1 $398.00 $274.35 0 8

North America Southwes jetBlue t $481.00 $232.00 $77.00 $57.00 $83.00 $67.00 $575.00

$481.00

$189.94

$239.36

$481.00

$439.00

$282.00

$212.00

$134.00

$124.00

$140.00

$144.00

$657.00

$1,023.0 0

$313.00

$632.00

$926.00

$830.00

Table : Differences in Ticket Pricing (Air Arabia 2012; flydubai 2012; jetBlue Airways 2012; Jetstar Airways 2012b; Southwest Airlines 2012; Tiger Airways 2012) In order to assess the given data, the research has been split into two sections. One being one-way and one being return. One-way will be assessed first. The research was based on the cheapest possible method of travelling between the selected two points.

Figure : One-Way Tickets in Selected Regions It seems evident that one way ticket prices are very similar in each region with one competitor trying to provide lower prices. There seems to be a pattern with the pricing strategies in terms of time limit.

Booking a ticket as soon as possible seems to be standardly the most expensive option.

There are some exceptions however such as air Arabia and Tiger who seem to offer the cheapest service. This will be analysed in more depth later on.

74 There is another pattern in the equation as 2 weeks in advanced seems to be the cheapest option. It is cheaper for you to book a flight two weeks in advanced then it would be booking one month in advanced.

4.4.2 One-Way Tickets 4.4.2.1 Australia

Figure : One-Way Tickets in Australia Short Haul route used: Melbourne - Sydney Long Haul route used: Melbourne - Perth

In Australia, Tiger airlines seem to be cheaper in every aspect. As seen by the graph above, Jet star’s Long haul As soon as possible offers are the most expensive. However both airlines are very similar and standard in there pricing with all short haul operations. This is the less efficient and less profitable of routes, however the passenger payload would be higher.

Key findings: •

Short haul is substantially cheaper and steady across both airlines. With it getting gradually cheaper over time

•

Long Haul operations are different however with it getting cheapest 2 weeks in advanced and rising in price again 1 month in advanced.

4.4.2.2 Middle East

Figure : One-Way Tickets in the Middle East Short Haul route used: Dubai - Doha Long Haul route used: Dubai – Istanbul

75 In the Middle East, the pricing strategies are very standard with close competition. Once again the most expensive of ticket prices are obviously the Long haul short notice flights.

This pattern seems standard throughout the continents. With the Short haul operations we again see the correlation between 2 weeks and the other two dates. With two weeks being by fat the cheapest.

Key findings: •

Short haul gets cheapest two weeks in advanced. This is surprising strategy as it differentiates from Australia.

•

Long Haul operations are substantially more expensive the sooner you book. This gradually becomes cheaper.

4.4.2.3 North America

Figure : One-Way Tickets in North America Short Haul route used: Los Angeles – Las Vegas Long Haul route used: Los Angeles - Boston The American’s being the most individual with their pricing strategies prove that they operate in an extremely volatile and competitive market. JetBlue had substantially lower prices except for long haul 1 month in advanced. 2 weeks in advanced is the cheapest option by far with both airlines and both long/short haul operations.

Key findings: •

Short haul operations are defiantly cheapest 2 weeks in advanced however this does not differ greatly from 1 month.

•

Long haul operations on the other hand are extremely different with the 2 week prior notice being the cheapest by a substantial amount.

76

4.4.3 Return Tickets There is a fair amount of consideration when an airline provides package deals with their return flights. It is obviously ideal for any airline to have the passenger travelling with them to also use their services to come back to point of origin. We wanted to see if this was reflected in the ticket pricing and a similar analysis has been done for the return flights.

Figure : Return Tickets in Selected Regions

77 4.4.3.1 Australia

Figure : Return Tickets in Australia Short Haul route used: Melbourne - Sydney Long Haul route used: Melbourne – Perth The return flight pricing was very similar to that of one-way in Australian when analysing tiger and Jetstar respectively. The similarities are that both provide the cheapest fares 2 weeks in advanced. However, unlike before, Jetstar and tigers Short haul return flights turn out to be the same value wise as tiger, this is a surprise as in the one-way market, tiger is substantially cheaper.

Key findings: •

Short haul gets cheapest two weeks in advanced. This is surprising strategy as it differentiates from Australia.

•

Long Haul operations are substantially more expensive the sooner you book. This gradually becomes cheaper.

78 4.4.3.2 Middle East

Figure : Return Tickets in the Middle East Short Haul route used: Dubai - Doha Long Haul route used: Dubai – Istanbul When it came to pricing for one-way ticketing, the two Middle Eastern competitors where very similar in pricing. If you observe the graph in the above section you will note that the lines are very similar and reflect an almost identical pricing strategy. However, it seems that flydubai is a lot cheaper when booking a return flight.

Key findings: •

When it comes to short haul operations, it is pretty standard pricing strategy after two weeks. The prices are relatively low and constant.

•

Long haul operations become cheaper the further advanced you make a booking.

79 4.4.3.3 North America

Figure : Return Tickets in North America Short Haul route used: Los Angeles – Las Vegas Long Haul route used: Los Angeles – Boston Southwest is substantially cheaper than JetBlue. It follows the trend of one-way ticket prices in America where 2 weeks is the cheapest and anything else is a standard higher price.

Key findings: •

Short haul is showing a trend with 2 weeks being the cheapest and the other two given dates being the more expensive of the two.

•

This once again applies to long haul operations.

80 4.4.4 One-Way vs. Return Tickets Finally is the assessment of the difference in pricing strategies when it comes to one-way vs. return.

It is safe to assume that airline would work in economies of scale environment and offer better deals when buying in higher frequencies. A perfect example of this would be to buy two tickets (there and back) instead of one way. It would ensure that the passenger is willing to use your services for both travelling there and back.

The next page has a detailed analysis of the price variations between one way and return ticket prices. For analysis purposes, the return flight costs have been divided in half to represent the combined price of both ticket prices as one.

For example, Jetstar’s ticket prices for both there and return would be 170 dollars, we will divide by two in order to achieve an average ticket price for one flight.

Please refer to Table 17, as well as Figures 44 and 45 in Appendix C. 4.4.4.1 Australia Surprisingly, in Australia the airlines did not adopt the package deal pricing strategy and it was actually cheaper to book each individual flight. There was a slight difference however when it comes to long haul vs. short haul.

As evident by the table below “as soon as possible” flights where cheaper one-way, followed by some relatively even pricing for 2 weeks and one month.

However, long haul had some variables with it being more expensive 2 weeks in advanced which wasn’t following the general trend.

81 One-Way vs. Return Tickets in Australia Jetstar Tiger Return One-Way Return One-Way Short-haul – As soon as possible $85.00 $75.00 $70.00 $54.95 Short-haul – 2 weeks in advance $49.00 $65.00 $49.50 $44.95 Short-haul – 1 month in advance $60.00 $65.00 $60.00 $44.95 $134.9 Long-haul – As soon as possible $289.00 $249.00 $134.95 5 $149.9 Long-haul – 2 weeks in advance $189.00 $179.00 $149.95 8 $142.4 Long-haul – 1 month in advance $199.00 $219.00 $149.95 5 Table : One-Way vs. Return Tickets in Australia (Jetstar Airways 2012b; Tiger Airways 2012)

Figure : One-Way vs. Return Tickets in Australia Ultimately there is no correlation and the pricing would have variables such as peak times and off peak times.

4.4.4.2 Middle East Fly Dubai have adopted the Economies of scale pricing strategy as evident by the tables and graphs below. If you see the collected data you will notice that one way tickets are substantially cheaper in the one-way short haul flights however it is the complete opposite when dealing with long-haul return.

Air Arabia have used a similar strategy where they have made the short haul flights cheaper one way then return. And their long haul flights are evidently very similar with the exception of “ASAP”.

One-Way vs. Return Tickets in the Middle East flydubai Air Arabia Return One-Way Return One-Way Short haul – As soon as possible $139.68 $122.93 $87.19 $77.82 Short haul – 2 weeks in advance $58.96 $28.74 $73.34 $20.53 Short haul – 1 month in advance $58.96 $108.95 $73.34 $77.82 Long-haul – As soon as possible $261.56 $454.53 $230.17 $452.42 Long-haul – 2 weeks in advance $137.18 $218.16 $170.81 $200.49 Long-haul – 1 month in advance $137.18 $218.16 $145.09 $149.05 Table : One-Way vs Return Tickets in the Middle East (Air Arabia 2012; flydubai 2012)

82

Figure : One-Way vs. Return Tickets in the Middle East The pricing strategies used above by the Middle Eastern airlines are varied and does not reflect directly on operations. There is no direct correlation and between return and one-way ticket pricing.

4.4.4.3 North America Short haul operations are very similar pricing for both airlines. It did not vary too much and it seems that the pricing is done in an orderly comparable method.

However, with the return flights, it was very random once again, thus concluding that there is no direct correlation between return and one-way ticketing and pricing.

One-Way vs. Return Tickets in North America Southwest jetBlue Return One-Way Return One-Way $141.0 Short haul – As soon as possible $481.00 $106.00 $232.00 0 Short haul – 2 weeks in advance $67.00 $77.00 $62.00 $57.00 Short haul – 1 month in advance $70.00 $83.00 $72.00 $67.00 $328.5 Long-haul – As soon as possible $575.00 $511.50 $481.00 0 $156.5 Long-haul – 2 weeks in advance $189.94 $316.00 $239.36 0 $463.0 Long-haul – 1 month in advance $481.00 $415.00 $439.00 0 Table : One-Way vs. Return Tickets in North America (jetBlue Airways 2012; Southwest Airlines 2012)

Figure : One-Way vs. Return Tickets in North America The inflight services of the respective airlines would reflect their prices. Please see “inflight services section for further reference. However pricing strategies greatly differed and did not follow any trends amongst the regions.

Every region however was relatively competitive in pricing structure. Take Australia’s market for instance. If you will refer to the above results you will notice that Jetstar’s one-way tickets where more expensive then tiger however the return tickets ended up to be a lot more

83 similar. That being said, if you refer to Jetstar’s inflight services and compare them with Tigers you will notice that Jetstar do offer more luxuries.

