Airline Weekly April 2nd, 2018
What stuck out to me the most in this weeks issue of Airline Weekly was the success of LCCs and their business model.
Last week the rapid expansion of Latin American LCCs was the cover story for AW. In discussing the potential opportunity and chances for success of LCCs and ULCCs in Latin America, the rapid rise of LCCs worldwide was briefly discussed. In pouring through the issue this week, it seems that LCCs offer a high rate of profitability for otherwise financially-challenged major carriers. I may be a little late to the LCC party here, but it’s becoming increasingly clear that travelers agree with the lower price points and are okay with losing a little bit of comfort for a few more dollars in their pocket. Major long-haul carriers also seem to be adopting LCC-like strategies, likely due to their envy of the double-digit operating margins posted by many of the successful LCCs.
- Cebu Pacific, an LCC in the Philippines had a 15% operating margin in 2017 even with a 23% spike in the cost of fuel. Ancillary revenue is a large part of Cebu Pacific’s success, responsible for about 20% of its total revenue. It’s been able to increase revenue while reducing ASK capacity via high-density flights.
- In financial disarray and looking for a potential buyer, Air India had a success story in its LCC business Air India Express. The LCC had a 17% operating margin in the previous fiscal year with a 26% operating margin the year before.
- easyJet is pairing up with long-haul partners such as Norweigan, Longair, TUI’s Corsair and others to provide short-haul connecting flights to airports with a partners long-haul flight. This is a lucrative deal for both parties, as it increases the audience for the intercontinental flights offered by the long-haul partners to regions that may not have a major airport hub.
- LCCs such as Ryanair and Wizz Air continue to post high operating margins and expand into new territory such as Central and Eastern Europe, inspiring many LCC newcomers and converts.
- The “Big Three” in Europe (Lufthansa, IAG and Air France/KLM) as well as other large carriers are developing low-cost offerings
- Within the disastourous South African Airways financial report was a small beacon of success: The low-cost unit of Mango came away with a small profit and will increase its presence domestically.
- AirChina grew ancillary revenues by nearly 33%, adopting LCC-like behavior
Bonus: I often find terms that I’m not familiar with when reading AW. Below are the terms that I needed to look up this week.
- NEOs
- A family of narrow-body Airbus A320 aircraft that increase the efficiency of the current iteration of A320s via re-engining.
- ASEAN region
- The Association of Southeast Asian Nations which is a regional organization promoting Pan-Asianism that includes 10 nations which cooperate in economic, military and socio-cultural measures. It includes the Philippines, Thailand, Singapore and Vietnam.
- RTK
- RTKs are a standard industry metric used to quantify the amount of revenue generating payload carried, taking into account the distance flown. RTKs comprise the passengers, freight and mail carried multiplied by the Great Circle Distance (GCD), which is a standard published distance between two airports. (Taken from the Quantas website)
