View Full Version : Low Cost equals Low Service – I Don’t Think So

3rd Jun 2007, 07:23
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.

3rd Jun 2007, 08:46
It might be well and good quoting what the operating costs are per hour, but you have to consider things like low load factors. A company can't just go and cover costs, it has to make a profit to expand and cover losses in the future for any unforeseen circumstances and if there is ademand for premium service, well so what?

3rd Jun 2007, 08:59
So, why don't you just catch a train or a bus!!

3rd Jun 2007, 09:10
What do I think?

someone has to pay the $9000 an hour operating costs.

Micheal O'Leary must be a leprachaun if he hopes to have his passengers fly for free


To check your bags in will cost $100 instead of being free

To ride the airport shuttle will cost $50 instead of $10

To stay in the hotel will cost $250 per night instead of $200

The hire car will be $120/day instead of $100.

And to parody the credit card advert,

The look on the punters faces when they find out how much their free airfare really cost, - priceless!!!!!!!!!!!!

3rd Jun 2007, 10:10
You are out of your mind. Given the nightmare of airline travel these days I prefer to take the train around Europe and the United States for the comfort and ease of movement, city centre to city centre. It takes a little more time but I arrive sane, relaxed and comfortable. You won't ever get me on a LCC ever.

3rd Jun 2007, 10:13
Take your point, Scumfish - but think about it. $500 fares equals 50% loading. $5 fares equals 100% loading and a waiting list - that, to me, equals long term future for the operator.

27/09 - yeah, agree that the 'free' experience is not really free - but business is business, and if an airline can amortise its costs over a wider range of travel related things, then it has a much better chance of surviving.

The point is that we need to stop thinking about the low cost carriers as 'poor cousins' of the legacy traditional airlines - and we need to stop comparing services [or lack thereof].

If you want to spend one hour of your holiday in the lap of luxury, then go to Qantas [well, maybe not Qantas!!] and pay $500. If you want to just get to your destination and THEN start enjoying your holiday - travel with a true LCC, and put up with the discomfort for the hour or two you're onboard.

I for one would rather think of the one hour trip to sunny Queensland as a 'necessary evil' on the way to a great holiday - and save $490 on the way.

3rd Jun 2007, 10:26
It's wonderfull to say LCC's are a great innovation and it's gives you more money to save on the land content of your holiday.However,how many $10 fares do you think each aircraft has?

Have you tried to fly at short notice on our LCC's? You might get a fright at the ticket price.As well it might be OK to travel an hour or two but how would you go flying to London or LAX on a LCC?

The same applies to Tiger and the news that they will charge less than $10 to fly Perth to Sydney.Initially there might be a large number of seats at that price but the airlines could not continue to do that.

Another aspect is the profit generated by LCC's.If mother QF wasn't here would J* make a profit or would it be more like it's sibling J* Asia.

Chimbu chuckles
3rd Jun 2007, 10:44
But you're NOT saving $490 enroute...you're paying that $490 anyway and getting nothing for it save an unpleasant travel experience.

Seeing as you are paying that $490 anyway why not demand your money's worth?

What is more the actual price charged for the trip becomes hidden from scutiny. When an LCC starts taking a cut from everyone else that you interact with, be it rental car, hotel, tour operator etc then you lose the ability to know what you're effectively being charged. You probably end up paying more than $490 for the trip...I would suggest a lot more in the final analysis.

This is merely very clever marketting...but rest assured you are not getting 'cheap' travel.:ugh:

What an aeroplane costs to run between A and B is very much the main point...the costs associated with that are, for the most part, beyond the control of the airlines and don't vary greatly between airlines.

Airline marketting and competition have made the 'buyer' of airline services extremely price sensitive...raise fares and watch pax file to the next counter down the terminal.

Best way around this?

Don't let the passengers know what they are really paying.:D

3rd Jun 2007, 10:44
Try doing an internet search for a destination that is served by both LCC's and legacy airlines and see who can be cheaper.

3rd Jun 2007, 13:48
Don't compare Europe to Australia. Over there they have very short sectors (similar to train travel) compared to what Australia has. Given that most sectors in Australia are 1 hour minimum and can be anything up to 5 hours I don't believe a bare bones carrier is going to work. If you take a 5 hour train journey what do you get? A bar, a cafe First class, business class and economy!

Most of Ryanair's flights I hazard a guess would be less than 1 hour duration, so standard of service is irrelevant. However if you start looking at Perth to the east coast, Darwin- Sydney/Melbourne/Perth, Broome- Melbourne, Perth - Cairns, they are very long flights to have no food, no cabin entertainment, no water, bugger all baggage allowance and crap seating.

LCC like Ryanair make money by offering high frequency, fast turnaround, pack them in kind of flying. As soon as you start blowing out flight times to 3 - 5 hours the advantages of a traditional LCC model start waining considerably.

3rd Jun 2007, 22:31
Lowerlobe - I agree that the current LCC model in Australia only offers a [very] few $10 seats - and yes, you will get the shock of your life if you try to book last minute. It comes down to the basic equation - it costs the airline [any airline] an average of $7000-$9000 an hour to operate their aircraft [less for smaller aircraft, more for larger aircraft]. They have to amortise the cost somehow.

