Budget Airlines

Air-transport, a network industry, is one of the fastest growing transport industries in the world (Button and Stough, 2000). Besides the advantages of fast and economical travel journey, air transportation has become a crucial economic and social channel around the world (The World Bank, 2016). Over the years, the capacity to carry passenger has increased, from a Douglas DC-3 capable of transporting 32 passengers to the recently introduced superjumbo Jet, Airbus 380 with a seating capacity of 525 passengers (The World Bank, 2016).

During the mid 20th century, flying was a privilege enjoyed by the upper-class society. The fare of flying on an aircraft was purely not affordable by ordinary people. With this in mind, Southwest airlines in the late 20th century established ways of minimizing costs (The Economist, 2013).

US-based, Southwest Airlines introduced the concept of ‘budget airline’ in the 70’s that inspired the aviation industry, which is the reason there are over a hundred low-cost carriers around the world (Hameed, 2011).

Mostly, the low-cost carriers or LCC’s have driven the growth of the airline industry. LCC’s offer perhaps nothing but cheap seats on the aircraft. These airlines are often regarded as no-frills airlines as they do not provide in-flight services such as food or beverages (Steves, 2016). Generally, the LCC’s operate narrow-body aircraft such as the Boeing 737 or Airbus A319 aircraft that are leased from traditional airliners and thus acquired at an affordable price. Also, the maintenance cost is low because airlines employ mechanics that can work only on these aircraft (Duval, 2007).

A unique method used by the budget airlines as in the case of Southwest Airlines is that it uses one type of aircraft, which in a way reduces the maintenance cost and just has less than 30 minutes turnaround, thus offering cheap tickets to the customers (The Economist, 2011). To minimize costs and increase capacity, LCC’s offer a single class service and it is mostly economy class. Furthermore, the size of the seats tends to be smaller in comparison to the traditional airlines, which is forgiven by the passengers as they fly on short routes with a relatively low fare. Additionally, the reason behind cheap air tickets is that budget airlines usually opt for tertiary airports, which have low airport charges, and at the same time; fast turnaround times to allow higher frequency of flights.

Southwest airlines used this business model to increase air travel with cheaper airfares and aviation industry referred this as the ‘Southwest Effect’ (Go Business, 2014).  

The stupendous impact of low-cost airlines is not only on the airline industry but also on the competitors, destinations, customers and environment.

The development of budget airlines especially in the U.S and Europe is perhaps shaping the aviation industry.

Low-cost airlines render a significant warning to the commercial airlines since the fare structure is low as compared to the commercial airlines. It is often seen that fare illustrates an important factor for a majority of customers offered by the airlines.

Following the liberalization of air transport in the European Union, the number of no-frills carriers escalated, led by Ryanair and followed by the establishment of easyJet (Holloway and Humphreys, 2012). The budget airlines introduced routes that competed with the traditional airlines at a cheaper cost with high frequencies. This was the reason National Airline such as British Airways and Lufthansa tried their level best to defend their airline business by lowering their in-flight service and offering cheaper fares that competed with budget airlines on short-haul routes (The Economist, 2011). It had a huge impact on the traditional airline market as it resulted in shutting down of hubs, flights and stop service to some destinations as well. In other words, fast growth of LCC’s is undoubtedly, the main reason behind financial crisis being faced by large carriers (Ito and Lee, 2003).

Budget airlines have succeeded in other parts of the world as well. To take one example of budgets airlines in the Asia-Pacific region, due to the rising growth of low-cost carriers in Asia and the world, Beijing is planning to build a new airport that would cost almost $14 billion (The Economist, 2014). Asia is one of the top destinations for tourism, which is the reason low-cost carrier such as the Norwegian UK is planning to launch long-haul flights to Asia along with free Wi-Fi on-board to attract its customers (The Telegraph, 2015).  

Encouraged by the victory of LCC’s in the aviation industry, commercial airlines such as KLM, United launched KLM-Buzz and Ted by the United Airlines (Vidović, Steiner and Škurla Babić, n.d.).

Most importantly, the low-cost airlines have helped tourists to travel to small towns and cities, previously untouched by any traveller, which in fact have helped to develop regions and tourism (BBC, 2015). The introduction of LCC’s had a considerable inflow of tourists in the untended regional airports, which enforced other airports in the region to improve its productivity in order to increase competition.

One famous example is the policy of attracting low-cost airlines in Keflavik, a town in Iceland. The population grew 10,500 to 14,800 in 15 years (BBC, 2015). In addition, an increase in the population in the city created jobs in the nearby restaurants and motels.  Airlines, particularly easyJet have added winter tourism, especially from the United Kingdom. This brought in a large number of tourists into the town, which was ever unheard of for decades at a cheap cost.

‘Southwest Effect’ is not only advantageous to the airline but also to the cities as it helps in economic development at the secondary airports, used by the airlines. It is often seen that once low-cost airlines start its operation in a city that was previously unknown, it starts to attract industries. A good example is of the airport in Weeze, Germany where the military ground was not open to commercial airliners. Since the Irish low-cost carrier, Ryanair started its operation to Weeze, the military terrain was converted into a customer oriented airport with various amenities such as restaurants, bars, hotels etc. (Go Business, 2014). Due to this reason, LCC airports have become cost-effective, as private investors have got captivated.

Low-cost carriers have restructured tourism. Years ago, just a few ordinary customers could afford to travel by air and since cities and regions lacked landing base, it made their journey expensive as well as time-consuming. Therefore, it meant that people travelled less or not at all as other means of transport such as cruise, trains, vehicles are time-consuming.

With the establishment of LCC’s, the number of tourist destinations has increased over the years. (European Low Fares Airline Association, 2004). This is largely because; LCC’s have expanded destinations accessible by air. As mentioned above, these airlines mostly operate in secondary airports, as a result, allows distributing traffic in various regions. For example: to travel to the British Midland such as Nottingham, Leicester to Western France, it is not mandatory for tourists to travel via London or Paris to these cities as far as they have direct flights to their destination (European Low Fares Airline Association, 2004).