Low cost business model on long-haul routes - a promising market segment?

12TH ANNUAL WORLD CONFERENCE

AIR TRANSPORT RESEARCH SOCIETY (ATRS)

Low cost business model on long-haul routes

- a promising market segment?

Prof. Dr. Sven Gross Professor of Transport Carrier Management

Tel.: ++49 3943 – 659 279 Fax: ++49 3943 – 659 5279

Alexander Schroeder

Lecturer Tourism Management Tel.: ++49 3943 – 659 264 Fax: ++49 3943 – 659 5264

Hochschule Harz – University of Applied Sciences

Friedrichstrasse 57-59 38855 Wernigerode

Germany E-mail: sgross@hs-harz.de; aschroeder@hs-harz.de

In this paper the authors will deal with the pros and cons of the low cost business model on

long-haul routes. First, the development of the low cost business model will be explained.

This will be followed by an analysis of why the long-haul business model has often failed in

the past. The low cost airlines currently operating a long-haul low cost model will be analyzed

within a business model analysis on the basis of selected criteria. This comprises the price

model, route offer, aircraft types as well as distribution and marketing. Finally, there will be a

judgment of the business models using empirical date and a perspective will be given.

Related topic areas:

• Low Cost Carriers and Airline Competition

• Marketing, pricing and revenue management

• Air Transport and Tourism

1 Introduction

2 Developments

3 Components of the Business Model

3.1 Procurement

3.2 Process management

3.3 Marketing

3.4 Valuation of the long-haul business model

4 Conclusion

Sven Gross/Alexander Schroeder

1 Introduction

The concept of low cost airlines on short- and medium-haul routes on all continents has

spread at a terrific pace in the past years. There are currently 150 airlines on the international

market trying to implement concepts such as “low cost”, “low fare” or “no frills”, with vary-

ing success. The different business models have already been analyzed in a number of scien-

tific studies and the offers from low cost airlines also meet with a broad response in the me-

dia.1 The current levels of market saturation, for instance in the European low cost market

(DLR/ADV 2008) and the resultant lack of opportunities to expand – as a basis for the busi-

ness model – present new challenges to the industry.

A low cost strategy on long-haul routes, something that was rejected by academics and in the

industry2 and is irreconcilable with the business model in the narrower sense, is now being

implemented on the market. Practice shows that the model can be implemented successfully

over a longish period of time (examples: Zoom, Silverjet), but can also fail after some time, as

evidenced by the bankruptcy of Oasis Hong Kong or Eos in April 2008.

The aim of this study is to analyze transposition of the low cost business model to long-haul

flights. In this, the airlines currently operating on the market are first identified and selected

components of their business model are examined. The transport region is to be used in this

study for identifying long-haul low cost airlines and only intercontinental offerings are to be

analyzed. That makes it possible to avoid including, for example, national offerings (such as

within the USA up to 4,000 km) or European flights (for example Ryanair on the route Ma-

drid – Oslo, approx. 2,400 km) in the analysis.

1 Mason/Whelan/Williams 2000, McKinsey 2003, Gross/Schroeder 2005, Knorr/Arndt 2005, Calder 2006, Gross/Schroeder 2007, Bjelicic 2007, Baum 2006, DLR/ADV 2007, Jones 2005, Creaton 2007, Francis et al. 2007, AirNeth Seminar: “The Future of Long Haul Low cost”, Den Hague, The Netherlands, September 2007

2 In 2006 the Ryanair CEO Michael O’Leary excluded categorically that his airline will ever fly on long-haul routes as low cost is not working in long-haul traffic (Weyer 2008).

