[HarryMonk]

I always thought that the LCC model relied more on selling the ancilliaries such as luggage fees, seating choice fees, hotel comissions etc to make a profit than for the flight itself. Therefore with long-haul, an aircraft may only make two flights a day and therefore only earn two lots of ancilliaries whereas an aircraft operated on short-haul operations could be earning six lots of ancilliaries

[canucklad]

I would also suggest that a clear business principle of LCC’s is to absolutely minimize crew layovers…..
Not sure, but I’ll predict that the Moscow rostered crew probably still haven’t seen Red Square!

[SimonS1]

@canucklad : You don’t think that Flyglobespan’s demise was in any way due to things like:

– CAA suspending it’s ETOPS approval for a period of time in 2007 and the signal that sent out about potential safety (bearing in mind this was the first time in 15 years it had happened)

– The consistent poor reviews and bad publicity due to technical unreliability of their fleet and the delays that resulted (in one case a flight was 6 days late)

– Regular diversions to unexpected locations due to using 737s on transatlantic routes where they did not have the required range

– Running routes like Liverpool to NY and Manchester to CT which were uneconomic and dropped after the set up costs had been incurred

– Being featured not once but twice on BBC Watchdog with all the bad PR that resulted

– Loss of insurance cover following Zoom and XL going bust (which is why the credit card companies started witholding money).

Flyglobespan was a total joke, that’s why it went bust.

[BigDog.]

LOCO Longhaul hasn’t been successful thus far however I believe it will be profitably established within a few years.

Ryanair, EasyJet, SouthWest have excelled by sticking to their models, disciplined – the hedgehog concept as Jim Collins Good to Great puts it.

http://www.createadvantage.com/glossary/hedgehog-concept

Venturing outside is starting to happen

http://skift.com/2013/06/20/no-frills-long-haul-tough-to-pull-off-as-norwegian-air-is-finding-out/

The ability of the legacy carriers to gang-up and strangle the LH upstarts at birth (Eg Laker Airways by BA) has been somewhat curtailed.

AirAsia appears successful there, so who and when will be the first sustainable LOCO Long Haul carrier across the pond?

[SimonS1]

I think times are a changing now BigDog.

In the Laker era the cards were stacked in favour of the state operators. These days the US operators are in and out of Chapter 11, BA has it’s hands full sorting out the Iberia debacle and the Gulf carriers are muscling in on any traffic going east.

I would have thought the time was ripe for a loco proposition across the Atlantic, the likes of Easyjet have the profits to be able to finance the start up costs, newish aircraft would compete well with some of the antiques trundling around and it could still be done on a point to point basis.

[AMcWhirter]

Hello Everyone

You’ve forgotten about People Express. The first LCC to cross the Atlantic as reviewed in the April snapshot page:

http://www.businesstraveller.com/archive/2013/april-2013/special-reports/snapshot

Of course, the market situation can change but currently the LCC model would not work on the transatlantic routes because the cost of economy tickets offered by the big carriers is inflated by taxes, fees and charges.

As you may have guessed, it is the lucrative revenue earnt from passengers ‘up front’ which subsidises the lower prices paid by those in the back cabins.

Only in the summer months, when the conventional carriers hike their fares, would the LCCs have a price advantage.

Way back in the mid-80s, People Express charged a year round flat rate USD298 for a return LGW-EWR flight. Any taxes and charges in those days were minimal. If I remember correctly, passengers paid just a few dollars (I think it was USD3) for US departure tax.

So add on the cost of today’s taxes/charges/fees to the USD298 quoted above and, allowing for inflation over the past 30 years, you would get a similar or higher price than what would be charged by the likes of BA/AA/UA etc.

Hello BigDog

Air AsiaX was not successful in flying to LGW and ORY. We explained why in businesstraveller.com

http://www.businesstraveller.com/news/will-air-asia-x-continue-to-serve-europe

Air AsiaX says now that it only find routes of up to 6 or 8 hours to be worthwhile in what it calls its ‘core markets’ such as Australia and North Asia.

As for Norwegian … well to cut costs even more it wants to adopt a policy of only employing staff who operate long-haul flights at Thai labour rates and Thai employment contracts.

In other words all cabin staff must agree to be based in Thailand. I must stress that this covers all long-haul routes, whether to Asia or the US.

http://www.businesstraveller.com/news/norwegian-unveils-b787-details

However I am not sure whether this policy has come about. I wonder if the Norwegian trade unions objected ?

[canucklad]

Afternoon Simon

You are right about the operational issues that Globespan had before their demise…

However, they could have been rescued as they seemed to have got their act together, before the CC company held up the revenues that were due..

If I remember right, the passengers had already paid and flown on their flights and the company still refused to release the monies due to Globespan, in some cases 6 moths after the customer had flown!

