LCC business a different ball game altogether

Kingfisher Airlines chairman Vijay Mallya’s decision to do away with low-cost operation and focus on full-service operations is a clear indication that legacy carriers cannot successfully operate low-cost operations within the same airlines.

Low-cost carriers (LCCs) like Air Asia and Ryan Air are among the best because they are frugal, have flexibility in operations and certain standardisation of aircraft and operations. British Airways closed its LCC, Go, in two-and-a-half years. Singapore Airlines has announced it will have a LCC, but that will be a separate company.

The cost difference between LCCs and full-service carriers (FSCs) becomes virtually impossible to handle within the same organisation. LCCs have uniformity and simplicity in their operations: common staff, training modules, equipment, common spare parts, no business lounges and similar seating (no business class). This helps them keep costs under control.
 

PROBLEMS OF HYBRID MODEL

* Higher cost of operations 

* Less aircraft utilisation hence, less capacity 

* Confusion over promotion of the product – low cost or high cost

* Passenger dealing in LCC and FSC completely different

A chief executive of a leading LCC in India says: “The total cost of an LCC is 40-50 per cent lower than a FSC. What FSCs have tried to do is to increase their seats in an aircraft and reduce CASK, but not overall costs.” Also, there are differences in operational parameters. LCCs, for instance, have a turnaround time of 30 minutes, compared to FSCs’ 50 minutes. Others feel a FSC will do all to pamper its passengers, whereas a LCC focuses on shifting passengers from one point to the other. That again, means extra costs.

“This difference may sound simple, but this leads to a lot of difference between the functioning of these two models. It’s difficult for the management of a legacy carrier to implement the same model,” said Jitendra Bhargava, former executive director of Air India (AI).

Apart from costs, there is also confusion in branding. “Branding of a LCC is completely different from branding a FSC. While marketing a low-cost brand, legacy carriers carry a threat of the dissolution of their full-service brand,” said Ankur Bhatia, executive director, Amaedus India, an aviation consultancy firm.

Some aviation analysts feel the merger of a premium airline and discount carrier was bound to face problems because of contrasts in brand positioning. “Kingfisher has a brand positioning of a five-star airline, while Deccan was a budget one. From a passenger’s viewpoint, there is a certain expectation of first-class treatment in Kingfisher, but he does not get the same in Kingfisher Red,” said a Mumbai-based analyst. Initially, Kingfisher Red bucked the trend and offeredfree meals, but that was stopped in January.

Surely, Kingfisher has learnt its lessons not to mix two different services within the same airline. AI which had thought of starting a LCC in domestic routes never acted upon it. It has only used the spare capacity of Air Express aircraft to fly to some local destinations.