2 Developments

Laker Airways is regarded as the pioneer in the long-haul arena. The Irish airline, which was

founded in 1966, began offering low cost flights with reduced service as of 1972, initially on

medium-haul routes. In 1976, plans were forged to enter the low cost segment between Lon-

don Gatwick and New York (JFK) with the “Skytrain”; this operation was not able to be

commenced until 1977 when the company obtained its license to fly to the USA. Although the

business model was initially a success (both on medium- and long-haul routes), it was later

impacted negatively by various external factors. For example, 1979 saw a series of accidents

with DC-10 aircraft and worldwide grounding of the DC-10 fleet. Since Laker Airways’ fleet

consisted wholly of DC-10s, it had to discontinue all its business operations in a space of five

weeks. This was compounded by the response of the rival legacy carriers British Airways and

Pan Am, which primarily used Boeing B747s and were not hit by the grounding. Their ag-

gressive predatory pricing exacerbated the situation further and resulted in Laker Airways’

passengers defecting to the competition. These external influences, which also included a

tough economic setting, exchange losses and a high oil price, were intensified by (internal)

management mistakes, such as introduction of the “Regency Class” with services similar to

those offered in Business Class. All these factors resulted in the airline going bankrupt in Feb-

ruary 1982 (Francis et al. 2007, Pompl 2007).

A further attempt to cater for the low-price segment in long-haul flights was the airline People

Express (founded in 1980), which flew between Newark and London starting in 1983 and

emerged into the fifth-largest US airline. Failure of this business model was the result not

only of the response by the legacy carriers (e.g. introduction of revenue management), but

above all internal factors and management mistakes. The factors included overhasty expan-

sion, the takeover of Frontier Airlines, a watering down of the business model (e.g. partial

abolition of the simple fare structures or introduction of a Business Class and a frequent flyer

program) and a small equity base. These circumstances led to its withdrawing from the market

in 1978 and its takeover by Texas International Airlines (later Continental) (Doganis 1991,

Francis et al. 2007, Barkin/Hertzell/Young 1995, Prokesch 1986).

At the end of the 1970s and beginning of the 1980s, airlines such as World Airways, Braniff

or Virgin Atlantic also tried to survive in the low cost flight arena between Europe and North

America; all of them failed apart from Virgin Atlantic, which evolved into a quality airline

(Pompl 2007, Francis et al. 2007).

Further developments in the long-haul arena in the 1980s were mainly shaped by charter

airlines in the low-fare segment. Cheap tickets were or are offered (e.g. sale of remaining

seats by Condor on long-haul flights at 99 Euros plus taxes/charges) using 1-class systems or

an enhanced Economy Comfort Class with 2-class system (www.condor.de; Gross/Schroeder

2005). “These include the European inclusive tour airline, Mytravel which currently offers a

low cost transatlantic service where passengers pay for their seat but pay extra for frills such

as food and entertainment. A low cost long-haul service to Australia from Manchester (UK)

and Munich (Germany) has been started by Travelcitydirect.com and others proposed by

Backpackers Express and FlyWho. Other examples include: Wardair Canada who offered

high-quality in-flight service but high-density seating during the 1970s and early 1980s on

charters catering for the ‘Grannie’ market, this market is now being tapped by Air Transat and

Zoom.“ (Francis et al. 2007, p. 396)

Current developments are being shaped by various airlines that operate with different business

models in the international air transport markets (see table 1).

Differentiation acc. to Hind 2007 Differentiation acc. to Weensven 2007

Pure long haul:

• Oasis Hong Kong (insolvency 2008) • Eos (insolvency 2008) • Maxjet (insolvency 2007) • Silverjet

Network Specialist: hub bypass/hub comple-ment:

• Privatair

Primarily long haul:

• Zoom • Viva Macau

Product Specialists: premium aircraft attack higher-end pricing:

• Eos (insolvency 2007) • Maxjet (insolvency 2007) • Silverjet

Network characteristics:

• Flyglobespan • Jetstar • Tiger • Air Asia X

Price Specialists: high-capacity aircraft stimu-late lower-yield traffic:

• Oasis Hong Kong (insolvency 2008) • Jetstar • Zoom

Table 1: Approaches for differentiating the business models in the long-haul low cost market Source: Hind 2007, Weensven 2007 and own additions

Developments in the past years are characterized by airlines entering and withdrawing from

the various international markets (see table 2). It can be discerned that between foundation of

an airline and commencement of air traffic often some time goes by. Some of the airlines

were founded as low cost subsidiaries (e.g. Tiger Airways by Singapore Airlines or Jetstar by

Qantas Airways) in order to react to offers of new low cost airlines. First, short- and medium-

haul routes were offered and later long-haul low cost was entered in supply. Another strategy

is the foundation of an airline to realize the low cost concept on long-haul routes. This can be

done with a franchise concept (AirAsia and AirAsia X) or with a subsidiary (Virgin Blue Air-

lines and V Australia). The identified long-haul low cost airlines are listed in the order in

which they commenced their long-haul flight operations.

