Originally Posted by
Tuck Mach
It is pertinent to consider the demand elasticity. Established airlines have a better ability to raise price without too much decline in demand. LCC are demand elastic (in a relative sense) therefore their 'product' is very susceptible to changes in price. They struggle to generate yield and so rely on volume. As such given they target price sensitive consumer, those consumers oftentimes decide at the margin( that is on price-who is cheapest?) and are affected by any change in circumstances (economically) undermines their disposable income and the LCC the model substantially.
Likely the operating margins are a bit better given the relative price of fuel, but LCC are finely balanced financially engineered entities, that are more about low wages for operating staff rather than anything new...Of course they also keep the factories open with their penchant for leased aircraft...
many people now switching from legacy to LCC's with worsening economy, especially those who pay their own fares.
eg. Instead of flying BNE/SIN on SQ, many now switching to Scoot OOL/SIN for a fraction of the cost. Also helps if you actually live on southside of BNE.
Similarly, with BNE/KUL which no one flies nonstop anymore since MH pulled out. Air Asia X flies nonstop OOL/KUL & now Malindo flies BNE/KUL direct via DPS in a new 738 or 739. Interestingly Malindo has less seats on their 738's than either QF or VA. They say they are a LCC, but with full service including meals, drinks & 30kgs of checked bags.