If memory serves me, I’m sure the CC Company was also in financial difficulties, and would have bankrupted themselves if they had paid what was due to Globespan

Anyway if Air Asia couldn’t make a fist of long haul services, I’m not sure who can…..As the O’Leary man said last night….our pricing model is based on a £6 per passenger profit margin….and at least 80% load factor

[BigDog.]

Am duly enlightened Alex, thank you.

Edit – DG – Thank you also.

[DavidGordon10]

Sorry BigDog @ 13.20, but I am going to be an academic pedant. We can’t let business book authors pinch a philosopher’s ideas and claim them as their own. The “hedgehog and the fox” idea was a book by Isiah Berlin, but the concept goes back to ancient Greece.

BTW – Ryanair? Never again! Easyjet? Yes, on a route I need and at a price that is reasonable.

[AMcWhirter]

Hello canucklad

Re: Air AsiaX (not to be confused with Air Asia)

Just to point out that Air AsiaX still flies long-haul. After all, a flight from KL to SYD is farther than LHR-JFK. It was the longer KL to Europe sector that was the problem as I explained in the BT link posted earlier.

Ryanair is talking about flying transatlantic based a new business model. It’s one that would encourage passengers to pay more in ancillary fees to balance out the lower price of the ticket.

In addition it would, I expect, seek out alternative airports which would offer a deal on landing fees.

But this development is years away and Ryanair would first have to buy the right planes for the job.

http://in.reuters.com/article/2013/06/19/air-show-ryanair-longhaul-idINL3N0EV2JZ20130619

[Xuluman]

There was a lot of internal speculation as to whether a few A330’s for example would be included in the fleet order.

I have no doubts EZY could fill flights to the west coast. The SSH and TLV ‘s of the network are extremely profitable for the company.

I attended a lecture from RYR management who all stated that long haul was not an if, but when……this was 5 years ago. You see there are a few problems with the LCC’s going long haul:

At the moment the longest flight at EZY is slightly over 6 hours, and that is just about the limit somebody can sit in that cabin. This just about covers the west coast only, beyond that you really are requiring extra legroom and less seats, reducing margin further….An unproven business model.

So why not buy a handful of A330’s? Logistics. As MoL states, it would need to be a different company for starters. The flexibility offered by a single fleet is astounding. All tech, crew and maintenance problems are vastly reduced. If one of your five A330’s goes tech in Orlando, it is much harder to recover the schedule compared with one of two hundred 320’s in TLV.

Competition. Virgin Atlantic for example, cannot afford to have a LCC set up operations to the west coast. They would be forced to reduce fares massively and squeeze EZY out at all costs, just as EZY is doing to Norwegian at LGW when they set up shop recently. This would prevent a decent margin on the route until someone went bust, not much point. Not easy to compete with a company like Virgin on their turf, when you only have a couple of aircraft.

Critical mass is what makes the operation in Europe so successful. Through this they can negotiate costs downwards, compete on loss making routes, and cover tech events.
You can set up a regular daily schedule, or aircraft rotation which offers the customers options, to change onto a later flight, change airport even, or if a bag is left, it will be on the next flight, spare parts or crew can be shipped around the network etc.

The charter airlines are failing currently due to these reasons, and is why Monarch is trying to switch and expand to become a scheduled carrier. A tentative introduction of a bi-weekly service to test the water isn’t an option.

As I’ve tried to explain, poorly, EZY or RYR would need to buy a LOT of longhaul aircraft and jump in the deep end to make it work, and that is just too much of a risk for a stable company that is doing so well. Why rock the boat and risk everything you’ve worked to achieve?

[Bcalboy01]

Canucklad has it spot on. Easy and ryan have the money and resources to go trans atlantic. But in the process they would annoy alot of legacy players. Just as Freddie Laker did. As last nights program explained BA’s attempt to derail Easy backfired spectacularly. Even with their inept management these days they and similar legacy players wouldn’t stand for their lucrative atlantic revenues to be destroyed. Shame really as Easy could do the business I reckon. Apart from the fact that their CEO isn’t up to the fight

[SimonS1]

@canucklad – there was a reason the credit card monies were held back. The company’s insurance had been cancelled, however passengers were returning after holidays and suing the airline (such as those stranded in NY for 6 days and forced to make their own way home when the plane went tech and the airline couldn’t afford to fix it).

Those cases were taking weeks or months to come to court and the credit card companies were still on the hook.

I’m sure I didn’t help but the airline was a basket case long before that.

@bcalboy – CEO not up to the fight? Presumably translated that means has a successful business model that they don’t want to risk…..

[Bcalboy01]

@bcalboy – CEO not up to the fight? Presumably translated that means has a successful business model that they don’t want to risk…..

Successful at the moment. Not sure Stelios agrees though.

[SimonS1]

His prerogative, but looking a the share price over the last 5 years I don’t think many will agree with him. Including the rest of the board.

Interesting in fact that an investment in EZY 5 years ago would now be up over 270%, the same investment in IAG would be up about 20%.

[Author]

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