CAN A LOW COST, LONG HAUL MODEL BE A SUCCESS? OPINIONS ARE DIVIDED

Dino D'Amore
By Dino D'Amore December 1, 2010 14:10

CAN A LOW COST, LONG HAUL MODEL BE A SUCCESS? OPINIONS ARE DIVIDED

At Marketforce and the IEA’s The Future of Air Transport conference held in London this week, the question was raised whether legacy carriers should withdraw from all short haul services, finally ceding victory to the low-cost carriers. Although none of the panellists could be drawn on admitting the low costs had won that battle, there was a sense that the model for legacy carriers still needed to change significantly for them to pose a threat, or at least draw a profit. Although there were murmurs of agreement from the audience, there was also a recognition that the low-cost model was in need of review.

A la carte pricing came under the microscope as a growing problem that low-cost airlines need to manage more carefully. There is a recognition by budget airlines that customers are getting annoyed with having to pay for every extra, which in some cases can often make the price more expensive than full service carriers. However, as Ryanair shows, the cheapest price is often the greatest selling point even if it does come with low expectations. The same is not true for long haul routes however and much was said about the potential for success of low cost, long haul airlines. Emirates’ Gary Chapman said that you couldn’t replicate a short haul, low-cost model for long haul flights but that it would be possible in the sense that an airline could use an A380 in all economy configuration to help raise margins. Aer Lingus CEO Christopher Mueller said that he would contemplate it but it would rely very heavily on the ability for a fast turnaround at airports and also a long haul, low cost model would be much harder to turn a profit as fuel and labour costs would be much more of a factor.

Is overcapacity being caused by the abuse of export credit financing by UAE carriers? One reader thinks so and he’s not the only one. As you would guess those respondents are based in the home countries. The strength of feeling over this issue remains undiminished and will continue to be so until a definitive decision is reached between the home countries in agreeing either to halt or cap their reciprocal agreement. With so many aircraft on order from emerging market airlines for both Boeing and Airbus jets, you can bet the two largest manufacturers will be lobbying hard for the government guarantees to stay. Question is: Have the Middle East airlines already been given too much of a helping head start for the home county airlines to catch up? Given the massive list of aircraft on order the answer seems to be yes.

Dino D'Amore
By Dino D'Amore December 1, 2010 14:10
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