Some airlines provided cheaper long haul flights and services while the others concentrated on short haul. The Middle East is a perfect example of this. Considering the airlines are using different aircrafts with fly Dubai and air Arabia using Boeing and airbus respectively. Range, payload and other limitations would be direct contributors to this choice of pricing. If your aircraft and fleet are more efficient for long haul operations, then it seems sensible to offer a cheaper more attractive offer. It may be the opposite however with lower payloads and the airlines trying to fill up their seats, low prices would be ideal. This ultimately increases market share.

One of the methods of increasing market share is to offer cheaper return tickets or at least a better package deal then buying the ticket individually. This was adopted by every analysed airline, however not for all operations. This method of pricing to increase market share was not used.

One pricing strategy trend that was evident from the research was 2 weeks in advance. If you refer to the above results you will notice that almost every airline offered the cheapest tickets 2 weeks in advance. This was cheaper than 1 month in advance. This would be directly attributed to payload and filling up the aircraft sooner. Flights planned in the next two weeks would be the most suitable for the airline in terms of planning and dispatch purposes.

4.5 Outsourcing of Services Outsourced Services

Airline Fly540

N/A

84 Kulula

N/A

Southwest

Maintenance

JetBlue

Maintenance

WestJet

Human resource

Gol Transportes Volaris Air Asia Spring Airlines Lion Air Easy Jet

Customer Service

Customer Service Revenue recovery Passenger handling

Baggage& aircraft handling

N/A IT N/A Maintenance IT

Ryan Air

Maintenance

Air Berlin Fly Dubai Air Arabia Jet Star Tiger Airways

Cargo Operations Maintenance Customer Service Maintenance Customer Service

Customer Service

IT

Table : Outsourced Services (AMEinfo 2007; Attwood 2008; Bowen 2010; Camerford 2009; Dhalla 2005; easyJet 2012b; EDGR 2012; Evans 2006; Fly540 2012; Harney 2007; ihotdesk 2007; jetBlue Airways 2012; Jetstar Airways 2012b; Kho et al. 2005; kulula.com 2012; Osman 2012; QS Advisory 2012; Rosenthal 2005; Ryanair 2012b) 4.5.1 Southwest Airlines Southwest Airlines is a major low-cost, short-haul airline in the US. It flies over 100 million passengers a year on more than 3,000 flights a day to 66 cities in the United States. One of the activities that Southwest outsources is communication to its customers (customer service) through the method of leading-edge flight notification services (FNS). The airline decided that communicating to its many on-the-go passengers during interruptions and delays was important in terms of adequate customer service (Bowen 2010).

Bowen (2010) further points out Southwest deciding to do something about its low customer communication rating indicated by a survey taken throughout US low-cost carriers. Factors such as limited IT resources and staff meant that Southwest had to outsource in order to get leading edge FSN.

“Southwest met Seattle-based Varolii, a provider of on-demand communication software and services with experience in developing and supporting the kind of FNS that would make life easier for Southwest and the airline’s customers. Varolii

85 implemented an automated system to place those calls and relay the information through text-to-speech software that generated pre-recorded voice clips into actual messages. The solution parses Southwest’s operational databases, identifies problem flights, looks up information on the affected customers, and calls their contact phone number.” (Bowen 2010) Business writer John Harney explains that Southwest outsources another major component which is outsourcing engine performance monitoring. This method saves the airline large amounts of money through avoiding reactive large-scale maintenance. If Something goes wrong that no one suspected then the end result of that would be the grounding of the plane.

Instead: “Southwest relies on preventative maintenance that can be scheduled when it knows a problem is likely in the near future and can schedule maintenance and get the plane up and flying again fast. But flying planes is Southwest’s core competence, monitoring the condition of its planes is not. That’s why it uses its outsourcing partner, Smart Signal, for equipment monitoring services to keep Southwest’s maintenance crew apprised of equipment malfunctions before they happen.” (Harney 2007) 4.5.2 jetBlue JetBlue is an American low cost airline which is a relatively new airline in the sense that it was only founded in 1999 by former Southwest airlines employee David Neeleman. Jet Blue began operations in February 2000, with the first flight taking place between JFK airport and Fort Lauderdale airport, Florida. As of December 2011, Jet Blue serves 71 destinations in 21 North American states, and twelve countries in the Caribbean, South America and South America (jetBlue Airways 2012).

One of the main services that jetBlue contract out to other companies is its heavy maintenance. The airlines own maintenance crew do the routine A checks for aircraft but the heavy C checks are done by an outsourced company (Evans 2006). Evans (2006) further writes that, heavy maintenance is a task in and of itself, a business separate from airline operations, involving hangars, technicians, and so forth. At the current climate, JetBlue contracts heavy maintenance work with Air Canada Technical Services (ACTS) in Winnipeg, Canada, and with TACA Aeroman in San Salvador, located in El Salvador. Evans explains that: “Part of the reason they were selected is that the national carriers in these countries also operate the Airbus A320, which comprises the bulk of JetBlue's fleet, and therefore they are familiar with the airplane's maintenance philosophy as well as any unique quirks with the aircraft.” (Evans 2006) 4.5.3 kulula.com Kulula.com is a South African LCC which operates out of Tambo International airport and Lanseria airport. It began operations in 2001 and is a fully owned low-cost subsidiary of

86 British Airways franchise Comair. Kulula.com’s fleet consists of nine Boeing 737s as at July 2012 (kulula.com 2012). Despite extensive research done, there could not be any information found on the outsourcing of services that kulula.com undertakes.

4.5.4 Fly540 Fly540 is a Kenyan airline which after being established in 2005, begun operations in 2006.

Fly540 considers itself a low-cost carrier which meets the demand for value for money travel.

The airline bases its business model on no frills after assessing the success that this model has brought to other airlines around the world. Fly 540 is the only low cost carrier in its region and the only other similar carrier is found in South Africa, which serve domestic routes.

Fly540 aircrafts are maintained by the airlines own engineers and technicians who have extensive training internationally and locally in addition to having a wide experience and are licensed to practice by the Kenya Civil Aviation Authority (KCAA), Uganda civil aviation (CAA) as well as the International Civil Aviation Organisation (ICAO) Therefore taking outsourcing of maintenance out of the question (Fly540 2012).

4.5.5 WestJet WestJet is Canada’s largest low-cost airline. After commencing operations in 1996, the airline has continued to expand between 30 and 50 per cent each year it has been in business (Rosenthal 2005). This growth has created demand for equally qualified staff to fill in the jobs created by the expansion mentioned above. What West Jet has decided to do is to outsource recruiting software to help make easier the hiring process.

“Outsourcing was the only way the airline which has landing rights in Canadian cities in every province and several cities in the US and flies to eight countries through its charter service, could keep up with its human resource (HR) load. WestJet outsources its recruiting software to help streamline the hiring process” (Rosenthal 2005).

As Attwood (2008) explains, another area in which WestJet airlines uses the benefit of outsourcing is in revenue recovery. Acquiring services from Mercator, the IT division of Dubai based Emirates Airline, Canada’s largest low-cost carrier benefits by outsourcing revenue accounting services for cargo airway bills, which will streamline its business and reduce the effects of production fluctuations on cash reserves. “mercator has recently assisted the airline with its fare audit service, enabling WestJet to significantly reduce costs and recover revenue. The service enables the airline to detect and prevent fare violations, incorrect fees, fictitious names and other illegal fare mishandling. WestJet learns from mishandling patterns and is able to

87 detect and prevent them in a timely and efficient manner. This prevents violations, enabling smooth tax and sales processes and significantly easier revenue recovery.”

(QS Advisory 2012) 4.5.6 GOL Transportes Aéreos GOL Transportes Aéreos is a Brazilian low cost carrier which is also the largest low cost carrier in South America. GOL happens to be the only low-cost airline operating in Brazil providing frequent service on routes between all of Brazil’s major cities. In an overview of GOL provided by the airline, it states that “We have entered into arrangements on competitive terms with third-party contractors at certain airports for passenger, aircraft and baggage handling. We also outsource our call centre customer services and other services that we believe can be more efficiently provided by third parties” (EDGR 2012) 4.5.7 Volaris Volaris is a Mexican low-cost airline and it is the country's second largest airline after Aero Mexico. Even though Volaris is the second largest airline and a major low cost carrier in South America, there is no evidence of any type of outsourcing of services that it does to other companies.

4.5.8 Air Asia Air Asia is Asia’s largest low-cost carrier. The airline operates scheduled domestic and international flights to over 400 destinations in 25 countries. Air Asia was founded in 1993 and soon after begun operations in 1996.

One of the areas of service in which Air Asia believes an outsourcing is required is in the Information Technology in Advanced Planning and Scheduling (APS) section of business. ‘IT’ is not considered a core competency in Air Asia business so that the decision to outsource is deemed right by the airline.

“The implementation using outsourcing strategy will provide cost benefits to AirAsia as software vendors possess advantages on economies of scale due to aggregation of demand and economies of scope”. (Kho et al. 2005)

88 A statement on Vanceinfo’s website which is one of the leading offshore software development companies in china quotes: “VanceInfo Technologies Inc. (NYSE: VIT) (“VanceInfo”), an IT service provider and one of the leading offshore software development companies in China, today announced a new services contract to provide development and quality assurance of airline related IT systems to AirAsia Berhad (AirAsia), the World’s Best Low-Cost Airline 2009-2010-2011 and pioneer of low-cost travel in Asia” (VanceInfo 2011) 4.5.9 Spring Airlines Air Spring airline is the first low-cost airline in China’s and operates on a no frill strategy. It was established in 2004 comprising of fleet size of 33 aircraft. It is based in Shanghai. After a vast amount of research done there could not be any information found on the outsourcing of services that Air Spring Airline might potentially be undertaking. However, it was mentioned that to keep operating costs low, Spring sells tickets exclusively from its website and offers no complimentary on-board meals, but only bottled water on flights. (China CYTS Tours 2012) 4.5.10 Lion Air Lion air is Indonesia’s largest privately run airline, established in 1999 Lion air commenced operations in the year 2000. Lion air outsources maintenance of some of its aircraft to a company by the name of The Garuda Group.

