Low frill airlines

1. Low Frill Airlines
(Case Study)
Assignment work
2018
Submitted to: Submitted by:
Mr. Ajay Bhardwaj Vaibhav Makwana
Lecturer MBA TTM 1st
SEM
Dept. of Tourism Mgmt. DSVV, Haridwar
…………………………………………..…………………………
DEPARTMENT OF TOURISM MANAGEMENT
SCHOOL of T C & M, DEV SANSKRITI VISWAVIDYALAYA,
GAYTRIKUNJ, SHANTIKUNJ, HARIDWAR (U.K.) INDIA

2. Low Frill Airlines
INTRODUCTION
A low-cost carrier or low-cost airline is an airline that generally has lower fares and fewer comforts.
To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food,
priority boarding, seat allocating, and baggage etc.
The term originated within the airline industry referring to airlines with a lower operating cost
structure than their competitors. While 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
with regional airlines that operate short flights without service, or with full-service airlines offering
some reduced fares.
Brief History From Around the World
The concept of a low cost airline was started in the seventies by the American domestic carrier
Southwest with the sole objective of offering cheap airfares to the consumers. This created a
situation where already established flag ship carriers or legacy airlines to lose a significant amount of
the market share to these newly formed low cost airlines, purely because of their ability to charge a
lower price over traditional full cost airlines.
North America
From the deregulation in the 1970’s till the early 2000’s the transformation of the low cost concept in
the United States can only be described as a series of innovations, proliferations and consolidations
where many other low cost airlines (e.g. Pacific Southwest, New York Air, Jet America) entered the
market of which, some survived the competition and others did not. This also caused some of the
major carriers to start their own subsidiaries under the low cost banner in order to regain their lost
market share (Francis, Humphreys, Ison & Aicken, 2005, p. 85).
Europe
In Europe the low cost concept was originated in the UK and Ireland based on the Southwest model
with the introduction of easyJet and Ryanair in 1995. Their success was attributed to the favorable
economic framework that encouraged the low cost airline industry. For example, the deregulation

3. allowed airlines of member states to operate domestically within the European Union. Another
Example is low charges at underused airports which increased the passenger numbers going into
those airports and finally, their direct sales approach using the internet and call centers (Francis et al,
2005, p.87).
Australia/ New Zealand
After the deregulation of the Australian domestic market in the early nineties, airlines such as
Compass Airlines and compass Mk II started low cost operations. However they were absorbed into
the Qantas group as a result of the financial strength Qantas had over the low cost airline. The only
significant low cost innovation came in the form of virgin blue which still continues to operate today.
In New Zealand, although the deregulation movement was implemented in 1984, low cost operations
did not start until 1995. However, unlike most other countries it wasn’t in the domestic sector but
short haul trans-Tasman flights, started by Kiwi Airlines. The response for this by the New Zealand
flag ship carrier Air New Zealand was to create their own subsidiary Freedom Air to gain a market
share in the low cost airline sector. Today, an offshoot of low cost carrier Virgin Blue operates
Trans-Tasman routes under the banner Pacific Blue.
Asia
In Asia, it was always thought that the tight government control and restrictions implemented will
not allow favorable conditions for low cost airlines to prosper. However the rapid demographic and
economic progress combined with congested hub airports alongside underutilized airports and the
need for governments of those countries to promote tourism and trade outside the capital cities
influenced in the bringing the low cost concept to the continent of Asia. Seeing the success of some
of the European airlines such as easyJet and Ryan air, Malaysian carrier Air Asia started low cost
domestic operations in 2001 based on the South West model. Other subsidiary airlines such as Tiger
Airways and ValuAir have also started operations and are still in service today (Francis et al, 2005,
p.90).
THE “LCC” PHENOMENON IN INDIA
Southwest Airlines, now a major carrier in the U.S., operating local routes in Texas in the 1970s
pioneered the low cost carrier business model. In India, the model was introduced in 2003 by Air

