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Alow-cost carrier (LCC) orlow-cost airline, also called abudget, ordiscount carrier orairline, is anairline that is operated with an emphasis on minimizing operating costs. It sacrifices certaintraditional airline luxuries for cheaper fares. To make up for revenue lost in decreased ticket prices, the airline may charge extra fees, such as for carry-on baggage.
The term originated within theairline industry referring to airlines with a lower operating cost structure than their competitors. The term is often applied to any carrier with low ticket prices and limited services regardless of their operating models. Low-cost carriers should not be confused withregional airlines that operateshort-haul flights without service, or with full-service airlines offering some reduced fares.
Some airlines advertise themselves as low-cost while maintaining products usually associated with traditional mainline carriers’ services. These products include preferred orassigned seating, catering, differentiatedpremium cabins, satellite or ground-basedWi-Fi internet, andin-flight audio and video entertainment. The termultra low-cost carrier (ULCC) has been used, particularly in North America and Europe to refer to carriers that do not provide these services and amenities.
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The low-cost carrierbusiness model practices vary widely. Some practices are more common in certain regions, while others are generally universal. The common theme among all low-cost carriers is the reduction of cost and reduced overall fares compared to legacy carriers.
Traditional airlines have also reduced their cost using several of these practices.
While some low-cost carriers choose to operate more than one type of aircraft and configure their aircraft with more than one passenger class, most operate aircraft configured in a single class, as well as utilizing just a single aircraft type. In this way, cabin and ground crew only have to be trained to work on one type of aircraft. This is also beneficial from a maintenance standpoint as spare parts and mechanics will only be dedicated to one type of aircraft.[1] These airlines tend to operateshort-haul flights that suit the range ofnarrow-body (single aisle) planes. As of lately, however, there is also a rise in demand for long range low-cost flights and the availability of next generation planes that make long haul routes more feasible for LCCs.[2]
In the past, low-cost carriers tended to operate older aircraft purchased second-hand, such as theMcDonnell Douglas DC-9 and older models of theBoeing 737. Since 2000, fleets generally consist of the newest aircraft, commonly theAirbus A320 family and Boeing 737. Although buying new aircraft is usually more expensive than second-hand, new planes are cheaper to operate in the long run since they are extremely efficient in terms of fuel, training, maintenance, and crew costs per passenger.[citation needed]
In 2013, ch-aviation published a study about the fleet strategy of low-cost carriers.[citation needed] They stated that major LCCs that order aircraft in large numbers get large discounts for doing so, and due to this they can sell their aircraft just a few years after delivery at a price high enough to keep their operating costs relatively low.[3][clarification needed]
Aircraft often operate with a minimum set of equipment, further reducing costs of acquisition and maintenance, as well as keeping the weight of the aircraft lower and thus saving fuel. Depending on the low-cost airline, seats do not recline and do not have rear pockets, to reduce cleaning and maintenance costs. Others have no window shades. Pilot conveniences, such asACARS, may be excluded. Often, noin-flight entertainment systems are made available, though many US low-cost carriers do offer satellite television or radio in-flight. It is also becoming a popular approach to install LCD monitors onto the aircraft and broadcast advertisements on them, coupled with the traditional route–altitude–speed information. Some allow priority boarding for an extra fee instead of reserved seating, and some allow reserving a seat in an emergency exit row (for longer leg room) at an extra cost.
Like the major carriers, many low-cost carriers develop one or more bases to maximize destination coverage and defend their market.[4] Many do not operate traditionalhubs, but ratherfocus cities.
Airlines often offer a simpler fare scheme, such as selling only one-way tickets. Typically fares increase as the plane fills up, which rewards early reservations. In Europe (and early in Southwest's history) luggage is not transferred from one flight to another, even if both flights are with the same airline. This saves costs and is thought to encourage passengers to take direct flights. Tickets are not sold with transfers, so the airline can avoid responsibility for passengers' connections in the event of a delay. Low-cost carriers often have a sparse schedule with one flight per day and route, so it would be hard to find an alternative for a missed connection. Modern US-based low-cost carriers generally transfer baggage for continuing flights, as well as transferring baggage to other airlines. Many airlines opt to have passengers board via stairs, sincejetways generally cost more to lease.[citation needed]
Often, low-cost carriers fly to smaller, less congested secondary airports and/or fly to airports during off-peak hours to avoid air traffic delays and take advantage of lowerlanding fees. This is whyRyanair flies toGatwick Airport,Luton Airport, andStansted Airport in the London area and how easyJet is able to fly toParis-Charles de Gaulle, andAmsterdam Airport Schiphol. In London's case however, low-cost carriers would not be able to use Heathrow as the airport is running at near capacity, so there is no room to build a base. The airlines tend to offload, service and re-load the aircraft (turnaround) in shorter time periods and do not wait for late passengers, allowing maximum utilization of aircraft.