Name Country of

origin (base)5

Year of

founda-

Start of

flight

operations

Withdrawal

from the

market

Parent/holding

company

Zoom Airlines Canada (YOW)

2002 2002 - Zoom Airlines Inc.

Jetstar Australia (MEL)

2003 2004 - Quantas Airways

Tiger Airways Singapore (SIN)

2003 2004 - Singapore Air-lines

Eos Airline USA (JFK)

2004 2005 April 2008 Eos Airlines Inc.

Maxjet USA (IAD)

2003 2005 December 2007

not specified

Oasis Hong Kong

China (HKG)

2005 2006 April 2008 Oasis Group (100%)

Viva Macau China (MFM)

2005 2006 - MKW Capital and private Shareholders

flyglobespan Great Britain (GLA)

2002 2006 (Start Long Haul)

- Globespan Group

L’avion France (ORY)

2003 2007 - SPA

Silverjet Great Britain (LTN)

2004 2007 - Alternative In-vestment Market (AIM)

AirAsia X Malaysia (KUL)

2007 2007 - AirAsia (Fran-chise)

V Australia Australia (SYD)

2008 December 2008

- Virgin Blue Holdings Ltd.

Table 2: Developments in the long-haul low cost market (2002-2008) Source: own compilation based on company details on websites (status: April 2008); Flight International 2008

5 IATA Code: (GLA) Glasgow, (YOW) Ottawa, (MEL) Melbourne, (SIN) Singapore, (JFK) New York-JFK, (IAD) Washington, (HKG) Hong Kong, (MFM) Macao (ORY), Paris-Orly, (LTN) London-Luton, (KUL) Kuala Lumpur, (SYD) Sydney.

3 Components of the Business Model

Even if the low cost concept is being implemented by various short-haul low cost airlines at

different levels of intensiveness and by means of different tools and concepts, it is possible to

establish a common basic business model for low cost airlines6 (see figure 1). The manifold

configuration opportunities of the single business components will be analyzed further below

with respect to the subjects of procurement and suppliers as well as process management and

marketing, while the different opportunities of their practical implementation will be typically

pointed out. Within this analysis it will be examined how far the transferability to long-haul is

possible or rather reasonable.

Lean Management, i.e. lean and cost-efficient business management (concentration on core competencies and outsourcing). Alignment of all processes and activities on optimizing and reducing costs, with the exception of the sensitive security subject.

Procurement/

suppliers

� Aircraft (funding, uniform fleet)

� Airports � Outsourcing

(passenger handling/ servicing/repair/ ground services)

� Catering, fuel, waste disposal/cleaning

� Catering, Treibstoff,

Process management

� Strategic flight scheduling (capacities, flight routes, turn-around optimization)

� Personnel policy (small overhead)

Cost advantages of up to 50% over established airlines for direct and indirect costs

Marketing

� Price policy/yield management

� Product policy (flight routes, branding policy, customer loyalty)

� Distribution policy � Communication policy

Figure 1: The business model of (European) short-haul low cost airlines Source: Gross/Schroeder 2005, p. 46

6 The main emphasis when considering the development of the basic business model is put on the European region.

3.1 Procurement

a) Aircraft

Aircraft can be procured through purchase or leasing of both newly-manufactured and used

airplanes. To finance their planes and required technical equipment, low cost airlines mainly

use the leasing option. Newly-manufactured aircraft are only purchased if sufficient capital is

available; otherwise high capital costs would be incurred. An important factor for the success

of the low cost segment was the opportunity to buy second-hand aircraft. In the aftermath of

the worldwide aviation crisis following September 11th, 2001, many used airplanes were of-

fered on the international market at very low prices (e.g. from the insolvency assets of United

Airlines or offered by other established airlines, such as Lufthansa) (Bjelicic 2004). At present

the second-hand market for long-haul aircraft is more or less swept clean, so that used aircraft

are hard to find.

