Low cost airlines business model

Certainly low cost airlines have changed the nature of consumer behavior not just for airlines, but the entire travel industry.

Low cost companies (ex Ryanair and Easyjet) provides limited service at a price that is attractive to the cost-conscious consumer.
They have had an important progression during the last years especially in the EU airports.
Greatly inspired by Southwest (US), low cost airlines have targeted the “100 % internet” (ex EasyJet et Ryanair) in order to reduce distribution costs and thus propose low prices.
It’s quite adapted to « smart shoppers », those young travelers from above average socio-cultural and educational background and spending a lot of time on internet looking for cool and best deals.


Among the advantages of the low cost model are
For the customers:
- Low price for a minimal and satisfactory service,
- No overbooking problem since the booking online is immediate,
- No tickets issued (Ticketless). Customers can print boarding pass at home and thus reduce cost of service and transactions
- Low online registration fee of luggages


For the low cost companies:
- Internet remains the most rapid and cheapest media for transaction with no important workload or workforce associated,
- Important use of technology to deliver efficient and rapid service,
- Reduce number of intermediaries just like the “dell model”
- Due to online business they can have very efficient and up to date accounting system,
- Important growth (number of passengers, frequency, territory, routes, airplanes deal, ….),
- High brand awareness,
- Additional revenues (see examples below)

However some low cost companies still work with travel agencies where profits are made on call center service and treatment of dossier,


List of the revenue streams:
- Food / beverages and shopping onboard,
- Insurance for luggages and “rapatriement”
- Partnership with TO and hotels for hotel rooms bookings and car rentals,
- Transfer reservation fee (ex bus services),
- Access and usage fee for airport lounge during transits for example,
- Airport parking,

Thus commissions on the additional transactions are new source of revenue for low cost companies.

A few comments :
1. "low cost" can represent a danger for traditional airlines in Europe in the long term

2. To be on same traditional routes from international airports, low cost companies will have to face cost considerations

3. As a large number of low cost exists, it seems that a consolidation will occur at some time with only a few remaining. Till then cost and investment will be important issues to compete.

4. The low cost has created an awareness for customers in that they are now more used to seeing lower price for a satisfactory service

5. In this context it seems that the big companies are quite forced to adjust and reduce price deviation from "low cost" while preserving the characteristics proper to their business model (time management, global service, development of customer loyalty).

Additional revenue, customer development
Development of customer loyalty and membership

Other opportunities:
- Service sector providers, including mobile network operators and Internet Service Providers, could be the next to adopt a low-cost model.
- Others may follow like advertising agency (ex TVLowCost)