“The Garuda Group will operate as many as 294 aircraft, with an average fleet age of five-years-old by the end of 2015. The fleet is part of Garuda’s Quantum Leap program, where Garuda will operate 194 aircraft.

The airlines under Garuda, Lion Air and Sriwijaya Air have also used GMF’s hangars.

Lion, for example, needs hangars to maintain its 178 aircraft by the end of 2016.”

(Osman 2012) 4.5.11 easyJet EasyJet is a British based airline and it is the largest airline of the United Kingdom, going by number of passengers carried and domestic and international flight. EasyJet considers itself Europe’s leading airline, operating over 600 routes across 30 countries (easyJet 2012b). Like a few of the low cots airlines around the world, easyJet has taken advantage of an outsourcing deal with a major IT company.

“Low-cost airline EasyJet has taken advantage of an outsourcing deal with Alfred McAlpine, by carrying out a large network migration. IT Pro reports that Alfred McAlpine was responsible for the migration of the carrier's telephony and data

89 services, as well deploying a new LAN infrastructure at the new EasyJet corporate headquarters.” (ihotdesk 2007) 4.5.12 Ryanair As Dhalla (2005) explains, Ryanair is a Irish based low-cost carrier which began operations in 1985 carrying 5000 passengers on its then only route between Waterford Airport and London Gatwick. Cameford (2009) elaborates that customer service is one area that Ryanair has decided to outsource. Camerford (2009) mentions that Ryanair realises that its customers are after the cheapest fare and is willing to put up with unpleasant customers knowing how large of a customer base they have. It’s not only customer service that Ryanair does outsource to third parties; the company also outsources its heavy maintenance Cchecks as described below by the airline.

“In August 2002, Ryanair announced that it would be expanding its in-house maintenance capability to include light C checks by building a new two-bay hangar facility at its base at Glasgow (Prestwick) in Scotland. The facility is capable of performing two light C-checks per week, enabling Ryanair to perform these checks inhouse. All heavy maintenance C checks will continue to be outsourced to third parties.” (Ryanair 2012b) 4.5.13 airberlin Airberlin is Germany’s second largest airline and Europe’s sixth in terms of passengers carried. The airberlin (2012) website states that air berline is to be modernising its container fleet and will be utilising lightweight containers to transport freight and baggage. It is doing so by coming together with a company called Jettainer who are the world’s leading providers in load device management. Jettainer will manage the implementation of cargo containers for Air Berlin by reducing the actual flight weight by 200 kg as well as saving about 30,000 litres of fuel per year per aircraft. According to airberline.com, this equates to an environmental release of 1,100 tonnes of carbon dioxide per year.

4.5.14 flydubai Flydubai is Dubai’s first low-cost airline; it operates across 51 destinations across the Middle East, Subcontinent, Africa, Russia and Eastern Europe. Fly Dubai was established by the Government of Dubai.

In a business article written by Abdul Basit, it is stated that the airline outsources maintenance, components support and management to Abu Dhabi Aircraft Technologies (ADAT) (Kumar 2010).

90 4.5.15 Air Arabia According to the official website of Air Arabia, the airline is based in the UAE. Air Arabia is the pioneer and largest low-cost carrier in the Middle East. Air Arabia was established in 2003 and began operation later the same year.

“As stated on ameinfo.com, by outsourcing key (Customer Relation Management) CRM operations to Altitude-powered front-liners, National Flight Services) NFS expects to see increased customer reach for Air Arabia passengers, enhanced customer satisfaction as well as substantial cost savings. NFS is a major General Sales Agent (GSA) for airlines in Saudi Arabia.” (AMEinfo 2007) 4.5.16 Jetstar Airways According to the Jetstar website, Jetstar is headquartered in Melbourne, Australia. Jetstar airline forms a vital part of the Qantas Group’s two-brand strategy, operating in the leisure and value-based market. The Jetstar Group as it is known is the largest low cost carrier in the Asia Pacific region by revenue and has flown over 75 million passengers since it launched in 2004 (Jetstar Airways 2012b).

One of the main services that Jetstar outsources is IT services. This is achieved through a partnership with Zenstar which is focused on delivering quality IT services to Jetstar's business and leverage IT best practices with a SLA (service level agreement) management system to achieve quantifiable operational and financial improvements and enhance the delivery of services to its customers.

According to the Australian civil aviation officials (2008), Jetstar also outsources maintenance to centres overseas, including in Hong Kong, Malaysia and the Philippines.

4.5.17 Tiger Airways Australia Tiger Airways is one of Asia's leading low-cost carriers. Tiger was established in 2003 with Tiger Singapore, then expanding to Australia with the name Tiger Australia, and associate airlines, Mandala Airlines in Indonesia and SEAir in the Philippines in 2012.Tiger airways operates from Singapore and Australia (Melbourne and Sydney), Tiger's network extends to over 30 destinations in 13 countries in the Asia Pacific region (Tiger Airways 2012).

91 4.6 Pre-Flight & Inflight Services Extensive research was carried out in order to determine which services or ‘frills’ were currently being offered by each of the airlines. A broad range of services have been considered, these being:

•

Entertainment forms on offer - such as magazines, wireless internet hotspots, portable media devices, overhead monitors and individual monitors;

•

Types of food available - such as small snacks (crisps, biscuits, etc.), cold meals (sandwiches, wraps, etc.) and hot meals (such as those offered on-board full service carriers);

•

Types of beverages available – i.e. alcoholic or non-alcoholic;

•

Additional ancillary services – such as free checked luggage, premium seating, priority boarding, pre-selected seats (when purchasing a ticket), and provision of an amenities kit.

It was assumed that the majority of these services would come at an additional cost to the basic ticket, therefore, where the table is filled in with ‘Yes’ means that the service is provided at an additional cost (with the exception of the free magazine and checked luggage).

However, some of the airlines include some of these ancillary services free of charge. These free services may depend upon the type of ticket purchased or may be available to every passenger. For example, Southwest is extremely generous by allowing all passengers to take two free items of checked baggage weighing up to 50 pounds each (Southwest Airlines 2012). Even if one was to fly with a full service carrier, it is extremely rare for all passengers to be allowed this much checked baggage. During the research, both Spring Airlines and Lion Air did not provide information about some of the services being analysed and this information could not be found on any passenger discussion forums, such as Skytrax. This has led to the analysis of the pre-flight and inflight services that are provided by these two airlines being incomplete. The detailed information has been gathered and placed into Tables 18 and 19 in Appendix D.

As can be seen in the table, a common feature is the magazines published by the airlines themselves, which are the cheapest form of inflight entertainment. However jetBlue do not offer magazines and the reason for this could be that all of the information that is usually in a magazine is now contained within the in-seat entertainment system provided to all of their passengers, so therefore jetBlue have decided that a magazine would be superfluous. It is worth noting that Ryanair is the only airline being researched that charges for every ancillary service that is being analysed, including inflight magazines. This is probably because Ryanair wish to make as much revenue as possible and to keep their cost base as low as possible.

92 Inflight wireless internet is another form of IFE which allows the airline to keep their aircraft’s weight to a minimum but still provides the passengers with the opportunity to bring their own devices on-board so that they can stay connected. This is especially useful for any business passengers whose companies choose to fly their staff on low-cost carriers. Having said that, so far only carriers in North America currently offer this service, which is due to the lack of infrastructure, until recently, in the rest of the world. Only now in the past year have full service carriers, such as Emirates and Singapore Airlines, begun to implement inflight Wi-Fi connectivity.

Another form of entertainment offered are televisions, which have been a common feature amongst full service carriers for many years, be them overhead monitors spaced evenly along the cabin ceiling or personal in-seat monitors (PTVs). However, in order to attract the budget conscious travellers who usually travel on FSCs, some of the low-cost alternatives have decided to offer either overhead monitors or PTVs, depending on the competitors in their region. The PTVs and may be offered with limited free channels, such as news, maps, travel information, etc. Some low-cost carriers have opted for portable media devices in order to save weight by not offering PTVs. These media devices either connect to a main on-board server through Wi-Fi connectivity or have a selection of movies and TV shows loaded onto the devices’ internal storage.

A consistent feature all around the world is that all of the airlines being researched offer snacks and non-alcoholic beverages (other than water) on-board all of their flights. Some of the airlines (such as jetBlue) offer these for free to all passengers. The majority of the airlines being researched offer cold meals such as sandwiches and wraps, however there are some airlines, such as Southwest, have decided to only offer snacks and advise people to bring their own meals on-board or purchase food at the departure airport. Southwest also do not offer hot meals.

By reducing their catering needs, airlines can reduce their aircraft turnaround times, weight, and cabin space required to store meals. The majority of the airlines don’t offer hot meals, however, the airlines that fly medium-to-long-haul routes, such as Air Asia, allow customers to purchase a meal from the on-board menu or pre-order a meal that can be heated on the plane. Even though Tiger Airways only offer short-haul flights, they also provide heated meals in order to set themselves apart from their competitors. When looking at alcoholic beverages, they are offered in almost every region of the world, except for the Middle East. The reason for this is because the majority of the countries in the region are primarily Islamic and alcohol is considered to be a taboo in their religion.

93 In order to attract customers from the business segment of the markets, some low-cost carriers offer a premium seats on-board their aircraft. Some airlines, such as jetBlue, offer the standard economy seats but with additional seat pitch. They could also leave the middle seat empty, to provide the passengers with additional personal space. An alternative way of attracting business customers is to create a business class, which airlines, such as airberlin, have done. For business class tickets, they include the ancillary services, such as food, baggage, priority boarding, etc. Some airlines, such as Air Asia and Jetstar Airways offer business class on their wide-body aircraft that they use for long-haul and leave their narrowbody fleet as full economy layout.

Other ancillary services provided by some of the airlines are seat selection, priority boarding and amenities kits. In Europe, easyJet have recently completed a successful trial of seatselection and have since implemented it across their network. Seat-selection can be carried out as an option whilst purchasing the ticket for additional costs or customers can choose not to select their seats and wait until they arrive at the airport or board the aircraft to get a seat.

Amenities kits have been offered by some low-cost carriers to increase passenger comfort levels without significantly affecting the weight of the aircraft or the amount of revenue generating seats.

