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Typical low-cost carrier business model practices include:

  • a single passenger class
  • a single type of aeroplane (commonly the Airbus A320 or Boeing 737), reducing training and servicing costs
  • a minimum set of optional equipment on the aeroplane, often excluding conveniences such as ACARS, further reducing costs of acquisition and maintenance
  • a simple fare scheme, such as charging one-way tickets half that of round-trips (typically fares increase as the plane fills up, which rewards early reservations)
  • unreserved seating (encouraging passengers to board early and quickly)
  • flying to cheaper, less congested secondary airports and flying early in the morning or late in the evening to avoid air traffic delays and take advantage of lower landing fees
  • fast turnaround times (allowing maximum use of aircraft)
  • simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing aircraft use and eliminating disruption due to delayed passengers or luggage missing connecting flights)
  • encourage the use of direct flights. Luggage is not automatically transferred from one flight to another, even if both flights are with the same company.
  • generation of ancillary revenue from a variety of activities, such as a la carte features and commission-based products
  • emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and computer reservations systems)
  • employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents (limiting personnel costs)
  • a disinclination to handle Special Service passengers, for instance by placing a higher age limit on unaccompanied minors than full service carriers
  • aggressive fuel hedging programs

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 will have relatively high operating costs but lower fares.

The price policy of the low cost carriers is usually very dynamic, with discounts and tickets in promotion. Even if the advertised price may be very low, sometimes it does not include charges & taxes.

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. Frontier Airlines and JetBlue Airways advertise satellite television. Advertiser-supported Skybus Airlines launched from Columbus in 2007, but ceased operations in April, 2008. In Europe, the emphasis has remained on reducing costs and no-frills service. In 2004, Ryanair announced proposals to eliminate reclining seats, window blinds, seat headrest covers, and seat pockets from its aircraft.

The budget airlines frequently offer flights at low prices – often flights are advertised as free (plus applicable taxes, fees and charges.) 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.

History

In Canada, Air Canada has found it difficult to compete with new low-cost rivals such as WestJet, Canjet, and Jetsgo despite its previously dominant position in the market: Air Canada entered a period of bankruptcy protection in 2003, but emerged from protection in September 2004. Air Canada operated two low-fare subsidiaries, Tango and Zip, but both were discontinued. Jetsgo ceased operations on March 11, 2005 and Canjet discontinued scheduled air services on September 10, 2006.

Today WestJet is the primary low-cost airline in Canada. Previously, Zoom Airlines provided an additional option, but ceased operations on August 28, 2008 due to financial problems. Air Canada has started to offer "Tango" fares (not associated with the aforementioned airline) that offer low-cost carrier services while still offer legacy carrier type service on other fare structures.

India

In Norway the first low cost carrier was ColorAir in 1998. Their low prices were matched by competitors SAS and Braathens, and Color Air folded in 1999. The next low cost carrier, Norwegian Air Shuttle (or Norwegian), starting their Boeing 737 operations in September 2002, provided tougher competition for the merged Norwegian part of SAS and Braathens. Although Norwegian started with domestic routes, today their international operations are larger than their domestic service. By launching nonstop flights from cities like Stavanger, Bergen, Trondheim in addition to Oslo, they soon became very popular. Norwegians are amongst the most frequent fliers in the world, mostly due to the geography of the country but also due to the high level of income.

Australia

In 1995, Air New Zealand established a low-fare subsidiary, Freedom Air, in response to the commencement of discount trans-tasman services by Kiwi Airlines. Fierce competition on trans-Tasman routes led to the collapse of Kiwi Airlines in 1996. Freedom Air continued to provide discount services between Australia and New Zealand until it ceased operations in March 2008. Wholly owned Qantas subsidiary Jetconnect was set up as a low cost New Zealand arm of Qantas, with Jetconnect operating all New Zealand domestic services and several trans Tasman services in a 'wet leasing' arrangement, using the Qantas brand. Qantas has also launched trans-Tasman as well as domestic Jetstar flights.

Philippines

Air Arabia was established on February 3, 2003 and started operations on October 29, 2003. In Kuwait the low cost airline Jazeera Airways was launched October 30, 2005.It was the first and so far only airline in the middle east to have a high profit from its first year of operations and has become the first choice of the Kuwaiti traveler giving the already struggling Kuwait Airways a huge competition. Saudi Arabia also launched two low frills carrier by the name of Nas Air and Sama Airlines in 2007. The Kingdom of Bahrain has launched a low cost carrier with the name of Bahrain Air in January 2008. Dubai Government has announced its low cost carrier FlyDubai, which is scheduled to begin operations from 2009, in collaboration with Emirates Airlines.

Singapore

Sky Express is the first Russian low-cost airline focusing on internal flights. Its main base is Vnukovo International Airport. The airline was established in March 2006 by a consortium of investors which included KrasAir CEO Boris Abramovich, EBRD, Altima Partners and others, becoming the Russia's first low-cost airline. The first flight took off on 29 January 2007 from Moscow to Sochi.

Mexico

The era of low-cost carriers in Germany began in February 2002, when Ryanair opened its base at Frankfurt-Hahn Airport, a few months later Germanwings and TUIfly went in service from Cologne Bonn Airport. In December 2003, EasyJet opened a base at Berlin-Schönefeld Airport which is now (2008) the second biggest base of EasyJet in Europe. Today, each fifth flight in Germany is realised by a low-cost carrier and nearly each airport can be reached by them. Air Berlin is another successful German semi low-cost carrier, operating various routes across the world. In fact today it is Germany's second largest airline after Lufthansa, with a mixed fleet of Boeing, Bombardier and Airbus planes.

Turkey

The market for low-cost carriers in Turkey has grown extensively over the last few years, with airlines such as Pegasus Airlines and Anadolujet leading the way.

Criticism

Some elements of the low-cost model have been subject of 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, taxes as separate charges rather than as part of the advertised fare) to make the "headline fare" appear lower has resulted in enforcement action. Believing that this amounts to a misleading approach to pricing, the Office 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 successful in this respect, leading to the prospect of legal action by the OFT.

Many low-cost carriers show a zero cost for some flights. Most charge additional fees for airport check-in, baggage check-in, 'handling charges', seat allocation and credit card processing. These charges are non-refundable even in the case of cancellation by the airline. Low-cost carriers regularly weigh carry-on bags, check them for size and impose high penalty charges for any carry-ons exceeding their stipulations. Ryanair requires that passengers' airport purchases fit within their carry-on bag.

No-frills long-haul flights

The first airline offering no-frills transatlantic service was Freddie Laker's Laker 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 and Pan Am, were able to price Skytrain out of the market.

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