Why more frills in legacy economy than low-cost?

[chornedsnorkack]

Why does legacy economy offer more frills - more legroom, recline, windowshades, free service et cetera - than low-cost airlines?

A low-cost has to offer enough service that the people do not desist from flying or fly another airline. If they do, the airline loses the ticket income.

A legacy which offers too little frills can likewise discourage people from flying or cause them to choose another airline. In which case the airline loses the economy fare as in the low-cost case - but lack of frills in Economy can also encourage the passengers, especially those who want to fly the specific schedule and can afford it, to buy Business tickets instead. In which case the airline gains the difference between Economy and Business fare thanks to having bad Economy service.

So, why are the low-cost airlines offering less service than legacy economy?

[CherokeeDriver]

I think it is because the LoCo carriers have forced the prices down on the traditional carriers. The only way the "Economy" carriers can compete is by giving value added services. An example of this is I regularly fly from London to places in Europe. My "routes" are served by LoCos and BA. The price difference between the LoCos and BA is typically £30 on a trip. I consider it £30 well spent for on-line check in, replacement planes if one goes tech, a couple of G&T's in the air, free newspapers and a meal. Probably doesn't cost BA £30 to offer these services, but it ensures they get my money every time....

LoCos have done a brilliant job in adding competion into the European market. I pay a LOT less now to travel in Europe than I did 7 years ago - even with the fuel surcharges. People are complaining that the LoCos aren't cheap anymore - this is nonsence all they have done is forceably created competition. They aren't doing to badly either - EasyJet reported £60m profit?

You pay your money, you take your choice (or chances).

[PAXboy]

Chorned.... and can afford it, to buy Business tickets instead. I think that you have answered your own question! On the one hand, the cost gradient is so steep that most (who are paying their own account) cannot afford it, on the other hand, I know folks who can easily buy biz tickets for leisure travel and yet never do. They tell me that it is not worth it and they would rather be cramped in Y, than pay more money. Those with families don't really have a financial choice.

I would guess that, if lots of folk could afford biz, then the Y seating blocks would be half the size they are. Since the airline market is now mature, I think that we have the kind of supply that the demand wants. Which is to say ... a few paying significantly more than a broad group of folks who are not paying their own ticket but still a marked premium and a large quantity of folks who can not or will not travel biz.

[Final 3 Greens]

Its called creating a new paradigm and differentiating it.

Comes from marketing 101, but works when you get it right.

[Globaliser]

chornedsnorkack: ... but lack of frills in Economy can also encourage the passengers, especially those who want to fly the specific schedule and can afford it, to buy Business tickets instead. In which case the airline gains the difference between Economy and Business fare thanks to having bad Economy service.I agree with PAXboy on this.

It is always possible that experience of bad economy service may push some pax into a premium class. But the number of pax that this applies to will be tiny. If you provide bad economy service, you are much more likely to drive pax to competing economy classes - including the low-fare competition, on those routes that have it.

[chornedsnorkack]

It is always possible that experience of bad economy service may push some pax into a premium class. But the number of pax that this applies to will be tiny. If you provide bad economy service, you are much more likely to drive pax to competing economy classes - including the low-fare competition, on those routes that have it.

But compare legacy carrier with a low-cost.

If a legacy drives passengers away from their economy, then most go to competing economy classes, including low-fare competition, or do not fly, and only a few go to premium classes.

If a low-cost drives passengers away from their economy class, all of them go to competing economy classes, including those of other low-costs, or do not fly at all. None of the passengers driven away from the economy service of that low-cost go to premium service of the same airline, because the low-cost does not have any.

Therefore, low-costs should also be unable to afford driving passengers away.

[Globaliser]

chornedsnorkack: Therefore, low-costs should also be unable to afford driving passengers away. Indeed. They can't. But in that sector, good service is not the only pull factor - for some of them, service is not a pull factor at all. The low fares' biggest pull factor is exactly that - (perceived) low fares. That's why they work so hard to market that feature of their proposition. If they lose their pax to competitors, it'll be more likely because the price is wrong, not because the frills are absent.

[chornedsnorkack]

They can't. But in that sector, good service is not the only pull factor - for some of them, service is not a pull factor at all. The low fares' biggest pull factor is exactly that - (perceived) low fares. That's why they work so hard to market that feature of their proposition. If they lose their pax to competitors, it'll be more likely because the price is wrong, not because the frills are absent.

But fares is also a variable for legacy Economy.

How come that low-costs can offer low fares and still make a profit, whereas the legacies are unable to offer cheap Economy tickets?

