Aviation Festival Americas 2017, event held in Miami this week, had an Airline CEO panel focusing on adjusting airline business models (Ultra, low-cost, long-haul and legacy carriers) to remain viable and competitive. In this occasion, the panel was moderated by international consultant Mr. René Armas Maes and count with the participation of Mr. Benyamin Ismail, CEO Air Asia X and Mr. Félix Antelo, CEO LATAM Airlines Peru.
The discussion was focused on analyzing key elements to successfully contain costs from a legacy carrier point of view in light of low cost models expansion, best strategy to launch a low-cost subsidiary within a legacy airline brand and what are the key challenges and opportunities global carriers and different business models are facing today in order to optimize revenues, increase productivity, contain cost and overall increase profitability.
This year the three biggest US legacy carriers, introduced Basic Economy fares "“ Lowest unbundle fare product – to compete head-to-head against Ultra Low-Cost Carriers (ULCCs) such as Spirit Airlines and Allegiant Air. The low cost business model is known for rock-bottom base fares that include no other amenities and charge for everything else including checked bags, seat assignments, and overhead bin space among other ancillary revenue products.
"As legacy carriers are leaking important revenues and market share points due to ULCCs growth, it makes sense for legacy carrier to roll them out in selected markets where they face significant ULCCs competition. As legacy airlines segment their aircraft with 2 to 3 defined cabin products including a premium one, they can effectively subsidize lower end revenue fares with higher fares and premium products not only in markets where they compete with ULCCs but also in those market where there is no competition and can take advantage of a premium yield. Therefore, legacy carriers could match or undercut ULCCs lowest fare product while still hitting a route overall profit margin", said René Armas Maes, Managing Director at Jet Link International LLC.
Concerning Long Haul Low Cost (LHLC) operations, many of the key efficiencies of the short haul low cost business model are difficult to translate into LHLC operations. Furthermore, fluctuations in fares, fuel prices, load factors, ramping up seat capacity too fast and crew labour costs can turn profits into losses very quickly. "Therefore, it is important to start up (or purchase) a low-cost subsidiary instead of operating a standalone LHLC operation as feeder traffic is key to optimize loads, revenues, cabin yields that will lead to better total revenue generation". The new IAG (British Airways and Iberia group) LHLC operation called LEVEL will use its short haul low-cost Vueling brand as a feeder carrier. Creating a separate new brand in order to keep costs as low as possible that will allow as well to avoid future potential labour and union conflicts, is very important and will lead to stronger cost discipline" continued René Armas Maes.