4. Deccan. However, the same descriptive label masks the significant differences in ways the model has
worked in India vs. U.S.
First, in terms of market share, LCCs accounted for almost 30% of all domestic passengers carried
in 2006. As of November 2006, it rose to 35%. This rate of market penetration of LCCs is
remarkable given that the market share was zero in August 2003. Low cost carrier operations account
for 44% of all flights within India compared to19% in the U.S...
The second significant difference has to do with the relationship between low cost and low fare. In
U.S., the LCCs offering low fares are also truly low cost operations. In India, the airlines that offer
low fares are in reality not low cost operations. They are LCCs only in name. Among the LCCs in
India, Spice Jet has the lowest unit cost at 6.2 cents per ASK, which is comparable with Southwest,
Easy Jet, and Jet Blue. But this is more than twice that of the best performer, Air Asia with unit cost
of slightly over 3 cents per ASK..
These flies in the face of what LCCs outside India like Ryan air have done when they were in a
similar stage of their growth. Ryan air focused on lowering costs while finding ways to enhance
revenues by selling food and drinks during flight to captive passengers and selling services such as
insurance, hotel reservations, and rental cars on its website. Deccan seemed to have followed similar
strategy in terms of charging for baggage (by offering limited baggage allowance) and food, and
expanding capacity but with a crucial difference that it did not share the obsession of Ryan air and
Air Asia to reduce costs.
The Low Cost Model
The above mentioned examples in the low cost airline history share one common feature. They are
either based on or have used a ‘modified’ version of the Southwest low cost model of operation.
The success of low cost airlines can be attributed to what is called a low-cost leadership position
strategy adopted by these airlines. According to Flouris & Oswald (2006), “The goal of a low-cost
leader is to contain the costs to the lowest relative to industry rivals and, in essence, to create a
sustainable cost advantage over the competition. The key to this strategy is that cost is not equal to
price”. The original low cost model is designed based on this concept and as outlined in Alamdari &
Fagan (2005, p.378), the original South West low cost model consisted of the following:

5.  Fares : Unrestricted and low price
 Network: Point to point high frequency routes
 Distribution: Travel agents and call
 Fleet: High utilization, same type of aircraft across the fleet
 Airport: Secondary airports with short turnaroun
 Sector length: Short (around 400nm)
 Staff: High productivity with competitive wages and profit sharing
Fares : Unrestricted and low price
Network: Point to point high frequency routes
Distribution: Travel agents and call centers, no tickets
, same type of aircraft across the fleet
Airport: Secondary airports with short turnaround times
Sector length: Short (around 400nm)
Staff: High productivity with competitive wages and profit sharing

6. LCC Model Features
 Low Cost Carrier's commonly use one single type of aircraft which is small and more fuel
efficient such as Boeing 737 and Airbus A320 families.
 They tend to keep only single passenger class in the aircraft.
 In order to reduce the HR cost LCC's encourage their employees to work in multiple roles.
For E.g. Flight attendants may clean the aircraft or work as gate agents.
 Low Cost Carrier's charge for pillow, blanket, food, prior boarding, carryon baggage or any
extra comfort.
 Low Cost Flight's generate revenue by providing a-la-carte option and commissioned
products.
 LCC's do not provide any in-flight entertainments, complementary toys, variety of news
papers and magazines etc.
 Low Cost Flight's operates with minimum equipments to reduce the aircraft weight and to
reduce the acquisition and maintenance cost. Reduced aircraft weight will reward more fuel
efficiency.
Benefits of Low Cost Carrier's
 Low price – the most obvious benefit to travelers who can save between 50 – 80 percent on
airfare, especially when booking early.
 One-way tickets – some airlines charge extra for one-way tickets; a number of low-cost
airlines sell air tickets a la carte, priced according to availability.
 Price benefits for traveling during off-peak hours or red-eye flights.
 Frequent big discount promotions.
Disadvantages of Low Cost Carrier's
 Hidden fees – taxes, insurance costs, baggage, etc.
 Extra charges for not using online ticket sales and check-in, reserved seating.