Priority boarding is also offered in order to generate further revenue and to allow the passengers greater seat selection with airlines that do not issue passengers with seats (such as Ryanair) and also provides them with early access to overhead lockers. As previously mentioned, when an airline offers a business class on their aircraft, any ancillary services that the airline offers are usually included (within reasonable limits) in the initial fare.

94 4.7 Charging for Baggage From the literature review we have identified that low-cost carriers are increasingly charging passengers to take their baggage in order to raise their ancillary revenue. The baggage policies from the selected low-cost carriers have been compared and this comparison can be seen in Table 9 below.

Region Africa North America South America Asia Europe Middle East Australia

Baggage Allowance & Fees Airline Allowance (kg) Fly540 23 Kulula.com 20 Southwest Airlines 46 jetBlue Airways 23 WestJet 23 GOL Transportes Aéreos 23 Volaris 15 AirAsia 15/20/25/30/35/40 Spring Airlines 15 Lion Air 20 easyJet 20 Ryanair 15/20/35 airberlin 23 flydubai 20/30/40 Air Arabia 20/30/40 Jetstar Airways 15/20/25/30/35/40 Tiger Airways 15/20/25/30

Fee1 (AUD2) None None None None None None None Variable3 None4 None $13.83-26.12 $23.05-76.82 $19.485 $13.20-39.60 $2.64-26.40 Variable3 $15-70

Table : Baggage Allowance & Fees (Air Arabia 2012; Air Asia 2012; airberlin 2012; CHINA-SSS.COM 2012; easyJet 2012a; Fly540 2012; flydubai 2012; GOL Transportes Aéreos 2012; jetBlue Airways 2012; Jetstar Airways 2012b; kulula.com 2012; Lion Air 2012; Ryanair 2012c; Southwest Airlines 2012; Tiger Airways 2012; Volaris 2012; WestJet 2012).

Notes to Table 9: 1. The fee charged is taken from the respective airline website only. This fee is what the airline charges to take any form of hold luggage with you. In some cases there is a free allowance provided by airlines and this is indicated with the word “none” in the fee column.

2. The conversion from foreign currencies was done by using the average ask price during the period 01 July 2011 to 30 June 2012 in order to capture a full financial year worth of currency trades. This was done in order to avoid a spike in the day-trading on the day the conversion was performed.

3. A variable fee is charged to take any form of hold luggage, and this is charged depending on the route the passenger travels on.

4. The allowance for Spring Airlines is combined between carry-on and hold luggage.

95 5. Only for JustFly fares, FlyClassic and FlyFlex fares have 23 and 46kg of baggage included respectively.

From the Table 9 it is evidenced that from the 17 low-cost carriers studied, there are 9 lowcost carriers that continue to provide their passengers with a free baggage allowance. It is interesting to note that the low-cost carriers that seem to do this are located in the same region as one another. This suggests that customer expectations in these regions dictate that the low-cost carrier should not charge for baggage, but without studying the region and the specific customer on a more detailed basis this cannot be determined with absolute certainty.

The exception to this is the Asian region because AirAsia charges for baggage.

On the other hand, there are 8 low-cost carriers in the study that do charge passengers for baggage. It is again interesting to note that these low-cost carriers seem to also be located in the same region as one another but again the Asian region is an exception to this rule.

Furthermore, it is worth mentioning that whilst airberlin falls under the category of charging for baggage this is only true on their JustFly fares and not on their FlyClassic and FlyFlex fares where a baggage allowance of 23kg and 46kg respectively is already included in the fare.

From the 8 low-cost carriers that charge passengers for baggage, 6 are providing passengers with a range of weight allowances and thus giving passengers the flexibility to pack either a lot of baggage or very little baggage. The base purchase that passengers can buy is usually 15kg allowances, with the exception of the Middle Eastern low-cost carriers and easyJet and airberlin in Europe where the base allowance is 20kg (for airberlin it is 23kg). The passenger is able to purchase additional baggage in ‘increments’ which are usually 5kg blocks of extra baggage on top of the initially purchased allowance. It is interesting to note that the Middle Eastern low-cost carriers are different again by having 10kg increments instead of 5kg increments. It should also be noted that Ryanair only has one 5kg increment initially and then only provides passengers with a further 15kg increment.

A graphical representation of the baggage allowances can be seen in Figure 43.

Figure : Baggage Allowances (Air Arabia 2012; Air Asia 2012; airberlin 2012; CHINA-SSS.COM 2012; easyJet 2012a; Fly540 2012; flydubai 2012; GOL Transportes AĂŠreos 2012; jetBlue Airways 2012; Jetstar Airways 2012b; kulula.com 2012; Lion Air 2012; Ryanair 2012c; Southwest Airlines 2012; Tiger Airways 2012; Volaris 2012; WestJet 2012).

96 The Chart provides an easy overview of the allowances and purchase increments for the airlines. This also allows easy identification of the outliers from the perceived norm in both the free baggage (blue bars) and fee for baggage (red base bars) categories. Southwest Airlines is a clear outlier for the free baggage category considering that it provides at least double the allowance than any other airline in its category. Other outliers in the free baggage category are Volaris and Spring Airlines due to their relatively low 15kg free allowance.

Further on the Southwest Airlines comments, it also, in a way, makes it an outlier in the fee for baggage category because Southwest Airlines is able to offer a higher allowance for free than what one can purchase from any of the airlines in the fee for baggage category. Other outliers in the fee for baggage category are easyJet, airberlin, and Ryanair due to the lack of multiple increments on the base purchase baggage allowance.

It can also be seen that there appears to be consistency in the baggage allowance policy within each geographical region. This is presumably due to consumer behaviour and expectations of the low-cost carriers, however this falls outside of the scope of this study. An exception to this observation is the Asia region where AirAsia does charge passengers for baggage compared to Spring Airlines and Lion Air that do not charge a fee. This can be interpreted as a shift in consumer expectations in the Asian region.

The pricing for baggage allowances varies between the low-cost carriers as evidenced in Table 9. Even though the pricing varies it is still important to establish an average price for the base purchase of baggage allowance, which is $14.54. It is important to establish the average price because then it is clear to see the airlines that are relatively expensive and those that are relatively cheap with their base purchase of baggage allowance.

The majority of the low-cost carriers start their base purchase around the average price; however the clear outliers in the data are Air Arabia that starts its 20kg base package at $2.64 and Ryanair that starts its 15kg base package at $23.05. On the other side of the spectrum, the average price for the highest incremental allowance is $53.21. There is a much wider variance for the highest incremental allowance and the outliers in the data are again Air Arabia that charges $26.40 for its 40kg package and Ryanair that charges $76.82 for its 35kg package. Tiger Airways is also an outlier in the data because it prices its 30kg package at $70.

97 It should be noted that in the calculation of the average price for the base purchase of a baggage allowance, all airlines that charge passengers for any form of baggage allowace are included. On the other hand, only those airlines that offer increments with their allowance are included in the highest incremental allowance calculations. Furthermore, it should be taken into consideration that the pricing for AirAsia and Jetstar Australia were unfortunately not able to be obtained, but it can be assumed that the prices would fall within or close to the ranges discussed.

98 CHAPTER FIVE: CONCLUSION 5.1 Research Question In order for our conclusions to be accurately drawn, we must assess the initial question at hand. As a reminder, the question is ‘How has the LCC business evolved since its inception?

How and why does it vary between different geographical regions?’

The research question was categorised into the characteristics of different low cost carriers that were identified in the literature review. These selected airlines are the leading airlines in their respective regions and where chosen accordingly. The question specifically asks how the LCC business model evolved since its inception. The inception of the LCC business model occurred with Southwest Airlines. Through the presented research, a lot of thought was taken when considering historic events. For example, in the fleet section of the characteristics analysis you will notice that a historic aspect has been implemented in our research. This example shows what aircraft are being used today as opposed to previously, when southwest had begun.

More importantly a big emphasis on region was implemented in the given research.

Considering there are many variables between regions across the globe, it was safe to assume that these variables in culture, economy and other factors would greatly affect the business model and operations of different airlines in different regions. As stated before, the leading low cost carriers of each region where selected for our analysis.

5.2 Interpretations & Implications 5.2.1 Use of Secondary Airports The use of secondary airports by low-cost carriers has always been a key characteristic; however when the analysis of the destinations was carried out the result indicated that lowcost carriers worldwide are in fact using primary airports more than secondary airports.

Whilst this finding is significant, this is not a representation of the actual capacity usage of the airports. It is a representation of the primary airports versus secondary airports as a destination only. The global trend from all the airline’s destinations that were analysed does show a 76% primary airport to 24% secondary airport split. This implies that the use of secondary airports as a destination airport has declined significantly since the inception of Southwest Airlines.

5.2.2 Aircraft Turnaround Times There are many variables when considering aircraft turnaround times. Every individual aircraft is different. However, as stated before, STARs have created a minimum turn around

99 equation that if used correctly can be applied to all of the given airlines and aircraft. In saying this it will greatly improve safety if followed.

There are many variables with turnaround times according to the research. The implication of these variables can be different for many airlines, for example, some airlines can exclude several variables, making their turnaround times shorter, whilst other airlines (particularly long-haul LCCs) may require all of these variables to be part of the turnaround process.

5.2.3 Fleet Structure When the analysis of the fleet was carried out, the results were separated into decades. The visual representations provided by the graphs show how each airline has developed its fleet since they began operations. The results clearly show that Southwest Airlines has been the pioneer in low-cost carrier fleet design. From the beginning, they were a significant customer for the Boeing 737 family, thus helping to cement the 737 family as the aircraft of choice for LCCs. As the A320 family gained popularity, it has taken a significant amount of the market share from Boeing. The increase of the A320 family’s market share has allowed it to become the only major contender to the Boeing 737 family, which has been on the market for two decades longer. The implications of this increase could be that, given more time, the A320 family could become the aircraft of choice for LCCs, thus suggesting that the costs associated with operating the A320 family could be lower than for the 737 family.

5.2.4 Pricing Strategies to Obtain Market Share The pricing strategies of the respective airlines were not limited to the researched parameters. A perfect example of this would be the difference in Jetstar’s and Tiger’s tickets where one-way ticket prices where better value with Tiger, however Jetstar would be relatively cheaper in the return segment.

