The Air Carrier Cold War

The Air Carrier Cold War

After reading the “Little Airlines, Big Idea’s” article, I was amazed that these business models have not taken off sooner. For years, infant airlines have been trying to grow in a land dominated by bullies. But they all had one flaw; they tried growing right under the legacy carriers noses. Airlines like La Compagnie and WOW have been able to grow and expand in the relive unregulated safety of the rest of the world.

Taking a closer look at some of the business models, these tow companies have tried different approaches to ultra low cost air fares. La Compagnie looked at the difference in price seating. Business class transatlantic at 5000 to 9000 a ticket vs 1000 for coach. Looking at what Southwest did for point to point travel, they did the same thing. Now all seats are the same class with the same service. With the new model, La Compagnie has been able to increase its passenger count and increase business overall.

WOW looked at another American Carrier that has been making headway, Spirit Airlines. They have a base airfare, very cheap and will get you were you need to go. How they make money is with the add-ons. Everything from legroom to baggage and meals is extra but it allows people to customize their trips. They pay only for what they want, and the airline doesn’t lose money paying for extras.

Both these airlines have made these business models a reality. But in order to make them work they have had to make some modifications. La Compagnie is utilizing the exceptional service (French wine and food for every passenger) and passenger comfort to entice passengers. WOW utilizes the tourism industry, and little sought after routes to score big business. Both airlines are utilizing smaller more efficient aircraft. This allows for less downtime and lower operation costs. La Compagnie takes seats out of its 757s while WOW utilizes narrower A320s. Both strategies mean that there is less capacity risk. That, combined with the lower fares means that there will always be full seats. Nothing is more depressing for an air carrier than looking at empty seats on a plane. “An empty seat, by any other name… is still a loss”

If I was to guess as to which one would be more successful… I couldn’t say. Both have their advantages and disadvantages. When it comes to competition, Legacy carriers have bled themselves to try and save a tenth of the market share and put others out of business. So I guess the overall edge would have to go to WOW. Snatching up all the unwanted routes still means you have business; you’re not fighting for other carrier’s passengers. Besides, plenty of passengers are willing to go a little out of the way for a cheaper fare.

The question has been asked, will these models affect the global industry. I looked at this a different way. I think the smaller models have affected these global carriers. Looking at the US, The legacy carriers have dominated the skies and forces smaller airlines out. They can’t be taken on in a direct pricing battle but carrier such as Southwest and Spirit have found ways around that and have started to thrive. The global market took a look at this and decided to do the same thing. The larger airlines dominated the main routes, they charge higher fees and will bully out competition. Now, these smaller airlines are finding loopholes and strategies to beat the larger carriers without going head to head with pricing wars. Will the larger carriers, be defeated? Probably not, but I do seem them losing a pretty large share to the ultra low cost carriers (ULCCs) and eventually the two will cohabitate based purely on routes. The only question that remains, is which side of this “Cold War” will they be on?

References

http://www.forbes.com/sites/garywalther/2014/09/25/la-compagnie-the-upstart-business-class-only-airline-with-the-best-ny-paris-business-class-fare/

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/29/this-airline-is-making-flights-to-europe-as-cheap-as-99/