Theoretical framework

Four low-cost carrier types

In the previous sections the hypothetical breakdown of low-cost carriers into four different low-cost carrier types has been introduced. This section will look further into this matter and try to define a hypothetical network development of these low-cost carrier types. The following four different low-cost carrier types are identified:

  • Low-cost carrier charter type
  • Low-cost carrier full-service type
  • Low-cost carrier original type
  • Low-cost carrier regional type
  • Until now there has only been talked about low-cost and full-service carriers. Besides these two carrier types there are also some other types that can be distinguished. Garriga (2004) gives an overview of different carrier types and their relations, figure 14 is based on this overview. Next to the low-cost and full-service carriers the regional carrier and charter airline have also been taken into account. The full-service carriers have been split into first and second tier carriers. The first tier consists of full-service leaders, like for example Lufthansa and British Airways, and are member of one of the international airline alliances. The second tier consists of carriers like for example Swiss and Austrian Airlines. These are smaller carriers, mostly formerly supported by their home country. They donít necessary belong to on of the bigger alliances. Characteristic for charter airlines is that they donít operate whole year round, but are for example rented by travel agencies in the tourist season. Originally Thomas Cook en LTU belong to this group. Regional carriers operate on a smaller spatial level compared to full-service carriers. Although they do have characteristics in common with low-cost carriers, there are also some important differences. For example they offer more service and donít necessary operate with only one aircraft type. Examples of regional carriers are Azzurra Air and Windjet. Low-cost carriers have taken terrain from second tier full-service carriers, regional carriers, and charter airlines. These three carrier types have fully or partially transformed to a low-cost carriers or have become bankrupt. Most part of the competition with low-cost carriers now takes place with first tier full-service carriers.

    Figure 15, Carriers and their relation to low-cost carriers
    Source: Garriga (2004)

    The different carrier types of figure 15 are used as a base for the European low-cost carrier type. The following four low-cost carrier types will be defined: the low-cost charter carrier (LCC charter type), the low-cost full-service carrier (LCC full-service type), the original low-cost carrier (LCC original type), and the regional low-cost carrier (LCC regional type). The LCC charter type consists of former charter airlines that operate as a low-cost carrier whole year round. Examples are Hapag-Lloyd Express and LTU (Travel Business Analyst, 2003). The LCC full-service type consists of low-cost subsidiary companies, which are started by full-service carriers, some of these bankrupted. Often these subsidiary companies are difficult to operate as a low-cost carrier because operations were too mixed up with the mother company and the low-cost model could not fully be applied. Examples of these subsidiary companies are Buzz and Go, both donít exists as such anymore. The LCC original type consists of carriers, which operate according to the low-cost model from the start. Easyjet is an example of such a company. The final group, LCC regional type, consists of former regional carriers that currently operate as a low-cost carrier. Examples are Air Berlin and Virgin Express.

    Based on different characteristics mentioned in previous parts a hypothetical development for each LCC type can be described. These developments are discussed below for successively the original low-cost carrier, the former regional carrier, the former charter carrier, and the full-service carrier substitute.

    Low-cost carrier charter type

    Figure 16, Hypothetical development low-cost carrier charter type
    Start  
  • Tourist destination
  • North-South direction
  • Long distances
  • Low frequency
  • Large capacity
  • Integration  
  • Flights all year round
  • Other destinations taken into network
  • Connectivity increases
  • Intensification  
  • Capacity routes increases
  • Selection  
  • Unprofitable routes are discarded
  •  

    The figure above gives an overview of the spatial development of the low-cost carrier charter type. The charter type is based on the original charter, with emphasis on passenger and not cargo charters. Related to the original characteristics of a charter carrier, the first phase will be characterized by relatively long flights to typical tourist destinations. For Europe this will mean a north-south orientation of the network, because most areas with large numbers of tourist are located around the Mediterranean Sea (Statline 2005). When the carrier starts operating according to the low-cost model in the integration phase, it will start scheduling flights whole year round. The network will grow and intensify in the third phase, engaging more airports and creating new routes. In the fourth phase unprofitable routes will be omitted. These last phases are rather dynamic, so after the selection phase it will intensify again, et cetera.

    Looking at the airports itself, the carrier will start and keep its position at primary airports, expanding its network onto secondary and lower class airports.

    -Top-

    Low-cost carrier full-service type

    Figure 17, Hypothetical development low-cost carrier full-service type
    Start  
  • Identical destinations as original full-service carrier
  • International
  • Possible operating from a hub
  • Integration  
  • Will compete with LCCs
  • Competitive destinations
  • Intensification  
  • Capacity routes increases
  • Selection  
  • Unprofitable routes are discarded
  •  

    The hypothetical network development of the LCC full-service carrier type is displayed in the figure above. In the first phase the network will consist partly of the original full-service carrier network. Based on similar cases in the past, the carrier is expected to start competing with other low-cost carriers. In the integration phase the carrier will start flying on airports which potentially compete with other low-cost carriers. In the third phase these competing routes will intensify, trying to force the other low-cost carriers out of the market. In the fourth, selection phase unprofitable routes will be omitted. Finally these last two phases will repeat themselves.

    The starting airport will be the primary hub of the original full-service carrier. The destination airports will be the same, or located close to, airports which are integrated into other low-cost carrier networks.

    -Top-

    Low-cost carrier original type

    Figure 18, Hypothetical development low-cost carrier original type
    Start  
  • Starts 'clean'
  • Small scale
  • Operates from one airport (costs, star pattern)
  • No hub
  • Integration  
  • Other airports taken into network
  • Connectivity increases
  • Intensification  
  • Traffic on routes increases
  • Second central airport created
  • Selection  
  • Unprofitable routes are discarded
  •  

    The hypothetical network development of the LCC original type is displayed in the figure above. Because the carrier starts from scratch, it will operate on a relatively small scale, from one main airport. At this main airport, aircraft stationing, maintenance, and other secondary activities can be stationed. This main airport will be at the relative centre of the network, connected to other destinations. The network morphology will look like a star. In the second phase new destinations will be integrated into the network. In the intensification phase a second airport will start operating as a secondary main airport, and the network will expand and intensify. In the fourth, selection phase unprofitable routes will be omitted. These last phases will repeat themselves, resulting into a spatial pattern of several integrated star networks.

    Because of cost reductions, carriers will prevent flying to the more expensive primary airports. If available secondary or lower classed airports will be preferred, located closely to primary airports.

    -Top-

    Low-cost carrier regional type

    Figure 19, Hypothetical development low-cost carrier regional type
    Start  
  • National
  • Possible operating from a hub (as feeder carrier)
  • Integration  
  • International destinations taken into network
  • Connectivity increases
  • Intensification  
  • Capacity routes increases
  • Selection  
  • Unprofitable routes are discarded
  •  

    The figure above displays the hypothetical network development of the LCC regional carrier type. At the start the carrier would already serve some destinations at a local scale. Because of their possible original role as a feeder flight for full-service carriers, a primary airport will also be integrated into the network. The morphology of the network doe not have to look like a star pattern. When it starts operating according to the low-cost model, it will start flying on more international locations, for example holiday destinations. The network will expand and intensify in the third phase. In the fourth phase it will completely operate according to the low-cost carrier model, unprofitable routes will be omitted and the spatial structure will look more and more like the one of the original low-cost carrier.

    -Top-