The Middle East had the most competitive LCC market with very close ticket pricing. The study did not address ticket pricing of the previous years and has only taking into account present time. This directly reflects today’s volatile market and patterns in the Middle East did not arise when assessing some of the other regions.

There was one particular trend however with 2 weeks in advance being by far the cheapest time to book tickets. This is essentially to increase payload on the closer flights and considering it has been adopted by most the researched airlines, it can be seen as being a standard trait across the world’s LCC market.

100 Another results interpretation that was drawn from the research was the long-haul versus short-haul pricing strategies. By referring to the study of the Middle Eastern pricing strategies, it can be noted that flydubai, who operate a fleet of Boeing 737-800s, provide cheaper flights for short haul operations. By comparison, their competitor, Air Arabia, offered better deals for the short haul operations. This is directly attributed to pay load and aircraft range. The implication is a business driven economies of scale strategy, where the more people you can fit in the aircraft the cheaper it would be transport each passenger.

5.2.5 Outsourcing of Service The trends in the results of outsourcing services indicate that in the current time there are three main services which the selected airlines outsource. The three most prevalent services consist of; maintenance, customer service and information technology. Out of the 17 LCCs selected, 11 of them partake in the outsourcing of one or more of these services. After extensive research in the study, no information was found in regards to outsourcing for Fly540, Kulula.com, Volaris, and Spring Airlines. In saying that, the study was able to find information for the rest of the airlines. GOL Transportes AĂŠreos was ranked at the top in terms of the number of services outsourced according to the study done.

After further analysing the results gained, it is noticeable that LCC business models have realised the benefits of outsourcing some of their non-core activities in which it helps the airline/business focus operations on ‘core’ activities more effectively. Southwest being the pioneer of low-cost carriers, the results implicate that the later established airlines have followed the Southwest trend and as mentioned above, decided to outsource non-core activities to according companies.

5.2.6 Pre-Flight & Inflight Services The information gathered for the pre-flight and inflight services was summarised in tables, which cover all of the key services provided by LCCs. The findings demonstrate the differences between each of the regions in the choice of services that are available. The airlines of selected regions (e.g. North America) have made the decision to provide a selection of these services from free, whilst airlines in other regions (e.g. Europe) have opted to charge for most or all of their ancillary services (i.e. Ryanair).

5.2.7 Charging for Baggage The literature review suggests that low-cost carriers are increasingly charging its passengers to take any luggage in the aircraft hold. Through the analyses of the chosen 17 low-cost carriers it was possible to see that there were only 8 low-cost carriers that currently charged passengers for taking any luggage in the aircraft hold. The other 9 low-cost carriers all provided a free allowance for passengers. It can be seen that the low-cost carriers within each geographical region analysed had a consistent baggage allowance policy. An exception to this observation is the Asia region where Air Asia does charge passengers for baggage

101 compared to Spring Airlines and Lion Air that do not charge a fee. The implication for passengers is that as low-cost carriers start to introduce these ancillary charges, the cost of flying ultimately increases for passengers.

5.3 Limitations & Generalisability There are several areas where our research has been limited, such as our research design and the gathering of results. Our research design was limited to seven geographical regions and to two or three airlines in each of those regions, for a total of seventeen airlines. This creates a significant limitation because it is not possible to ensure complete accuracy of the results within each region and indeed ensure accuracy as a whole. Further detailed study within each region would need to be done in order to provide greater accuracy of the results.

It would also be interesting to see how the business models differ within each region and whether or not these differences can be attributed to specific districts in the region. This study should not be seen as a generalisation of the low-cost carrier industry within each region, but rather as a framework for further studies within each region. Trends within each region are noticeable, but without further study it is not possible to conclusively determine a general trend in each region and indeed across the globe for certain characteristics such as outsourcing of services or the aircraft turnaround times.

Furthermore, our research design was based on the use of secondary data for the gathering and analysis of our results. This only allows for the use of data that has already been gathered by other people or organisations and data that is publicly accessible. This poses a limitation for our research because it does not allow us to analyse some aspects of the business models, such as interlining. It also limits our ability to fully analyse other aspects of the business models in terms of their evolution because of limited or no historic data available for aspects, such as baggage charges.

5.4 Significance of Findings Throughout the study it was found that the use of secondary airports as destinations has not been as high as our expectation. Whilst the use of secondary airports is considered to be a key characteristic of a low-cost carrier, the percentage of secondary airports that were used as destinations worldwide was only 24%. This suggests that the low-cost carriers have moved away from the original strategy used by Southwest Airlines and have begun to use airports that people wanted the airlines to use. A further significant finding was that Ryanair was the only low-cost carrier that uses a higher amount, which is 57%, of secondary airports compared to primary airports.

102 There are many variables when considering aircraft turnaround times. Every individual aircraft is different. However, as stated before, STARs have created a minimum turn around equation that, if used correctly, can be applied to all of the given airlines and aircraft.

The common trend in analysing fleet structure was how each LCC developed its fleet size over time. Initially the Boeing 737 was the most popular but as the Airbus gained popularity it has also helped itself into the LCC market. The significance of the A320 becoming more and more popular amongst LCCs suggests that costs associated with operating the A320 family could be lower than for the 737 family.

When it comes to pricing strategies, not only is it that route structure affects ticket pricing but also inflight services. The airlines in the Middle East have the most competitive ticket pricing of all the other regions concerning LCCs. Another trend that was picked up by the study was that when it came to pricing strategies, it was evident that purchasing a ticket 2 weeks in advance was by far the cheapest time to book tickets. This is essentially to increase payload on the closer flights and considering it has been adopted by most of the researched airlines, it is a standard trait across the world’s LCC market.

Another results interpretation that was drawn from the research was the Long haul vs. short haul pricing strategy. This is directly attributed to pay load and aircraft range. The implication is a business driven economies of scale strategy where the more people you can fit in the aircraft the cheaper it would be to transport each passenger.

Pre-flight and in-flight services offered further significant findings because the different LCCs around the regions offer varying levels of service to customers. For instance, some have made the decision to provide a selection of these services for free, whilst airlines in other regions (e.g. Europe) have opted to charge for most or all of their ancillary services (i.e.

Ryanair).

When it comes to outsourcing, the findings indicate that the airlines attempt and do outsource any activities that they assume do not fall under ‘core activities’ of the business.

This way they can focus their resources and energy on activities that are ‘core’ to the airline.

It was seen that the low-cost carriers within each geographical region analysed had a consistent baggage allowance policy. There was, however, an exception in the Asia region which is significant because it suggests that airlines are changing consumer expectations

103 across the world.

5.5 Problems & Suggestions for Further Studies After thorough research was carried out about the evolution of each of the characteristics, it was found that the historic information for the majority of the characteristics was not available from the secondary data that was gathered for the research. This lack of information made it difficult to carry out a full analysis of the evolution of the characteristics as well as the business model as a whole.

Several suggestions as to what further studies could be carried out include dedicated projects for each of our specific characteristics, including:

•

How has the route structures of LCCs changed with the expansion & evolution of their fleets?

•

How do aircraft turnaround times affect the schedule and utilisation of the fleet?

•

Which is the most cost effective aircraft family for LCCs to operate out of the A320 and 737 Family?

•

How have the pricing strategies of the LCCs evolved over time?

•

How do the pricing strategies of LCCs differ from FSCs?

•

Which services are outsourced by LCCs? How does this affect their annual expenditure compared with before they outsourced these services?

•

How have LCCs used in-flight services to attract customers to their airline? Which inflight services have been the most successful?

•

What percentage of LCC revenue is formed by charges for ancillary services?

•

How do consumer behaviours and expectations influence the policies of the LCCs around the world?

A similar study to this could be carried out in a specific continent, such as Europe, and then by splitting the continent up into regions, such as North, East, South, West, and Central Europe.

BIBLIOGRAPHY AECT 2001, 41.1 What Is Descriptive Research?, viewed 24 May 2012, <http://www.aect.org/edtech/ed1/41/41-01.html>.

Air Arabia 2012, airarabia.com, viewed 02 October 2012, <http://www.airarabia.com/home>.

Air Asia 2012, Air Asia - World's Best Low Cost Airline 2009 - 2010 - 2011 - 2012, viewed 01 October 2012, <http://www.airasia.com/au/en/home.page>.

104 AirAsia 2012, AirAsia - World's Best Low Cost Airline 2009 - 2010 - 2011 - 2012, viewed 01 October 2012, <http://www.airasia.com/au/en/home.page>. airberlin 2012, airberlin.com - Your Airline, viewed 02 October 2012, <http://www.airberlin.com/en-GB/site/start.php>.

Airbus S.A.S. 2012a, A318, viewed 24 September 2012, <http://www.airbus.com/aircraftfamilies/passengeraircraft/a320family/a318/>.

Airbus S.A.S. 2012b, A320 Family, viewed 29 September 2012, <http://www.airbus.com/aircraftfamilies/passengeraircraft/a320family/>.

Al-kaabi Hamad, Potter Andrew & Mohamed, N 2007, 'Journal of Quality in Maintenance Engineering Emerald Article: An outsourcing decision model for airlines' MRO activities', vol.

13, pp. 217 - 227,viewed 13 April 2012.

Alamdari, F & Fagan, S 2005, 'Impact of the adherence to the original low‐cost model on the profitability of low‐cost airlines', Transport Reviews, vol. 25, no. 3, 2012/04/17, pp. 377-392, Taylor & Frances Online, Taylor & Frances, viewed 17 April 2012.

AMEinfo 2007, Air Arabia ups customer service in Saudi with Frontliners and Altitude Software, viewed 12 october 2012, <http://www.ameinfo.com/119915.html?rsslink>.

Attwood, E 2008, 'Mercator scores outsourcing deal with WestJet', Arabian Business, viewed 10 October 2012.

'Blue skies, red ink, black future', 1995, Economist, vol. 335, no. 7913, pp. 61-64, Business Source Complete, EBSCOhost, Boeing 2012, 737 Family, viewed 29 September 2012, <http://www.boeing.com/commercial/737family/background.html>.

Bowen, GN 2010, Outsourcing Helps Southwest Airlines Make Passenger Journeys Easier, viewed 15 October 2012, <http://www.outsourcing-center.com/2010-02-outsourcing-helpssouthwest-airlines-make-passenger-journeys-easier-article-37271.html>.