Low-cost carriers generateancillary revenue from a variety of activities, such as à la carte features and commission-based products. Some airlines may charge a fee for a pillow or blanket or for carry-on baggage.[5] In Europe, it is common for each and every convenience and service to have an additional charge.
Low-cost carriers intend to be low-cost, so in many cases employees work multiple roles. At some airlines flight attendants also work as gate agents or assume other roles, thereby limiting personnel costs.Southwest Airlines is well known for usingfuel hedging programs to reduce its overall fuel costs. Check-in at the gate of luggage requires fees, as it requires addition to the weight calculation and last-minute baggage handling.
Online check-in is becoming common, again in the interest of avoiding personnel costs.
Where permissible, some airlines have a disinclination to handle Special Service passengers, for instance by placing a higher age limit onunaccompanied minors[6] than full-service carriers. Often these airlines do not offer connecting tickets, since the airline will have to pay for ground crew to transfer luggage. A customer may create a connection manually by purchasing two separate tickets, but these are considered separate contracts, and the passenger bears the risk if a delayed inbound flight causes a missed connection.[7]
When most countries had national monopolies, crews could negotiate pay raises and good pension benefits (something that costs money for the airlines only in the long term). During this period, most passengers were business travellers who paid high fares that covered these costs.[citation needed] After deregulation, which led to lower fares, many airlines remained bound to these salary agreements and pensions, whereas new low-cost carriers employed new staff with lower salaries, especially for cabin crew, keeping personnel costs low and allowing for competitive fares. In some cases airlines have gone bankrupt (e.g.,Alitalia,Sabena, andSwissair), and new airlines replaced them.
Traditional carriers followed the low-cost carriers by enabling web check-in, encouraging machine check-in at the airport, and generally reducing ground personnel cost.
The number ofcrew members follow international conventions that require one flight attendant per 50 passenger seats and two pilots. However, carriers can save money by reducing the amount of ground crew.
Carriers hire pilots through third-party agencies based in low-tax countries without benefits for sick pay, pensions or health insurance.[8] Traditional carriers have also started to try this, including starting their own low-tax agencies.[9] These agencies can easily find less experienced co-pilots and cabin crew, as the profession is popular, but there are problems for low-cost carriers to recruit and keep captains who have to be experienced.[8]
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AtIATA, a LCC operation is defined as including the following characteristics, at least to some degree:[10]
While low-cost airlines differ in service offerings, by definition they feature most of the following:
Not every low-cost carrier implements all of the above points. For example, some try to differentiate themselves with allocated seating, while others operate more than one aircraft type, still others have relatively high operating costs but lower fares.JetBlue, for instance, has in-flight entertainment in every passenger seat. Other airlines are limited on what points they can implement based on local laws. For example, Irish low cost airlines cannot remove window blinds from its aircraft, as they are required by the Irish Aviation Authority. As supply increases, this sort of differentiation by brand is an important criteria for the future success of low-cost carriers, since many experts believe price competition alone is not enough, given the number of carriers.[14]
As the number of low-cost carriers has grown, these airlines have begun to compete with one another in addition to the traditional carriers. In the US, airlines have responded by introducing variations to the model. In Europe, the emphasis has remained on reducing costs and no-frills service.[15]
A secondary termultra low-cost carrier (ULCC) has been used to differentiate some low-cost airlines whose model deviates further from that of a standard low-cost carrier, with ultra low-cost carriers having minimal inclusions in the fare and a greater number of add-on fees.[16]
In the US market,Allegiant Air,[17]Avelo Airlines,Frontier Airlines,[18]Spirit Airlines,[17] andSun Country Airlines[19][20] are considered to be ULCCs.
