Low Cost equals Low Service – I Don’t Think So
Low Cost equals Low Service – I Don’t Think So
There’s been a lot of discussion about low cost carriers providing low levels of service – and diminishing the ‘travel experience’. Maybe we should be looking at what’s being offered here, and compare it to expectations about the overall objective, rather than the legacy ideas about air travel being a luxury experience – the ultimate differentiator between the masses who are forced to drive, or take a train, or take a bus, and the well-to-do.
Making air travel affordable, and providing Joe Public with the ability to go to Sydney to see his son, or go to Perth and see her daughter, or go to the Gold Coast with the kids, is something that we, the public, have been demanding, for the last 50 years. Unfortunately, the great legacy carriers have been loathe to make that travel accessible to the masses, for fear of losing market share, or losing profits, or losing prestige, or any number of other reasons. Fundamentally, however, they are mostly focused on servicing debt, or shareholder expectations – as we have seen in the recent Qantas buy-out debacle.
According to IATA, the average total operating costs for an average passenger aircraft [I think they use a B737, or A320 as their mid-point] is around US$7500 an hour – about AUD$9000 an hour. That figure includes ALL of the airlines costs – including crew salaries, maintenance costs, fuel, catering, management salaries and overheads – everything needed to operate the airline. It includes reasonable allowances for non-flight time engine-on costs – like taxi-out and taxi-in. It also includes the ATC and airport fees – but not local taxes.
It’s interesting that it doesn’t seem to matter at the moment if the carrier is a ‘legacy’ operator, or a ‘low cost[s]’ carrier. The reason is cost distribution within the carrier. Legacy carriers have a higher percentage of stable costs like overheads and salaries – whereas low cost carriers have a larger percentage of rapidly varying costs – fuel being the greatest example – especially when at USD$65 a barrel, fuel makes up around 30-35% of a low cost carrier’s costs.
Working on the basis of average load of, say, 120 passengers, that means that the airlines need to recoup an average of $75 per passenger, per hour of flight. So, a one-way flight from Sydney to Melbourne, or Brisbane to Sydney, or Melbourne to Adelaide should cost each passenger $75 plus airport taxes. Of course, if you throw in a ‘small’ profit for the airline – say 10%, you’re looking at seat costs of around $85 per hour.
So, to offer flights at $10 per hour long flight, the airline needs to recover 2 or 3 times the average fare from someone sitting in the next seat…..maybe.
Up until now, Australian so-called low cost carriers have worked on the basis that the only [or certainly majority] means of cost recovery is through the air travel component itself. If this continues to be the marketing philosophy, then for the reasons outlined above, passengers will continue to be offered limited access to REALLY low fares – someone has to pay the $9000 an hour operating costs.
Someone in another thread mentioned Ryanair, and their cost cutting measures – like removing window shades, removing seat back trays, removing seat recline. Ryanair has done a whole lot more to manage their costs. They force a turn-around time of 20 minutes at each stopover – and I can tell you that it is a work of art. They load and offload from the front and rear access points. They park nose out to allow quick start-up and taxi. They operate from secondary airports [no, not Bankstown or Moorabbin type airports – more like Avalon or Edinburgh]. They charge to check in baggage. All to reduce their average per hour costs from AUD$9000 to around $7000.
But look at their web site and explain how they can offer one way flights in Europe for Euro0.01 [plus airport taxes] – effectively free flights.
Michael O’Leary has effectively said that he wants to offer free flights to ALL of his passengers in the next few years. How? By linking his flight operations in to the ‘whole of travel’ experience. That is, Ryanair will take a slice off the hotels for providing customers, a slice from the airport buses for travelling to and from the destination cities, a slice off the hire car companies and so on – all he needs is $7000 per operation, after all. The other European low cost carriers are moving in the same direction. Effectively, they are turning air travel into bus travel or train travel – it is a vehicle to get somewhere – not the heart of the journey. And on the whole, it actually improves the experience. As an example, most car hire companies charge on a per day basis – and even an hour over gets charged as a new day. If you link a hire car with a flight booking with a low cost carrier in Europe, you get the few hours of difference between arrival time, and departure time thrown in free [e.g. arrive Monday 10.00 am, depart Wednesday 2.00pm, you get to keep your car until, say, 1.30 Wednesday for just 2 days rent].
I think the entrance of Tiger, and the responses from Jet Star and Virgin Blue, will be good for air travellers – but until we accept that a short duration plane ride is not a lot different to a train commute from the Newcastle to Sydney, or Ballarat to Melbourne, we will continue to find some passengers paying through the nose, to subsidise one or two feel-good passengers who have lucked in to a $10 fare. And until we stop demanding first class service on aircraft for short haul operations, and accept that they are not a lot different to trains or buses, we will continue to pay over the odds for that [poor] travel experience.
I'd love to hear your thoughts.