Box, TM & Byus, K 2009, 'SOUTHWEST AIRLINES 2007', Journal of the International Academy for Case Studies, vol. 15, no. 1, pp. 21-27, Business Source Complete, EBSCOhost, viewed 20 March 2012.

Brown, DP 2010, Who Has Wider Seats: the Airbus A320 or the Boeing 737?, Airline Reporter, viewed 10 September 2012, <http://www.airlinereporter.com/2010/11/who-haswider-seats-airbus-a320-or-boeing-737/>.

Brüggen, A & Klose, L 2010, 'How fleet commonality influences low-cost airline operating performance: Empirical evidence', Journal of Air Transport Management, vol. 16, no. 6, pp.

299-303, SciVerse, Scopus, viewed 17 April 2012.

Camerford, G 2009, 'Can you outsource customer service', viewed 12 October 2012, <http://process-cafe.blogspot.com.au/2009/11/can-you-outsource-customer-service.html>.

China CYTS Tours 2012, Air-Spring-Airlines, viewed <http://www.chinatraveldepot.com/AirSpring-Airlines>.

CHINA-SSS.COM 2012, Spring Airlines, viewed 02 October 2012, <http://www.chinasss.com/en>.

105 Colorado State University 2012, The Qualitative versus Quantitative Debate, viewed 26 May 2012, <http://writing.colostate.edu/guides/research/gentrans/pop2f.cfm>.

Convention on Interntational Civil Aviation 1944, International Civil Aviation Organisation, Chicago.

David Evans 2006, ''Trust but Verify' is Jetblue approach to outsourced approach', De Murias, R 1989, The economic regulation of international air transport, McFarland, Jefferson, NC u.a.

Deprez, E 2009, 'For Airlines, Fees become lifelines', viewed 20 May 2012.

Dhalla, M 2005, Ryanair MarketBuster, viewed 15 October 2012, <http://ritamcgrath.com/ee/images/uploads/Ryanair_Report.pdf>.

Dobson, A 2010, 'Civil Aviation and European Integration: Creating the Seemingly Impossible SEAM', Journal of Common Market Studies, vol. 48, no. 4, pp. 1127-1147, Business Source Complete, EBSCOhost, viewed 01 May 2012.

Doganis, R 2002, Flying Off Course: The Economics Of International Airlines, Routledge, viewed 22 April 2012. easyJet 2012a, easyJet, viewed 02 October 2012, <http://www.easyjet.com/en>. easyJet 2012b, easyJet plc, viewed 20 October 2012, <http://corporate.easyjet.com/? sc_lang=en>.

EDGR 2012, Fetch Filling, viewed 14 october 2012, <http://www.edgr.com/>.

ERA Air Safety Work Group 2005, Minimum Safe TurnAround Time, 'Europe's new rules: substance or illusion?', 1988, Flight International,viewed 09/05/2012.

Evans, D 2006, ''Trust but Verify' is Jetblue approach to outsourced approach', Aviation Today, viewed 10 October 2012.

Fly540 2012, Fly540 - Africa's Low Cost Airline, viewed 01 October 2012, <http://www.fly540.com/>. flydubai 2012, flydubai, viewed 02 October 2012, <http://flydubai.com/>.

Gillen, D 2005, 'The Evolution of Networks with Changes in Industry Structure and Strategy: Connectivity, Hub-and-Spoke and Alliances', Research in Transportation Economics, vol. 13, pp. 49-73, Scopus, SciVerse, viewed 20 March 2012.

Gillen, D & Morrison, WG 2005, 'Regulation, competition and network evolution in aviation', Journal of Air Transport Management, vol. 11, no. 3, pp. 161-174, Scopus, SciVerse, viewed 20 March 2012.

GOL Transportes AĂŠreos 2012, GOL Linhas aĂŠreas inteligentes, viewed 01 October 2012, <http://www.voegol.com.br/en-us/Paginas/default.aspx>.

Graham, B & Shaw, J 2008, 'Low-cost airlines in Europe: Reconciling liberalization and sustainability', Geoforum, vol. 39, no. 3, pp. 1439-1451, Scopus, SciVerse, viewed 26 March 2012.

106 Graham, M 2009, 'Different models in different spaces or liberalized optimizations?

Competitive strategies among low-cost carriers', Journal of Transport Geography, vol. 17, no.

4, pp. 306-316, Scopus, SciVerse, viewed 26 March 2012.

Grimm, CM & Milloy, HB 1993, 'Australian domestic aviation deregulation: impacts and implications', The Logistics and Transportation Review, vol. 29, no. 3, p. 259, Gross, S & LĂźck, M 2011, 'Flying for a buck or two: Low-cost carriers in australia and new zealand', European Journal of Transport and Infrastructure Research, vol. 11, no. 3, pp. 297319, SciVerse, Scopus, viewed 15 May 2012.

Harney, J 2007, 'Engine performance monitoring drives down costs and improves customer service for southwest airlines', viewed 22 IOctober 2012, <http://www.outsourcingcenter.com/2007-06-engine-performance-monitoring-drives-down-costs-and-improvescustomer-service-for-southwest-airlines-article-37539.html>.

Hedman, J & Kalling, T 2003, 'The business model concept: Theoretical underpinnings and empirical illustrations', European Journal of Information Systems, vol. 12, no. 1, pp. 49-59, Hill, CWL 1988, 'Differentiation Versus Low Cost or Differentiation and Low Cost: A Contingency Framework', Academy of Management Review, vol. 13, no. 3, pp. 401-412, Business Source Complete, EBSCOhost, viewed 26 March 2012. ihotdesk 2007, Outsourcing for EasyJet, viewed 20 October 2012, <http://www.ihotdesk.co.uk/article.asp?ID=18248392>.

International Air Transport Association 1997, Airport Handling Manual. 17th Edition, viewed 01 May 2012.

International Civil Aviation Organization 2012, 'Strong Traffic Growth in 2011 Reflects Improved Global Economic Climate', viewed 01 Nov 2012.

InterVISTAS-EU 2009, The Impact of International Air Service Liberalisation on the United Arab Emirates viewed 27 may 2012. jetBlue Airways 2012, jetBlue, viewed 01 October 2012, <http://www.jetblue.com/>.

Jetstar Airways 2012a, Fleet, viewed 14 October 2012, <http://www.jetstar.com/mediacentre/facts-and-stats/fleet>.

Jetstar Airways 2012b, Jetstar, viewed 02 October 2012, <http://www.jetstar.com/au/en/home>.

Kho, C, Aruan, SH, Tjitrahardja, C & Narayanaswamy, R 2005, Air Asia-Strategic IT Initiative, thesis, Faculty of Economics and Commerce, University of Melbourne.

Knorr, A, Lemper, A, Sell, A & Wohlmuth, K 2004, Competitive advantage through innovative pricing stratagies: the case of the airline industry, thesis, Universitat Bremen. kulula.com 2012, kulula.com, viewed 01 October 2012, <http://www.kulula.com/>.

Kumar, HM 2010, 'Abu Dhabi Aircraft Techonologies wins flydubai service deal', Gulf News, viewed 27 October 2012.

Lei, Z & Oâ&#x20AC;&#x2122;Connell, JF 2011, 'The evolving landscape of Chinese aviation policies and impact of a deregulating environment on Chinese carriers', Journal of Transport Geography, vol. 19, no. 4, pp. 829-839,

107 Lettyann 2012, Exploratory Research and Descriptive Research, viewed 24 May 2012, <http://lettyann.hubpages.com/hub/Exploratory-Research-and-Descriptive-Research>.

Levine, J 1997. lindgardt, Z, Reeves, M, Stalk, G & S. Deimler, M 2009, Business Model Innovation, viewed 10 may 2012.

Lion Air 2012, Lion Air - We make people fly, viewed 02 October 2012, <http://www2.lionair.co.id/Default.aspx>.

Merkert, R & Hensher, DA 2011, 'The impact of strategic management and fleet planning on airline efficiency - a random effects tobit model based on dea efficiency scores', Transportation Research Part A: Policy and Practice, vol. 45, no. 7, pp. 686-695, SciVerse, Scopus, viewed 15 May 2012.

Morrison, SA & Winston, C 1989, 'Airline deregulation and public policy', Science, vol. 245, no. 4919, p. 707, O'Connell, FD 2009, ANCILLARY REVENUESâ&#x20AC;&#x201C; A GAME CHANGER FOR THE AIRLINE INDUSTRY, viewed 13 May 2012.

Osman, N 2012, 'GMF to construct new hangar in December', The Jakarta Post, viewed 10 October 2012.

Osterwalder, A 2005, 'Clarifying business models: origins, present, and future of the concept', communications of AIS, vol. 15, Planespotters.net 2012, Airline Fleets Index, viewed 14 October 2012, <http://www.planespotters.net/Airline/index.php>.

Porter, ME 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, New York.

Pratt, B & Loizos, P 1992, Choosing research methods: data collection for development workers, Oxfam Pubns.

Pustay, MW 1992-3, 'TOWARD A GLOBAL AIRLINE INDUSTRY: PROSPECTS AND IMPEDIMENTS', LOGISTICS AND TRANSPORTATION REVIEW, vol. 28, no. 1viewed 22 April 2012.

Qantas Airways 2012, Qantas Next Generation Boeing 737-800, viewed <http://www.qantas.com.au/travel/airlines/next-generation-boeing-737-800/global/en>.

QS Advisory 2012, Mercator strengthen partnership with Canadian Carrier WestJet, viewed 05 October 2012, <http://www.qsadvisory.com/industry_updates-view.php? news=616>.

Ramamurti, R & Sarathy, R 1997, 'DEREGULATION AND GLOBALIZATION OF AIRLINES', International Trade Journal, vol. 11, no. 3, Fall97, pp. 389-432, Business Source Complete, EBSCOhost, viewed 22/04/2012.

'Reach for the open sky', 1994, Economist, vol. 333, no. 7888, p. 15, Business Source Complete, EBSCOhost, viewed 22 April 2012.

Reynolds-Feighan, A 2001, 'Traffic distribution in low-cost and full-service carrier networks in the US air transportation market', Journal of Air Transport Management, vol. 7, no. 5, pp.

