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Low Cost vs Full Service Carrier

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Salomão Duarte

on 6 November 2013

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Transcript of Low Cost vs Full Service Carrier

Pros & cons of LCC’S and FSNC’s
Economia e Gestão ISEC 2013
airline business model
Examples of LCC’s that have failed
Cimber Sterling 1949-2012
Fleet

• 3 ATR 42-500
• 6 ATR 72-500
• 13 Bombardier CRJ-200LR (4 operated by scandinavian airlines)
• 6 Boing 737-700

Aliances

• Lufthansa
• Scandinavian Airlines

Employment data and connections

• 600 employees;
• Connections for more than 600 destinies;

Negotiations and reasons that took the company to ruin:

• Financial crisis they were passing by in 2010-2011
• Failure of the administration and management team trying to rebuilt the company;
• End of the Funds from the ucranian billionarie who bought the company

LCC VS FSNC
Low Cost
Full service carrier
“A “legacy” or “full service network carrier” is an airline that focuses on providing a wide range of pre-flight and onboard services, including different service classes, and connecting flights.”

Source: German Aerospace center


Charter/Holiday carrier
“Holiday or leisure carriers are airlines that focus on the transportation of tourists.”
Source: German Aerospace center


A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline or cheap flight) is an airline that generally has lower fares and fewer comforts.

source: Black's law dictionary online
low cost carrier
Regional airlines, also called commuter airlines or feeder airlines,
generally use smaller aircraft with 20-100 seats and restrict their flight routes to a geographically limited area.”
Source: German Aerospace center

Regional carrier:
Full Service Carrier
In flight:
• Seat assignment (sometimes prior to check in)
• Comfortable separation space between seats
• Complete on-board services
• Multiple class configuration (first, executive, economic)
• Free entertainment on-board


Routes / destinations:








• Major city airports
• Short/medium/long haul flights
• Interconnection between flights (hub)




Company staff:
Type of sales:
Fleet
Security / safety:

• Wide range of ages inside the company
• Staff stays for long periods on the company
• Medium workload
• Medium wages
• High specialization tasks



• Major B2B sellings
• Distribution by travel agencies and by GDS (global distribution system)
• Multiple payment options
• Possibility to buy last minute tickets



• Maintenance according to JAR FCL-145
• Security according to ICAO Annex 17





• Mutiple aircraft type from multiple constructors
• Large number of airplanes
• Multiple class configuration on-board
• Seat with good separation between them
• Medium workload of airplanes
• Excellence cabin conditions

Low Cost Pros
• Low prices
• Flights to secondary airports
• Ideal for business people who intend to work during flight
• Faster on-board and of-load timings
• Easy reservation system
• Easy payment system
• Flights at schedules that allow “go” and “return” in the same day
• Low fees at airports (reduced airport parking taxes)
• Reduced staff at the entire company
• Maintenance and handling performed by outsourcing enterprises
• Staff have multiple tasks and are wages are low




Low Cost Cons
Only class of passengers
• Use of a simple ticket project
• Services without extras, as catering, lounges and program of frequent user
• Tickets without reimbursement and possibility of markdown
• In general basic quality of servisse
• Limitations to the level of the amount of luggage
• They do not carry load








FSC Pros
Low Cost Cons

• Wide variety of schedules
• Multiple destination airports and major cities
• Short/medium/ long haul flights
• GDS ticketing
• Multiple choice of reservation systems (online, travel agencies)
• Oriented for B2B
• Wide distribution of ticketing
• Hub and spoke
• Stable and “in-time” routes
• Inter-connection flights
• Multiple aircraft types
• Multiple class on board
• Excellence service at airports and in-flight
• Raised comfort during flights
• Operational model
• Company traveler card

• Expensive prices
• Complex reservation system
• Reduced payment options
• Slow rotation timings at airports
• Complex check-in and onboard processes
• Too many services on board for people who wish to work during flight

Growth

Costs for FSNC’s airlines:

• Differentiation for quality of service with raised mark image
• Resource “codeshare” and global alliances to increase offers
• Creation 'of the innovation 'of the image of the mark
• Complete service that of more the confidence to the passengers


• High aircraft costs (many types of fleet)
• High maintenance costs (many type of aircraft)
• High crew costs (more crew and more work hours)
• More handling costs (more baggage pallets and more push back services)
• Catering costs (more catering on board)
• High parking fees (airport taxes) due to slow turn-round
• Long “life” of airplanes (more maintenance)


Low Cost Carrier
Services to the final consumer:
In flight:
• No seat assignment
• No meals
• High density of passengers
• Single class
• Extra charge for additional services


Routes / destinations:








• Secondary or uncongested airports (15-20 minutes turn rounds)
• Competitive with FSNC’s
• Short / medium haul flights
• P2P (point to point)
• No connection between flights



Pax profile at Lisbon:
Company staff:
Type of sales:
Fleet
Schedules:
Security / safety:
• 22,2% of total passengers at Lisbon
• Male
• Age: between 25-34 and active
• University degree
• Travels for leisure reasons (78%)
• Booking from a travel website (company website)
• Choice related to price
• Buys one week in advance
Source: Observatório de Turismo de Lisboa


• Young
• Short period on the company
• High workload
• Low wages
• Multiple responsibilities for each worker