Chimbu - agree - if you're going to be screwed at $490 a sector, then demand to be screwed in comfort! But if everyone is getting fares at railway or bus prices, AND its a relatively short sector, then who needs the comfort. I just want to get there. It's like a tram ride in Melbourne, or a bus commute in Sydney - you put up with an hour's discomfort for the sake of only paying $5.00. If you want comfort - take a hire car, but pay 10 times the price.

NN - agree that the European - or even N American sectors - are all relatively short - average is 90 minutes. In Australia, that would cover the most popular routes - SY/BN, SY/ML, ML/AD, SY/AD, ML/TAS etc. If a LCC was serious about giving the travelling public a real alternative, they'd offer 100% of their seats at $10 - booked one year in advance, or 1 hour in advance - and offset the remaining costs as the European or N American LCCs do.

By the way - the European LCC model is really based on a 'return to base' philosophy - that is, they won't operate long haul, as it requires too much staff overhead [crew rest, management staff, maintenance etc]. They'd rather send their aircraft out on 1-2 hour legs, and ensure the crews come home each day. Typically, the longest LCC legs in Europe would be 3-4 hours - say London/Athens, or Amsterdam/Tenerife, etc.

I've flown on LCCs dozens of times in Europe and N America - up to 2 hours is tolerable - anything more is hard work. But I can say that for the short haul ops - around one hour - it is increasingly like getting on a bus or train. Thta's what we should be aiming for here.

3rd Jun 2007, 23:33
The LCCs in Europe do some pretty long sectors. UK-Morocco (Ryanair), flights into Istanbul, Athens. These are 3-4 hour sectors at least!!

The European LCC market is interesting - you have everything from Ryanair's glorified bus service (not even glorified!) to some LCCs with assigned seating, free meals, FF program etc etc. As an example I was most impressed with Air Berlin and Morocco's Atlas Blue even gave me a full HOT meal on a flight between Brussels and Morocco despite paying about only 30 euros for a 3 hour+ sector!

4th Jun 2007, 00:16
As well it might be OK to travel an hour or two but how would you go flying to London or LAX on a LCC?

Exactly how is a 'premium' carrier any better? Aluminium tube filled with people, cramped seating and no service. I fail to see the difference. When I fly long, I get in sit down and shut up. If an individual can't organise themself to put a couple of sangas and a packet of chips into a bag for the flight, I argue that they probably should not be leaving the country in the first place.

The Kavorka
4th Jun 2007, 00:36

Good post, it's about time people realize that airlines are becoming a bus service...
I'm sure we don't want to go the old days of $500+ fares to syd, not good for anyone..
Cheap fares are the way of the future allowing every demographic to travel and enjoy our beautiful country....
I believe LCC will service the whole country soon and "Legacy Airlines" like QF will only service trunk routes and ultra long haul destinations..
That should make a few Skygods nervous.....:ok:

4th Jun 2007, 02:08
If an individual can't organise themself to put a couple of sangas and a packet of chips into a bag for the flight, I argue that they probably should not be leaving the country in the first place

However you can't do that!!:= Jetstar and Tiger will not let you take food on board the aircraft! Again fine for Syd-Mel but if you were going to Perth no food plus a crap seat might make you reconsider the extra $50 to fly Qantas!

4th Jun 2007, 02:35
Umm, got this from the Jetstar website:
Passengers are also welcome to bring their own food on board however please note that there will be no refrigeration facilities or any heating facilities on board and crew will not provide cutlery, napkins or cups for food brought on board by passengers.

I've done it several times already - on JQ longhaul, I find a footlong subway purchased just before departure is more filling, more tasty and far cheaper than paying for the meal onboard!

4th Jun 2007, 04:31
Interesting thread.

One of the things that has always puzzled me is the lack of transparency in airline ticket pricing. For example an ad might promote a fare of as low as $10 for a route but then in the fine print it will say 'not available on all flights and limited seats available' etc. The reality is that most people travelling on that route will be paying way above the minimum advertised price. This is not the case when catching a bus or train - pretty much everyone pays the same price for the same level of service.

I personally would like to see much more transparency in airline price ticketing.

4th Jun 2007, 06:48
I wouldn't think that banning passengers from taking their own food on would sit too well with the Australian public.

The Kavorka
4th Jun 2007, 08:13
What a load of bullcrap....

Pax are allowed to bring food onto Jetstar, they cannot however bring on their own hot drinks

4th Jun 2007, 08:49
I've done hundreds of flights in the 'States - on legacy carriers and LCC. You should see what the Americans bring on board in the line of food and drinks. HUGE buckets of Coke, etc, trays of Big Macs, etc - if you think seats on LCCs in Oz are cramped - try sitting in a size 8 seat in between two Size 24 Americans with cardboard tray loads of food and drinks....

....the point is that on a genuinely short haul operation [up to say an hour and a half] people should be prepared to treat the travel like a train or bus trip.

BTW - saw an article recently about a Japanese carrier that wanted to remove all seats on short haul domestic flights in Japan, and install poles/rails and overhead straps [like a bus]! Now that would be something!! [Didn't get past the regulator though].

4th Jun 2007, 09:13
I swore that when I last flew Jetstar the PA included food and drinks, however I must be mistaken.:\ It was early. Tiger don't let you take food on board.