265-275, Scopus, SciVerse, viewed 26 March 2012.

108 Richardson, J, Ashley, D & Sinclair, MK 2005, 'The Impacts of Low Cost/No Frills Airlines on Airport Growth Forecasting.', viewed 20 April 2012.

Rizvi, M 2011, 'UAE airlines dominate low-cost segment', Khaleej times, viewed 10 may 2012.

Rose, W 1981, 'Three Years After Airline Passenger Deregulation in the United States: A Report Card on Trunkline Carriers', Transportation Journal (American Society of Transportation & Logistics Inc), vol. 21, no. 2, Winter81, pp. 51-58, Business Source Complete, EBSCOhost, viewed 17 April 2012.

Rosenthal, BE 2005, 'WestJet Lands Top Talent by Outsourcing Recruiting Software', viewed 10 October 2012, <http://www.outsourcing-center.com/2005-08-westjet-lands-top-talent-byoutsourcing-recruiting-software-article-37655.html>.

Ryanair 2012a, About Us, viewed 16 October 2012, <http://www.ryanair.com/en/about>.

Ryanair 2012b, MAINTENANCE AND REPAIRS, viewed 26 October 2012, <http://www.ryanair.com/doc/investor/MaintenanceRepairs.pdf>.

Ryanair 2012c, RYANAIR, viewed 02 October 2012, <http://www.ryanair.com/en>.

Sapsford, R & Jupp, V 1996, Data collection and analysis, Sage Publications Ltd. Saulwick, J 2012, 'Curfew breaches risk $1m fine', Sydney Morning Herald, viewed 03 November 2012.

Southwest Airlines 2012, SOUTHWEST.COM, viewed 01 October 2012, <http://www.southwest.com/>.

Spradley, JP 1979, The Ethnographic Interview, Harcourt Brace Jovanovich College Publishers, viewed 26 May 2012.

Tiger Airways 2012, tigerairways.com, viewed 02 October 2012, <http://www.tigerairways.com/au/en/>.

Tyler, C 2010, Cost Structure - Irreconcilable Differences?, IATA, viewed 07 May 2012, <http://www.iata.org/pressroom/airlines-international/june-2010/pages/08.aspx>.

University of California 2012, Chapter 4 - Quantitative and Qualitative Research, viewed 26 May 2012, <http://www.socsci.uci.edu/ssarc/sshonors/webdocs/Qual%20and %20Quant.pdf>.

VanceInfo 2011, VanceInfo Announces IT Services Agreement With AirAsia in Malaysia, viewed 10 October 2012, <http://www.vanceinfo.com/en/newsroom/PressRelease/20110707>.

Volaris 2012, volaris, viewed 01 October 2012, <http://www.volaris.mx/en/>.

Wang, ZH 2004, 'Deregulation and Globalisation: Process, Effects and Future Challenges to Air Transport Markets', Journal of American Academy of Business, Cambridge, vol. 5, no.

1/2, pp. 455-463, Business Source Complete, EBSCOhost, viewed 26 May 2012.

WestJet 2012, WESTJET, viewed 01 October 2012, <http://www.westjet.com/guest/en/home.shtml>.

109 Wu, CL & Caves, RE 2000, 'Aircraft operational costs and turnaround efficiency at airports', Journal of Air Transport Management, vol. 6, no. 4, pp. 201-208, SciVerse, Scopus, viewed 01 May 2012.

110

111 APPENDICES Appendix A

Region

Airline

Fly540

Africa

Kulula.com

Southwest Airlines (incl. AirTran)

North America

jetBlue

WestJet

GOL Transportes AĂŠreos South America

Volaris

Air Asia (including Air Asia X, Philippines, and Japan)

Asia

Spring Airlines

Lion Air

Table : MSTAT Estimates

MSTAT Estimates Variables Region

Airline

Variables IFE No (computers) Crew Yes Change

IFE (computers)

No

Crew Change

Yes

>50 pax

Yes

Total

32 mins

IFE (computers)

No

Crew Change

Yes

>50 pax

Yes

>50 pax

Yes

Total

32 mins

Total

32 mins

IFE (computers)

No

Crew Change

Yes

>50 pax

Yes

Total

32 mins

IFE (computers)

Yes

Crew Change

Yes

>50 pax

Yes

Total

37 mins

IFE (computers)

Yes

Crew Change

Yes

>50 pax

Yes

>50 pax

Yes

Total

37 mins

Total

37 mins

IFE (computers)

No

Crew Change

Yes

>50 pax

Yes

Total

32 mins

IFE (computers)

Yes

Crew Change

Yes

>50 pax

Yes

>50 pax

Yes

Total

37 mins

Total

32 mins

IFE (computers)

Yes

Crew Change

Yes

>50 pax

Yes

Total

37 mins

IFE (computers)

No

Crew Change

Yes

>50 pax

Yes

Total

32 mins

IFE (computers)

No

Crew Change

Yes

>50 pax

Yes

Total

32 mins

easyJet (incl. easyJet Switzerland)

Europe

Ryanair

Air Berlin (incl. Air Berlin Turkey)

flydubai

Middle East

Air Arabia

Jetstar Airways

Australia

Tiger Airways Australia

>50 pax

Yes

Total

32 mins

IFE (computers) Crew Change

IFE (computers) Crew Change

No Yes

Yes Yes

>50 pax

Yes

Total

37 mins

IFE (computers) Crew Change

Yes Yes

>50 pax

Yes

Total

37 mins

IFE (computers) Crew Change

IFE (computers) Crew Change

Yes Yes

Yes Yes

>50 pax

Yes

Total

37 mins

IFE (computers) Crew Change

No Yes

112 (Air Arabia 2012; AirAsia 2012; airberlin 2012; CHINA-SSS.COM 2012; easyJet 2012a; ERA Air Safety Work Group 2005; Fly540 2012; flydubai 2012; GOL Transportes AĂŠreos 2012; jetBlue Airways 2012; Jetstar Airways 2012b; kulula.com 2012; Lion Air 2012; Ryanair 2012c; Southwest Airlines 2012; Tiger Airways 2012; Volaris 2012; WestJet 2012)

113 Appendix B

Region

Combined Historic Airline Fleets Number Aircraft of aircraft Region retired

Airline

Airline

Fly540

ATR 42-300

3

easyJet (incl. easyJet Switzerland)

kulula.com

B737-200 B737-400 B737-800 MD-82

2 4 1 6

Ryanair

Africa

Europe

Asia

Aircraft

Southwest Airlines (incl. AirTran)

A320-200 B717-200 B737-200 B737-300 B737-500 B737-700 DC-9-30

4 1 73 49 4 6 41

airberlin (incl. airberlin Turkey)

jetBlue

A320-200 ERJ-190AR

12 3

flydubai

B737-800

2

WestJet

B737-200 B737-800 B757-200

25 2 1

Air Arabia (incl. Air Arabia Maroc & Air Arabia Egypt)

A320-200

11

GOL Transportes AĂŠreos

B737-300 B737-700 B737-800 B767-300ER

16 5 14 1

Jetstar Airways

A320-200 B717-200

4 14

Volaris

N/A

N/A

Tiger Airways Australia

A320-200

1

AirAsia (including AirAsia X, Philippines, and Japan)

A320-200 B737-200 B737-300 B747-200 MD-11ER

7 2 32 3 1

Spring Airlines

A320-200

1

Lion Air

A310-300 B737-200 B737-400 B737-900ER MD-80 MD-90-30

1 2 5 4 19 5

North America

South America

A319-100 A320-200 A321-200 B737-200 B737-300 B737-400 B737-700 B757-200 ATR 42-300 B737-200 B737-300 B737-400 B737-800 BAC 1-11 EMB 110 HS 748 A319-100 A320-200 A321-200 A330-300 B737-300 B737-400 B737-500 B737-700 B737-800 B757-200 BAe 146 F100 MD-83

Number of aircraft retired 35 14 8 2 57 1 33 4 4 21 7 1 45 6 1 2 13 37 1 1 11 13 1 8 50 4 4 18 1

Table : Combined Historic Airline Fleets (Planespotters.net 2012)

Middle East

Australia

114

Aircraft Deliveries from 1970 to 1989 Region

Airline

Aircraft

Number

North America

Southwest Airlines (incl. AirTran)

B737-200 B737-300

58 48

Ryanair

ATR-42-300 BAC 1-11 Bandeirante HS748

3 6 1 2

Europe

Table : Aircraft Deliveries from 1970 to 1989 (Planespotters.net 2012)

Aircraft Deliveries from 1990 to 1999 Region

North America

Asia

Airline

Aircraft

Number

Southwest Airlines (incl. AirTran)

B717-200 B737-200 B737-300 B737-500 B737-700 DC-9-30

8 15 147 25 57 41

jetBlue

A320-200

1

WestJet

B737-200

16

AirAsia (including AirAsia X, Philippines, and Japan)

B737-200 B737-300 MD-11ER

2 2 1

B737-200 B737-300 B737-800 ATR-42-300 B737-200 B737-400 B737-800 B757-200

2 18 5 1 21 12 10 2

easyJet (incl. easyJet Switzerland) Europe

Ryanair airberlin (incl. airberlin Turkey)

Table : Aircraft Deliveries from 1990 to 1999 (Planespotters.net 2012)

115

Aircraft Deliveries from 2000 to 2009 Region

Airline

Aircraft ATR-42-300 CRJ-100ER DHC-8-100 B737-200 B737-400 B737-800 MD-82 A320-200 B717-200 B737-700 A320-200 ERJ-190AR B737-200 B737-600 B737-700 B737-800

Number 2 1 3 2 8 2 6 4 79 341 121 43 9 13 63 12

GOL Transportes AĂŠreos

B737-300 B737-700 B737-800 B767-300ER

16 36 63 1

Volaris

A319-100 A320-200

19 2

AirAsia (including AirAsia X, Philippines, and Japan)

A320-200 A330-300 A340-300 B737-300 B747-200

49 6 1 30 3

Spring Airlines

A320-200

13

Lion Air

A310-300 B737-200 B737-300 B737-400 B737-900ER B747-400 MD-80 MD-90-30

1 2 2 10 30 2 20 5

easyJet (incl. easyJet Switzerland)