In Europe,Ryanair andWizz Air are the most prominent ULCCs.
In Asia,AirAsia andLion Air are the most prominent ULCCs.
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The pricing policy of the low-cost carriers is usually very dynamic as befits their business model, with frequent discounts and tickets in promotion. Like other carriers, however, even if the advertised base prices are very low, charges and taxes are typically not mentioned. With some airlines, some flights are advertised as free (plus applicable taxes, fees and charges). Depending on the airline, perhaps as many (or as few) as ten percent of the seats on any flight are offered at the lowest price and are the first to sell. The prices steadily rise thereafter to a point where they can be comparable or more expensive than a flight on a full-service carrier.
Most airlines charge additional taxes and fees on their tickets. Some low-cost airlines have been known to charge fees for the seemingly ridiculous, such as levying a credit card charge if credit card is the only payment method accepted.
While tour and package operators have offered lower-priced, lower-frilled traveling for a large part of modern airline history, not until during the post–Vietnam War era did this business model escalate. Through various ticket consolidators,charter airlines, and innovators in lower-frills flying, such asChannel Airways andCourt Line, the traveling public had been conditioned to want to travel to new and increasingly further away and exotic locations on vacation, rather than short-haul trips to nearby beach resorts.[citation needed]
The world's first low-cost airline wasPacific Southwest Airlines, which started intrastate flights connecting Southern and Northern California on 6 May 1949. PSA's light-hearted atmosphere and efficient operations were a runaway success early on, and inspired a number of low-cost start-ups across the United States, beginning in the mid-1960s.Herb Kelleher studied the success of PSA, and copied their culture closely when he established Southwest Airlines in 1971.
The first airline to offer cheaper transatlantic fares was Icelandic airlineLoftleiðir in 1964, often referred to as "the Hippie Airline". Many young Americans travelled to Europe after graduation, to experience the "old-world culture", and they were more concerned with getting there cheaply than comfortably or even exactly on time. Loftleiðir were not famous for speed or punctuality, but flying with the company became a sort of rite of passage for those young "hippies", one of whom wasBill Clinton, later US President.[21]
The first airline offering no-frills transatlantic service wasFreddie Laker'sLaker Airways, which operated its famous "Skytrain" service between London and New York City during the late 1970s. The service was suspended after Laker's competitors,British Airways andPan Am, were able to price Skytrain out of the market.[citation needed]
In the United States, airline carriers such asMidway Airlines andAmerica West Airlines, which commenced operations after 1978, soon realized acost of available seat mile (CASM) advantage in relation to the traditional and established,legacy airlines such asTrans World Airlines andAmerican Airlines. Often this CASM advantage has been attributed solely to the lower labor costs of the newly hired and lower pay grade workers of new start-up carriers, such asValuJet, Midway Airlines, and their like. However, these lower costs can also be attributed to the less complex aircraft fleets and route networks with which these new carriers began operations, in addition to their reduced labor costs.
To combat the new round of low-cost and start-up entrants into the very competitive and deregulated United States airline industry, themainlinemajor carriers andnetwork legacy carriers strategically developed no-frills divisions within the main airlines brand and corporate structures. Among these wereContinental Lite,Delta Express,MetroJet,Shuttle by United,Song, andTed. However, most of these "airlines within an airline" were short-lived and quickly disposed-of when economic rationalization or competitive pressures subsided.[citation needed]
Taking a page[clarification needed] from the mainline, major, or legacy carriers' desire to reduce costs in all ways possible in regards regional route networks by outsourcing regional operations to the lowest expense airline bidder capable of operating regional aircraft, a new generation of low-cost airlines (in name only) soon evolved in the US with varying levels of success. Among these varieties of low-cost and discount operators were noteworthy starts-ups that managed to get off the ground by using the larger aircraft services of established charter airlines. Among this group were thevirtual airlines;Direct Air,PeoplExpress,Western, and those that never began service such asJetAmerica.
