ABSTRACT
LCAs’ core competitive advantage stems from having a lower cost structure than the FSAs. The lower cost structure allows them to offer fares below market average and still reap profits. Doganis (2005) computed at 49 per cent the average seat costs of a typical LCA in relation to a typical FSA. Cost advantage items included: higher seating density, higher aircraft utilization, use of cheaper secondary airports, no in-flight services or avoidance of travel agencies of Global Distribution System (GDS). Cost reduction is indeed the main driver behind the operational and marketing properties of the LCA. Yet, there are limits to cost reduction and LCAs have been increasingly turning their attention to the other side of the equation: revenues. Typical examples for LCAs to optimize their revenues are commissions from hotels and car rental companies, credit card fees, (excess) luggage charges, in-flight food and beverages, advertising space. Additional growth could come from other in-flight services (e.g. telephone operations or gambling on board: Balcombe et al., 2009). For FSAs the cost cuts privilege the production factors and the creation of segregated no-frills service. Although further evidence may be required, we may be on the brink of a turning point where the Low-Cost concept (and associated market) is evolving from pure cut cost into a Low-Fare concept irrespective of the source of revenues supporting the operation and sometimes also irrespective of the level of costs. In fact this should be the correct designation for this market – low-fare airlines (LFA). As an example, MINTeL (2006) states that Ryanair’s revenue from sources other than ticket sales contributed €259 million to its 2005-6 net profit of €302 million. Those revenues already represent 16 per cent of the carrier’s total revenue. For easyJet, that kind of income represented only 6.5 per cent of the airline’s total revenue which increased by 41.3 per cent from 2004.