A319-100 A320-200 A321-200 B737-300 B737-400 B737-700

164 16 8 39 1 33

Ryanair

B737-300 B737-400 B737-800

7 1 233

airberlin (incl. airberlin Turkey)

A319-100 A320-200 A321-200 A330-200 A330-300 B737-400 B737-500 B737-700 B737-800 B757-200 BAe 146 DHC-8-400 Fokker F100 MD-83

16 44 8 10 3 1 1 30 46 2 4 10 18 1

B737-800

3

A320-200

24

Jetstar Airways

A320-200 A321-200 A330-200 B717-200

34 6 7 14

Tiger Airways Australia

A320-200

7

Fly540 Africa Kulula.com Southwest Airlines (incl. AirTran) North America

jetBlue

WestJet

South America

Asia

Europe

Middle East

Australia

flydubai Air Arabia (incl. Air Arabia Maroc & Air Arabia Egypt)

Table : Aircraft Deliveries from 2000 to 2009 (Planespotters.net 2012)

116 Aircraft Deliveries from 2010 to Present Day Region

Africa

Airline

Aircraft ATR-42-300 ATR-72-200 CRJ-100ER DC-9-10 ERJ-170LR B737-800

Number 1 4 2 2 1 5

B717-200 B737-700 B737-800

2 42 26

A320-200 ERJ-190AR B737-700 B737-800 B757-200 B737-700 B737-800

14 12 6 7 1 3 24

Volaris

A319-100 A320-200

5 11

AirAsia (including AirAsia X, Philippines, and Japan)

A320-200 A330-300 A340-300

21 3 1

Spring Airlines

A320-200

20

Lion Air

B737-800 B737-900ER

10 38

easyJet (incl. easyJet Switzerland)

A319-100 A320-200 B757-200

1 44 4

Ryanair

B737-800

105

airberlin (incl. airberlin Turkey)

A319-100 A320-200 A321-200 A330-200 B737-700 B737-800

5 27 5 2 2 33

B737-800

22

A320-200

22

A320-200 A330-200 A320-200

20 4 4

Fly540

Kulula.com Southwest Airlines (incl. AirTran) North America

jetBlue WestJet

South America

Asia

GOL Transportes AĂŠreos

Europe

Middle East

Australia

flydubai Air Arabia (incl. Air Arabia Maroc & Air Arabia Egypt) Jetstar Airways Tiger Airways Australia

Table : Aircraft Deliveries from 2010 to Present Day (Planespotters.net 2012)

117

Region

Africa

North America

South America

Asia

Europe

Middle East

Australia

Current Airline Fleets Airline Aircraft ATR 72-200 CRJ-100ER Fly540 DHC-8-100 DC-9-14 ERJ-170LR B737-400 Kulula.com B737-800 B717-200 B737-300 Southwest Airlines (incl.

B737-500 AirTran) B737-700 B737-800 A320-200 jetBlue ERJ-190AR B737-600 WestJet B737-700 B737-800 B737-700 GOL Transportes AĂŠreos B737-800 A319-100 Volaris A320-200 A320-200 AirAsia (including AirAsia X, A330-300 Philippines, and Japan) A340-300 Spring Airlines A320-200 B737-300 B737-400 B737-800 Lion Air B737-900ER B747-400 MD-82 easyJet (incl. easyJet A319-100 Switzerland) A320-200 Ryanair B737-800 A319-100 A320-200 A321-200 A330-200 airberlin (incl. airberlin Turkey) A330-300 B737-700 B737-800 DHC-8-400 flydubai B737-800 Air Arabia (incl. Air Arabia A320-200 Maroc & Air Arabia Egypt) A320-200 Jetstar Airways A321-200 A330-200 Tiger Airways Australia A320-200

Table : Current Airline Fleets (Planespotters.net 2012)

Number of Aircraft 4 3 3 2 1 4 6 88 146 21 424 26 124 52 13 69 17 33 73 24 13 63 9 2 33 2 5 10 64 2 1 159 55 298 7 34 12 12 2 24 39 10 25 35 50 6 11 11

118 Appendix C One-Way Tickets Australia

Shorthaul – As soon as possib le Shorthaul – 2 weeks in advan ce Shorthaul – 1 month in advan ce Longhaul – As soon as possib le Longhaul – 2 weeks in advan ce Longhaul – 1 month in advan ce

Middle East

North Ameri ca

Jetstar

Tiger

flydub ai

Air Arabia

South west

jetBlue

$75.00

$54.95

$122.9 3

$77.82

$481.0 0

$232.0 0

$65.00

$44.95

$28.74

$20.53

$77.00

$57.00

$65.00

$44.95

$108.9 5

$77.82

$83.00

$67.00

$249.0 0

$134.9 5

$454.5 3

$452.4 2

$575.0 0

$481.0 0

$179.0 0

$149.9 5

$218.1 6

$200.4 9

$189.9 4

$239.3 6

$219.0 0

$149.9 5

$218.1 6

$149.0 5

$481.0 0

$439.0 0

Return Tickets Australia

Middle East

North Ameri

119 ca

Shorthaul – As soon as possib le Shorthaul – 2 weeks in advan ce Shorthaul – 1 month in advan ce Longhaul – As soon as possib le Longhaul – 2 weeks in advan ce Longhaul – 1 month in advan ce

Jetstar

Tiger

flydub ai

Air Arabia

South west

jetBlue

$85.00

$70.00

$139.6 8

$87.19

$141.0 0

$106.0 0

$49.00

$49.50

$58.96

$73.34

$67.00

$62.00

$60.00

$60.00

$58.96

$73.34

$70.00

$72.00

$289.0 0

$134.9 5

$261.5 6

$230.1 7

$328.5 0

$511.5 0

$189.0 0

$149.9 8

$137.1 8

$170.8 1

$156.5 0

$316.0 0

$199.0 0

$142.4 5

$137.1 8

$145.0 9

$463.0 0

$415.0 0

Table : One-Way Tickets & Return Tickets (Air Arabia 2012; flydubai 2012; jetBlue Airways 2012; Jetstar Airways 2012b; Southwest Airlines 2012; Tiger Airways 2012)

120 Figure : One-Way Tickets

Figure : Return Tickets

121

Appendix D Pre-flight and Inflight Services Services Provided

Africa

North America

South America

Asia

additional costs apply unless specified

Fly540

Kulula.com

Southwest

jetBlue

WestJet

GOL Transportes Aéreos

Volaris

Air Asia

Spring Airlines

Lion Air

Free magazine

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

-

Yes

Yes – in-seat and 25 free plus additional pay-perview channels (free for international). Portable device trial on 3 new aircraft without in-seat TVs

No

Yes overhead

Yes - portable

No

No

TVs

No

No

No

Yes – in-seat and 36 free plus additional pay-per-view channels

Wi-Fi

No

No

Yes

Yes – in 2013

No

Yes – free

No

No

No

-

Snacks

Yes – free

Yes

Yes – free

Yes – free

Yes

Yes

Yes – free

Yes

Yes

Yes

Cold meals

No

Yes

No

Yes

Yes

Yes

No

Yes

-

Yes

Hot meals

No

No

No

No

No

No

No

Yes

Yes

-

Non-alcoholic beverages

Yes – free water

Yes

Yes – free soft drinks

Yes – free

Yes – free soft drinks on flights over 70 minutes

Yes

Yes – free

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes – free

Yes

-

-

Yes

Yes

Yes – 2

Yes

Yes

Yes

Yes limited

Yes – premium class only

Yes – limited

Yes

No

No

No

Yes – extra pitch

No

No

No

Yes – premium flatbed

Yes – SpringPlus

Yes – business class

Seat Selection

No

No

No

Yes

Yes

Yes

-

No

No

No

Yes – free when selected during online check-in No

No

Amenities kit

Yes- limited availability Yes

No

No

Yes

No

Yes

Priority Boarding

No

No

Yes – early bird checkin

Yes

No

No

No

Yes – premium class and ‘hot seats’ only

Yes – selected flights

Yes – business class only

Alcoholic beverages Free checked luggage Premium Economy / Business Seats

Table : Pre-flight and Inflight Services (AirAsia 2012; CHINA-SSS.COM 2012; Fly540 2012; GOL Transportes Aéreos 2012; jetBlue Airways 2012; kulula.com 2012; Lion Air 2012; Southwest Airlines 2012; Volaris 2012; WestJet 2012)

122

Pre-flight and Inflight Services (Continued) Services provided additional costs apply unless specified Free magazine

Europe

Middle East

Australia

easyJet

Ryanair

airberlin

flydubai

Air Arabia

Jetstar Airways

Tiger Airways Australia

Yes

Yes – additional cost

Yes

Yes

Yes

Yes

Yes

Yes – in-seat

Yes overhead

Yes – overhead (economy A330), portable all flights (free for premium class)

No

TVs

No

No

Yes – overhead (economy) and in-seat (business class)

Wi-Fi

No

No

No

No

No

No

No

Snacks

Yes

Yes

Yes – free

Yes

Yes

Yes

Yes

Cold meals

Yes

Yes

Yes – free on flights over 4 hours

Yes

Yes

Yes

Yes

Hot meals

No

No

Yes

No

No

Yes – selected flights

Yes

Yes

Yes

Yes – free

Yes

Yes

Yes – free water on A330

Yes

Yes

Yes

Yes

No

No

Yes

Yes

No

No

Yes – except for ‘JustFly’ fares

No

No

No

No

No

No

Yes – business class

No

No

Yes – business class (A330 only)

No

Seat Selection

Yes

No

Yes – except for ‘JustFly’ fares

Yes

Yes

Yes

Yes

Amenities kit

No

No

Yes – long haul only

No

No

Yes – international only

No

Priority Boarding

Yes

Yes

Yes – business class only

No

No

Yes – business class only

Yes

Non-alcoholic beverages Alcoholic beverages Free checked luggage Premium Economy / Business Seats

Table : Pre-flight and Inflight Services (Continued) (Air Arabia 2012; airberlin 2012; easyJet 2012a; flydubai 2012; Jetstar Airways 2012b; Ryanair 2012c; Tiger Airways 2012)