In Japan, low-cost airlines made major inroads into the market in 2012 whenPeach,Jetstar Japan andAirAsia Japan began operations, each with financial sponsorship by a domestic legacy airline and one or more foreign investors. By mid-2013, these new LCCs were operating at a unit cost of around 8 yen per seat-kilometer, compared to 10–11 yen per seat-kilometer for domestic legacy airlines. However, their unit cost was still much higher than the 3 yen per seat-kilometer forAirAsia inMalaysia, due to the higher cost of landing fees and personnel in Japan.[22]
By 2017, low-cost carriers had achieved market share of 57.2% in South Asia and 52.6% in Southeast Asia. Market share remained somewhat lower in Europe at 37.9% and North America at 32.7%.[23]
For theEuropean Commission, the LCCs market share (44.8%) exceeded legacy carriers (42.4%) in 2012: between 2002 and 2017, LCCshare ofinternational seat capacity rose from 23% to 57% in the UK, from 10% to 55% in Italy and from 9% to 56% in Spain but have still room for growth indomestic seat-capacity In France with 19% and in Germany with 25% in 2017, compared with 66% in the UK, 48% in Spain and 47% in Italy.[24]
By early 2019, there were more than 100 LCCs operating 6,000 aircraft, doubled from 2,900 aircraft at the end of 2009, while seat capacity reached nearly 1.7 billion in 2018.LCCs accounted for 33% of intra-regional seat capacity in 2018 with 1.564 billion, up from 25% in 2008 with 753 million, and 13% of seat capacity between regions with 101 million, up from 6% in 2009 with 26 million.In 2018, penetration rate was 41% of seats within Europe, 36% within Latin America, 32% within North America, 29% within Asia Pacific, 17% within the Middle East and 12% within Africa.[25]
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A long-haul low-cost operation would be harder todifferentiate from a conventional airline as there are fewcost savings possibilities, while the seat costs would have to be lower than the competition. Long-haul aircraft scheduling is often determined bytime zone constraints, like leaving theUS East Coast in the evening and arriving inEurope the following morning, and the longer flight times mean there is less scope to increase aircraftutilization as in short-haul. Thebusiness model isfinancially risky, and many companies have enteredbankruptcy, likeLaker Airways.
In 2004, IrishAer Lingus maintains a full service ontransatlantic flights while it lowered its prices to compete withRyanair on short haul.[26][failed verification]Late in 2004,Oasis Hong Kong Airlines offeredLondon toHong Kong flights from £199, and CanadianZoom Airlines started selling transatlantic flights between theUK and Canada for £89. In August 2006, Zoom announced aUK subsidiary to offer low-cost long-haul flights to the United States and India, but suspended its operations from 28 August 2008 due to high fuel prices inducing financial problems.
In 2005,Emirates'Tim Clark viewed long-haul low-cost as inevitable, flights could be operated on 760 seats all-economyAirbus A380s, or 870 for an hypothetical A380 stretch.[27]Since 2005, Australia'sJetstar Airways operates international flights, starting withChristchurch, New Zealand. In late 2006, others followed fromSydney,Melbourne andBrisbane, to popular tourist destinations within 10 hours likeHonolulu, Japan,Vietnam,Thailand andMalaysia. With new aircraft deliveries, it hopes to fly to the continentalUS andEurope.In April 2006, the industry magazineAirline Business analysed the potential for low-cost long-haul service and concluded that a number of Asian carriers, including AirAsia, were closest to making such a model work.[28]On 26 October 2006,Oasis Hong Kong Airlines started flying fromHong Kong toLondon-Gatwick. The lowest prices for flights betweenHong Kong toLondon could be as low at £75 (approximately US$150) per leg (not including taxes and other charges) for economy class and £470 (approximately US$940) per leg for business class for the same route. From 28 June 2007, a second long-haul route to Vancouver,British Columbia, was started. The company ceased operations on 9 April 2008, after over a billionHong Kong dollars in losses.
On 2 November 2007,AirAsia X, a subsidiary ofAirAsia andVirgin Group flew its inaugural flight fromKuala Lumpur, Malaysia, toGold Coast, Australia. AirAsia X claims that it is the first true low-cost long-haul carrier since the end ofSkytrain.In late 2007,Cebu Pacific, thePhilippines' largest low-cost carrier, announced non-stop flights from the Philippines to theUnited States West Coast and other US cities from mid-2009.[29] The airline also intends to launch low-cost service toMiddle East, where around a million Filipinos are based, and in Europe. Flights toDubai — its first long-haul destination — started in 2013. As of September 2024, it operates flights to Dubai daily, toSydney four times a week, andMelbourne thrice weekly.[30][31]
On 11 March 2009, AirAsia X started its first low-cost long-haul service into Europe, toLondon Stansted. The daily flights are operated by two leasedAirbus A340-300s. A one-way economy-class ticket often costs £150, and the premium-class one-way often costs £350. On 12 January 2012, AirAsia announced that it would be suspending services toLondon on 1 April 2012.