• Major direct online selling
• Ticketless
• Electronic invoice
• B2P



• Daily flights at multiple schedules


• Maintenance according to JAR FCL-145
• Security according to ICAO Annex 17




• Single or double fleet type
• Large number of aircrafts
• Single class configuration
• Basic seat configuration (without extras configuration)
• Reduced space between seats (gives more seats)
• Huge number of pressurization/depressurization cycles
• Usually A320/B37 family fleets
• Aircrafts fly over than 11 hours a day

• Safe flight from origin to destination
• Low fares in comparison to FSNC’s
• Flight from point to point (PTP)
• Fast turnaround at airports
• Online ticket sales
• Online check in


Main competitors:
Growth

Costs for LCC’s airlines:

• High speed rail-way trains

• Target: 10%/year
• Max growth 15%/year


• Reduced aircraft costs (larger and single type fleet)
• Better deal with fuel suppliers on the destinations (take more from dep)
• Reduced maintenance costs (only one type of aircraft)
• Reduced crew costs (less crew and more work hours)
• Reduced handling costs (fewer baggage pallets and fewer push back services)
• Reduced catering costs (less catering on board, fewer galleys)
• Reduced distribution costs (direct online selling, e-invoice)
• Reduced parking fees (airport taxes) due to fast turn-round
• Sell entire fleet after contract ceases



Services to the final consumer:
Main competitors:
Pax profile at Lisbon:
Schedules:

• Safe flight from origin to destination
• High fares in comparison to LCC’s
• Flights from point to point (PTP)
• Short/medium/long haul flights
• Flights to major airports
• Easy reservation / cancellation policies
• 24/7 available call-centers
• Amount of luggage included in the price
• Entertainment and meals served on board
• Possibility to execute manual check-in at airports




• Low cost and regular carriers


• Daily flights at multiple schedules


• 74,2% of total passengers at Lisbon
• Female
• Age: 25-45 and active
• University degree
• Travels for leisure reasons with family
• 33,2 % are transfer passengers (dest/dep: brazil)
• Booking from travel agency and tourism websites
• Choice related to lack of choice / manual check-in

Source: IATA summer 2012 ANA Lisbon



Profit / Incoming:
The surplus remaining after total costs are deducted from total revenue, and the basis on which tax is computed and dividend is paid.”
Source: Businessdictionary.com

Charter carrier / Holiday carrier standars (CC)
In flight:

• Pre-flight seat assignment
• Full catering service
• On-board shopping
• Single class at entire cabin
• High density of passengers (near 100% seat occupancy)
• Entertainment system
• Nice crew’s and “holiday spirit”



Routes / destinations:









• Personalized destination and routes
• Touristic destinations
• Short/medium/long haul flights



Company staff:
Type of sales:
Fleet
Security / safety:
• Young
• Stays for long periods on the company
• Medium workload
• Medium wages
• High specialization tasks


• B2B
• Passenger soes not buy from the company but from travel agency
• Major direct tour operators selling
• Holiday package

• Maintenance according to JAR FCL-145
• Security according to ICAO Annex 17




• Mutiple aircraft type from multiple constructors
• Small number of airplanes
• Reduced class configuration on-board
• Seat with good separation between them
• Medium workload of airplanes
• Excellence cabin conditions


Growth

Costs for CC airlines:

• Differentiation for quality of service with raised mark image
• Resource “codeshare” and global alliances to increase offers
• Creation 'of the innovation 'of the image of the mark
• Complete service that of more the confidence to the passengers


• Aircraft itself structure
• Fuel costs
• Fuel costs
• Block hours flown
• Ground handling costs
• Catering costs
• Distribution costs (almost nil)

Source: Delta Charter Flights



Services to the final consumer:
Main competitors:
Pax profile at Lisbon:
Schedules:

• Safe flight from origin to destination
• Flight from point to point (PTP)
• Specific routes and destinations
• Contacts with tour operator and travel agencies
• Do not deal directly with the final consumer during payments and reservations
• Fast turnaround at airports
• Excellence service during dep/ flight and arrival
• Airport check-in


• Cruising ships



• Personalized schedules according to travel agencies preferences
• Usually at beginning and endings of the day
• Generally operate during summer months or November to April

• Wide range of ages
• Usually entire families
• Travels for leisure reasons
• Booking from travel operators website and stores
• Choice related to holiday package


Air Finland 2002-2012

Fleet

• 3 B757

Employment data and itenerarys

• 210 employees;
• 11 regular routes

Examples of CC’s that succeeded and that have failed
OLT Express Polaca 1950-2012
Fleet (Some operated by other companies)

• 2 ATR 72-200;
• 2 ATR 42-200;
• 2 Airbus A319-100;
• 9 Airbus A320-200;

Creation of the company


Fusion of Jet Air and Yes Air by group Amber Gold also owner of German OLT Express

•Positive aspects
Used to lead the market of Poland domestic Flights with rate of 80%
• Load factor of 75 % due to lower fares than train tickets
• Used to fly for more than 30 European airports with fares starting from 20 euros

Negative aspects that took them to ruin
• The company reported incomes lower than expenses, taking them to a deficit;
• Its rumor that the company had a lost of 600.000 euros per month;
• Snacks and drinks for free;
• In spite of the investment of 52.000.000 by Amber Gold group, they cut funding,
explaining that the air company didn’t provide guarantees to the solicited banks at 2012.

Reasons that took the company to ruin
• Raise of the fuel prices
• Over-sizing of the offer
• Insufficient funding

Full transcript