Theoretical framework

Definitions

When talking about the aviation industry, airline types can be identified by dividing them into different groups. One method for example is to divide them into: cargo flights, general aviation, regional carriers, charter airlines, full-service carriers, and low-cost carriers. Cargo flights consist of freight carriers like FedEx and DHL. General-aviation for example consists of private business jets. Both cargo flights and gerenal-aviation are not taken into account here any further. Regional carriers are more locally oriented and traditionally act as commuter, or feeder airlines, for larger carriers. Although charter carriers also consist of freighter airline, we will focus on passenger charter airlines. These charters traditionally offer flights for a certain period of time a year, mostly during holiday seasons. Full-service carriers, can be seen as the counterpart of low-cost carriers. KLM-Air France and Lufthansa are examples of full-service carriers. Last but not least are the low-cost carriers. The next section will be all about these special kind of carriers.

What exactly are low-cost carriers?

Discount airlines, No frills airlines, Prizefighters, Low-cost airlines, or low-cost carriers, all are different names for the same phenomenon: airlines which offer cheaper tickets compared to other carriers. But when is an airline a low-cost carrier? What exactly is the definition of 'low-cost carriers'?

First of all, itís not the carrier itself which makes it a low-cost carrier, but it is the operating model that makes the difference. So in this way it would be better to speak of a low-cost model, which is based on reducing all kind of complexity costs. By reducing these complexity costs, it becomes possible to offer the same ticket for a much lower price. Probably the most famous examples of low-cost carriers are EasyJet and Ryanair.

These complexity costs consists of different characteristics of which the most important are summarized in the table below, related to full-service carriers.

Table 1, Differences between low-cost and full-service carriers
Characteristic Low-cost carrier Full-service carrier
Brand One brand: low pricing Extended brand: price and service
Price Simple pricing structure Complex pricing structure
Distribution Internet, direct booking Internet, direct, and travel organisation
Checking in No ticket No ticket, IATA ticket contract
Airport Mostly secondary Primary
Network Point-to-point Hub-and-spoke
Classes One class Multiple classes
During flight Unbundling (pay for 'extras') Bundling (free 'extras')
Aircraft usage Very intensive Average - intensive
Aircraft type One type Multiple types
Turnaround times 25 minutes Slow: congestion/work
Product One product Multiple integrated products
Secondary revenue Advertisement, onboard selling Focused on primary product
Seating Tight, no reservations Flexible, reservations
Customer service Overall bad Reliable service
Operational activities Outsourcing (focused on flying) Extending (maintenance, cargo)
Target group Mostly tourists Tourist and business
Source: O'connell (2005) and Williams (2001)

Allthough the above table shows clear differences between low-cost and full-service carriers, in reality these differences arenít as clear as they might seem. For example some low-cost carriers are starting to offer different services on their flights, while full-service carriers operate more flights according to the low-cost model. And to make things even more complicated, charters start to offer flights whole year round, regional carriers start operating more international, and both adapt the low-cost model to suit their own needs.

So where to next? First another definitions needs to be formulated to easily select low-cost carriers out of all the active carriers. Once the low-cost carriers have been defined. The selection can be further divided into four hypothetical low-cost carrier types.

The definition

As stated earlier low-cost carriers are carriers, which operate according to a low-cost model that is characterized by the points discussed in the table above. In reality not all of the characteristics are related to a low-cost carrier, and it is difficult to check if a carrier operates according to these characteristics.

The nature of the low-cost model consists of cheap tickets, which are made possible by reduction of the complexity costs. This will also form the core of the low-cost definition, which is based on the definition used by the European Travel Network.

"An airline is recognized as a low-cost carrier if at least 75 percent of their seats are sold at their lowest published fares or if they offer a very good deal."

Only a very low price for one hour of travel time results in a very good deal (a link to the ETN calculation table can be found here ). This results in a large selection of low cost carriers. This selection has also been compared to other major low-cost carrier selections used by NationMaster (2005), AttitudeTravel (2005), and Eurocontrol (2005). If there was any doubt about a carrier, the site of the carrier itself was investigated to decide if it really is a low-cost carrier. In the end a total of around 60 low-cost carriers have been selected which operated in September of 2005.

The next two parts consist of a short history giving more background information about the origins of the low-cost carrier in Europe, and a hypothetical break down of the selection into four different low-cost carrier types.

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