Low-cost European airline,Norwegian Air Shuttle, started long-haul low-cost operations in May 2013 under theirNorwegian Long Haul arm. Norwegian initially operated flights to Bangkok and New York from Scandinavia using leased Airbus A340 aircraft, switching to newBoeing 787s in the second half of 2013 after Boeing resumed deliveries following extensive problems and delays.[32] It served direct routes from the United States (Los Angeles,Fort Lauderdale,New York City,Oakland-San Francisco,Boston andOrlando) intoScandinavia (Oslo,Stockholm,Copenhagen). In January 2021 Norwegian announced the immediate cessation of their long-haul operations, along with a large-scale reduction of its fleet ofBoeing 737 aircraft and operations.[33]
In March 2017,International Airlines Group establishedLevel, a long-haul low-costvirtual airline based inBarcelona Airport and serving destinations in North and South America.[34]Long-haul low-cost carriers are emerging on thetransatlantic flights market with 545,000 seats offered over 60 city pairs in September 2017 (a 66% growth over one year), compared to 652,000 seats over 96 pairs forLeisure airlines and 8,798,000 seats over 357 pairs formainline carriers.[35]
Former American Airlines CEOBob Crandall thinks the legacy carriers will force Long-haul LCCS to lose too much money and will continue to dominate.[36]While Asian carriers like AirAsia X,Scoot, Cebu Pacific and Jetstar Airways are successful, the October 2018 demise ofPrimera Air and its $99 transatlantic flights illustrates the difficulties of the model, as the USWorld Airways will be relaunched in 2019.[37]
Norse Atlantic Airways was founded in 2021 and commenced operations in 2022, operating transatlantic flights as well as flights to Thailand beginning in 2023.
In June 2024,HiSky started long haul operations betweenBucharest-Otopeni toNew York JFK.
A trend from the mid-2000s was the formation of new low-cost carriers exclusively targeting the long-haul business market. Aircraft are generally configured for a single class of service, initially on transatlantic routings.
Similarly, Midwest Express (laterMidwest Airlines) which operated from 1984 until it was absorbed intoFrontier Airlines in 2010, andLegend Airlines which ceased operations in late 2000 were also founded on this operating model.
Probably best described as "fewer frills" rather than "no frills", the initial entrants in this market utilized second-hand, mid-sized, twin jets, such asBoeing 757 andBoeing 767, in an attempt to service the lucrative London-US Eastern Seaboard market:
Some elements of the low-cost model have been subject to criticism by governments and regulators; and in the UK in particular, the issue of "unbundling" of ancillary charges by both low-cost carriers and other airlines (showing airport fees or taxes as separate charges rather than as part of the advertised fare) to make the "headline fare" appear lower has resulted in enforcement action.[42] Considering that this amounts to a misleading approach to pricing, the United Kingdom'sOffice of Fair Trading (OFT) in February 2007 gave all carriers and travel companies three months to include all fixed non-optional costs in their basic advertised prices. Although the full-service carriers had complied within the specified timescales, the low-cost carriers have been less compliant in this respect, leading to the prospect of legal action by the OFT.[43]
Some destination cities lie relatively far from the airports that low-cost airlines use to save costs. Examples of this areHahn,Weeze andGirona airports—which low-cost airlines advertise as the destinations forFrankfurt,Düsseldorf, andBarcelona, respectively—even though these airports are 50 to 90 kilometres away. This has drawn criticism, mostly from competing airlines that fly closer to the destinations.[44]
IAG CEOWillie Walsh found established airlines arrogant facing the LCC model. For instance,Aer Lingus turned down the opportunity to buyRyanair for£29 millionIrish pounds (€36.8 million). The company further stated that it would not have developed Ryanair and instead would have shut it down.[45][46]
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