7.  Less convenient schedules – travelers’ flight options may be limited to non-peak hours/days.
 No refunds; rescheduling a flight can be costly.
 Baggage restrictions like carry-on luggage only; large fees for excess baggage.
 “Lesser” airports – some low-cost carriers fly out of secondary, less-used airports that may
be a considerable distance from the destination
Indian Aviation Industry Facts
 60 Million Passengers Served – 90 Million Domestic Passengers/ 20Million International
Passengers
 45 Million Tons of cargo handled
 Operations with 920Airlines, @ 4200 Airports, with 27000 Aircrafts
 Inbound Air traffic from 87Foreign countries
 Outbound Air traffic to 40countries
 International Passengers growing at CAGR of 14%

8. Indigo Airlines
IndiGo is a low-cost airline headquartered at Gurgaon, Haryana, India. It is the largest airline in India
in terms of passengers carried, with a 42.6% market share as of October 2016. The airline operates to
41 destinations and is the second largest low-cost carrier in Asia
It has its primary hub at Indira Gandhi International Airport, Delhi. The airline was founded as a
private company, by Rahul Bhatia of InterGlobe Enterprises; and Rakesh Gangwal, a United States-
based expatriate Indian; in 2006. It took delivery of its first aircraft in July 2006 and commenced
operations a month later.
The airline became the largest Indian carrier in terms of passenger market share in 2012. The
company went public in November 2015. Facts and Figures 8 consecutive years of profitable
operations Market share of 42.1% as of November, 2016 Fleet of 126 aircraft including 14 new
generation A320neos "Great Place to Work for in India” 8 years in a row
Strategies Adopted By Indigo Airlines
IndiGo has become the new market leader with its slow and steady approach within just eleven years
of launch. IndiGo focused on what they thought would matter to its flyers -It communicated to the
flyer his basic need of getting from point A to point B on time.
Here are the major reasons why the airline has managed to scale to the top, despite being the
youngest airline in India.
Indigo's stuck to its low-cost, single class model
While Kingfisher and once market-leading Jet Airways bought rivals, flew multiple plane models
and struggled to mix full-service and low-fare options, IndiGo stuck with its policy of offering one
class of no-frills service on a single type of plane. Indigo has chosen to stick to the world's best-
selling single-aisle aircraft, the Airbus A320.

9. Selling and leasing back planes helps its balance sheet
Secondly, it maintains a young fleet by selling and leasing back its planes. IndiGo uses six-year sale
and leaseback agreements, so the airline is constantly replacing its aircraft. This prevents the need for
overall checks and major repairs, which means IndiGo understands how to work the margins.
Operationally it would be impossible to make a profit at the very low fares they were offering
through the first four years of operations, where ticket prices on Indigo were roughly 40 percent of
cost of operation.
Quality and detail key to good service
IndiGo's executives, including staff at the check-in counters, air crew and sales and marketing staff
are hired only after Bhatia meets each of them individually. Besides, the airline also employs far
fewer people, with one of the industry's leanest work forces. The airline also broke industry
standards with simple things like turnaround time. This is the time taken for a plane to be ready for
the next flight between landing and takeoff. IndiGo boasts of a turnaround time of less than 30
minutes.
Concentrated customer focus
IndiGo's success model largely relies on consistent low fares, regular on-time performance and
minimal flight cancellations. However, the airline's biggest edge over others is its focus on customer
focus. IndiGo only emphasizes on-time performance. Indigo has continuously built around this
image through its tongue-in- cheek advertisements on television and print media.
Using Smart Technology
Unlike manual systems used by other airlines, IndiGo planes are equipped with a digital link system
for transmission of short, simple messages between aircraft and ground stations via radio or satellite
called Aircraft Communications Addressing and Reporting System (ACARS). Before every IndiGo
flight departs an automatic message is triggered from the aircraft to its operations control centre - and
immediately the same departure time gets recorded in the software. Similarly, the moment the flight
lands an automatic message is triggered from aircraft to control centre. Hence, the on-time
performance is diligently monitored for every flight in real time.

10. SPICEJET AIRWAYS
SpiceJet is a low-cost airline based in New Delhi, India. It began service on May 23, 2005. It was
earlier known as Royal Airways, which was earlier known as ModiLuft. It is promoted by the
Kansagra family. By 2008, it was India's second largest low-cost airline in terms of market share.
Spice Jet was voted as the best low-cost airline in South Asia and Central Asia region by Skytrax in
2007.
Cost Control
Spice Jet is focused on twin pillars of cost control and growing its ancillary revenue. It follows the
classical ―low-cost‖ airline model of very competitive fares, a single type of aircraft and a single
class of service, point-to-point operations, quick turnarounds, no frills, and internet-based ticketing.
But unlike other low-cost airlines, water and snacks served on-board Spice Jet aircrafts is free.
Spice Jet has also focused on the curved winglet design which reduces noise and improves fuel
economy by 2-3 per cent. The company has also expanded inner aircraft room by reducing
unnecessary storage areas and allotting them to passenger seats.
Pricing strategies
The airline marked its entry in service with Rs. 99 fares for the first 99 days, with 9000 seats
available at this rate. This deal was followed by a Rs. 999 promotional scheme on select routes. Their
marketing theme is "offering low 'everyday spicy fares' and great guest services to price conscious
travelers. Their aim is to compete with the Indian Railways passengers travelling in AC coaches. The
airline in May 2007 offered two-lakh seats at a special price of 99 paisa for two or more persons
travelling together on all non-stop flights covering 14 destinations. Recently in January 2009, it came
up with another attraction – ‗Book two air tickets, Pay for one‘.

