The Viability of Long-Haul, Low Cost Business Models

Abstract

Recent events have confirmed the concerns that many within the aviation industry have held about the viability of the low cost business model for long-haul operations. This paper begins by reviewing the operating cost differences between low cost carriers (LCC) and legacy airlines in different regions of the world. This is followed by a summary of the various cost advantages of low cost carriers operating in short-haul markets. The main focus of the work, however, is a cost simulation involving the use of a Boeing 767-300 by both a LCC and a legacy carrier under varying operating assumptions. The research demonstrates that in none of the cases cited is the LCC cost advantage greater than 10%.

Efficiency Evaluation of Low-Cost Long-Haul Carriers in the Trans-Atlantic and Asia-Pacific Markets

“…However, Van der Bruggen (as cited in Wensveen & Leick, 2009) estimated that a LCSH operator realizes a 40-60% cost advantage as compared to a 20-25% cost advantage of a LCLH operator. On the other hand, Moreira, O'Connell, and Williams (2011) estimated a 30-35% cost advantage for a LCSH carrier, versus only a 10% cost advantage of a LCLH carrier.…”

Evaluating the Long-haul Low-cost Airline Business Model: a Perspective on Disruptive Innovation

“…Financial sustainability. Previous research has primarily explored airlines' ability to operate long-haul flights with a significant cost advantage over traditional long-haul flights; this encompasses the overall financial feasibility ( (Daft & Albers, 2012); (Poret et al, 2015)), the capacity to produce earnings similar to network carriers (Soyk et al, 2018) and the cost benefit compared to network carriers ( (Francis et al, 2007); (Moreira et al, 2011); ). The studies mentioned above indicate that LHLC operations can be financially appealing in certain situations, including emphasis on popular routes, use of modern and cost-effective aircraft, diversification of revenue streams beyond ticket sales, fuel hedging, and strategic management of air traffic control charges.…”

Air passengers’ willingness to pay for ancillary services on long-haul flights

“…Over the past decade, a growing number of airlines have been created with the ambition to expand the low-cost business model to long-haul routes. These long-haul low-cost carriers have appeared mainly on the Asian and North Atlantic markets and have adapted the traditional low-cost business model to long-haul routes (Wensveen and Leick, 2009;Moreira et al, 2011;Daft and Albers, 2012;De Poret et al, 2015). Despite some difficulties in the replicability of the business model (Francis et al, 2007), long-haul low-cost carriers display unit costs that are approximately 20-30% lower than those of legacy carriers (Soyk et al, 2017).…”