[manintheback]

quote:
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How come that low-costs can offer low fares and still make a profit, whereas the legacies are unable to offer cheap Economy tickets?
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Legacies can and do offer cheap prices (just got a day return flight in January with BMI, LHR to CDG return for £12.50 plus £50 odd quid in taxes(aarghh)).

But a few example the new airlines use (a little generalisation here)

Far fewer employees per plane/flight
Cheaper airports to fly to and from
Deals with 'authorities' to pay them for bringing flights and passengers to the area.
Perceived to maximise crew use
No legacy costs in terms of Human Resource Provision (look at the benefits and lack of, look at the age of the CC - there may be some older than me - never seen them tho)
Noval idea such as getting new pilots to pay them in various ways to do the flying
On board services charged for
Edit out the costs on the plane of not buying the extras (safety cards, window blinds, reclining seats for example)

[slim_slag]

How come that low-costs can offer low fares and still make a profit, whereas the legacies are unable to offer cheap Economy tickets?

It's a hangover from the years when the legacy carriers could charge what they wanted and p!ss money away like it grew on trees.

Look at what it took in the States to get legacy airlines like United back to a position where they now have a chance of survival. Bancruptcy protection and the ability of management to go to a Judge and have all the binding agreements torn up. United started again and maybe they will get it right this time. The employees and creditors grumbled and moaned but knew they had to accept the good times were over and in return they got a fighting chance to keep their jobs.

Airlines like BA don't have this luxury of chapter 11 reorganisation. Don't you think Wille Walsh would rip up all the agreements if he could? He is stuck with a militant workforce from top to bottom and little power to do a Ryanair. O'Leary on the other hand got to learn from looking at the BA's in this world, and set up a company where he has negotiated very favourable terms with employees and suppliers. That's not to say his employees and suppliers are not doing well out of the system, just that they have to work harder under his regime, and if things go bad for the company the company has the ability to trim costs in a way that BA doesn't.

There is an excellent pyramid in some analyst report into the airline business in Europe. It shows BA, Easy and Ryanair. It predicts that all three will prosper in the end. BA will shrink considerably and specialise in the small amount of premium traffic. Ryanair will be huge and cater for very low cost travellers who don't really care about anything except getting to the destination, and Easyjet will fill the gap in between. Makes sense to me.

[chornedsnorkack]

It's a hangover from the years when the legacy carriers could charge what they wanted and p!ss money away like it grew on trees.

Look at what it took in the States to get legacy airlines like United back to a position where they now have a chance of survival. Bancruptcy protection and the ability of management to go to a Judge and have all the binding agreements torn up. United started again and maybe they will get it right this time. The employees and creditors grumbled and moaned but knew they had to accept the good times were over and in return they got a fighting chance to keep their jobs.

Airlines like BA don't have this luxury of chapter 11 reorganisation. Don't you think Wille Walsh would rip up all the agreements if he could? He is stuck with a militant workforce from top to bottom and little power to do a Ryanair. O'Leary on the other hand got to learn from looking at the BA's in this world, and set up a company where he has negotiated very favourable terms with employees and suppliers. That's not to say his employees and suppliers are not doing well out of the system, just that they have to work harder under his regime, and if things go bad for the company the company has the ability to trim costs in a way that BA doesn't.


Ah, I see. So the legacy, long-established airlines are unprofitable because they are saddled with legacy of debts and unfavourable contracts with their employees, retirees and suppliers. Whereas the new airlines - whether low-cost or non-low-cost? - can have much more favourable terms. And also, perhaps the case is that their employees have not yet retired, and they intend never to pay their pensions, but go bankrupt before the time comes for that?

But would not a new full-service carrier have the same advantages in form of being able to start with favourable supplier and labour contracts as a new low-cost does? For example, take Virgin. Who is a more dangerous competitor to Ryanair, BA or Virgin? And who is the more dangerous competitor to BA, Ryanair or Virgin?

[manintheback]

New airlines (and companies) dont have pensions to pay. The good ole company final salary scheme is yesterdays news.

Virgin are not competitors of Ryanair. One is long-haul the others short. Different markets

MOLeary has asked someone to shoot him if he ever considers long haul - I am sure many will oblige, probably dont need him to consider that anyway.

BA a threat to Ryanair - would be a dramatic re-invention to achieve that. Would suggest Ryanairs biggest threat to themselves is Ryanair.

[slim_slag]

chornedsnorkack,

I'd say the new 'full service carrier' is something like NetJets. They are a far bigger threat to BA than Ryanair, IMO. BA are in a bit of trouble, methinks. To use an Americanism they need to 're-engineer', but do you think the workforce will let them do it?