11. Value-addition to customers
Spice Jet has introduced online travel insurance in partnership with TATA AIG with which they
have maintained a consistent rate of 28 per cent of sales since the introduction of the product.
It provides value-adds to clients by having internet banking for customers, wherein they can select
any bank with which they have an account and can use their own login credentials, which is
essentially for customers not owning a credit card or not inclined to using one, are among the other
major initiatives.
Apart from these, it provides efficient information flow to clients, wherein the system gives the
clients a recorded call giving information about the flight; creating a portal for crew (pilots and cabin
crew), which enables them to communicate with each other. Spice Jet plans to introduce an on-board
wireless telephone system for all Spice jet passengers.
Operational efficiency
As Michael Porter says, a company can outperform its rivals only if it can establish a difference it
can preserve. It has partnerships with global leaders in their respective fields to enhance safety and
reliability. The company is well supported in the maintenance department by KLM and state-of-the-
art technology from world leaders like the Star Navigation, Russell Adams and Tech Log.
Spice Jet Airlines has started partnership with Navitaire, the world‘s renowned low-cost support
system for reservations and revenue management. E-booking and Eticketing are available in Spice
Jet. It made significant investments in information technology to provide a backbone for operational
effectiveness.
These approaches resulted in Spice Jet achieving the lowest costs in the industry (Rs. 2.65/Available
Seat Kilometer (ASKM) in 2008) and a flight dispatch reliability exceeding 99.5%. Spice Jet’s
efficiency is comparable to that of the legendary low-cost Southwest airlines.

12. Marketing Strategies
Spice Jet has a unique marketing strategy that focuses on word-of-mouth marketing, supported by
print and Internet media initiatives. To build further on its branding value, Spice Jet has introduced
on-board merchandise sales such as goggles, airplane models, perfumes, caps and watches. Sales of
branded merchandise will also be available through the company's website.
Strategies for Future sustenance
 Expansion Plans
Spice Jet started its operations with 5 Boeing aircrafts in its fleet and ramped it up to 18 aircrafts
covering 17 destinations and 117 flights daily by May 2008. It reported a net loss of Rs. 133.51
crores in the year 2007-08 and a loss of Rs. 17.91 crores in 3rd quarter of 2008-09. Spice Jet still has
major expansion plans. It has another 30 aircrafts on order for delivery between 2008 and 2011.
 Open to Foreign investments
"If any foreign airline comes on board as a strategic partner, company will certainly welcome them.
If the right opportunity is presented Spice Jet could be a buyer too." – Chief Executive Officer,
Sanjay Aggarwal on Feb 18, 2009. He expects consolidation in the Indian airline industry over the
next 12 to 24 months as the landscape is too small for so many players.
 Convenience to passengers
It plans to initiate roaming agents wherein passengers without baggage are assisted by the roaming
agents at the airport to skip check-in are some of the other initiatives. In future, Spice jet plans to
start Web Access Protocol (WAP) on the mobile phones of the passengers and SMS check-in
through which passengers can skip check-in by just showing the barcode or the notification on their
mobile phones.
 Ancillary Revenues
Spice Jet have entered into a Joint venture with The UK based online retailer UnderFivePound.com.
The company through its website, sells a range of men‘s, women‘s and children‘s clothing along
with other items such as jewellery and house ware gadgets, all for less than £5 and is known for its
discounts and freebies.

13. Keeping the pricing of the merchandise
value-for-money items on board, to its customers
Keeping the pricing of the merchandise in sync with the image of a LCC, Spice Jet
money items on board, to its customers
Spice Jet expects to sell