Another cost saving opportunity consists in purchasing less-fully equipped aircraft. It is, for

example, possible to order aircraft from manufacturers without windows blinds or seats stor-

age pockets for magazines and safety instructions (Göttert/Schmidt 2005). Low cost airlines

placed huge orders with manufacturers over the last few years. The airlines Ryanair, easyJet,

Air Berlin, Flybe and Germanwings alone ordered more than 330 new airplanes in 2005; their

appetite being whetted by large discounts (Stirm/Schmidt 2005). Ryanair is reported to have

obtained the seventy 737-800 aircraft ordered with Boeing for a price of about 27 million dol-

lars per unit, while the current market value of 40 million is much higher. Such discounts may

be used by airlines to sell a certain number of the aircraft to leasing companies in order to

subsequently hire them back. This would allow them to achieve a net profit of several million

dollars per jet – without any risk (Göttert/Schmidt 2005). Bulk orders and the discounts in-

volved have not yet been noted by long-haul low cost airlines.

A uniform fleet of the same aircraft types leads to cost savings for personnel training and

more flexible operational planning, as flight and technical staff are subject to identical qualifi-

cation standards. This also allows cost savings in the field of maintenance and servicing, for

example with respect to spare part stock management. However, disadvantages may arise due

to dependence on a sole manufacturer (e.g. supplier power). Also, flight scheduling advan-

tages for low cost airlines result from a uniform fleet, since the different performance features

of various aircraft types need not be taken into account. However, any possible variation in

demand is impossible or difficult to compensate for due to rigid capacities. The use of uni-

form aircraft on long-haul routes, such as A330-300, B747-400, B757-200 or B767-300ER, is

noticeable with suppliers that operate in the present market (see table 3).

Name Number of

long-haul

Aircraft

Number and

type of air-

Different

Fleet age Orders

AirAsia X 1 1 A330-300 1 not speci-fied

25 A330-300

Eos Airline 6 6 B757-200 1 12.9 2 B757 (until 2008) flyglobespan 4 1 B757-200

3 B767-300ER 1

* 5.9 2 B787-8 (until 2010)

L’avion 2 2 B757-200 1 17.2 not specified Jetstar 6 6 A330-200 1 3.0 15 B787-800 Maxjet 5 1 B767-200

4 B767-200ER 1 18.7 not specified

Oasis Hong Kong 4 4 B747-400 1 not speci-fied

15 B747 (until 2009) 20-25 B747 (until 2010/2011)

Silverjet 3 3 B767-200ER 1 19.0 2 B767-200ER Tiger Airways 10 10 A320-200 1 2.3 3 A320-200 V Australia 0 B777-300ER

(delivery 2008) 1 not speci-

fied 6 B777-300ER

Viva Macau 2 1 B767-200ER 1 B767-300

1 17.8 10-15 B767 (next five years)

Zoom Airlines 5 2 B757-200, 3 B767-300ER

1* 15.9 1 B757-200

* Note: The aircraft types B757-200 and B767 were developed commonly and have some similarities in terms of maintenance and training and are here regarded as one type.

Table 3: Fleet structure (April 2008) Source: own compilation based on company details on websites (status: April 2008); Flight International 2008

Airlines which operate short haul as well as long haul, for example Air Asia and its subsidiary

Air Asia X, can use synergies in servicing and maintenance. “For its fleet of low cost carriers,

Air Asia may opt for the Airbus A330-300 aircrafts due to the fact that it purchased the Air-

bus A320 aircrafts for existing operations. It would be easier to maintain and service the air-

crafts from Maintenance, Repair & Overhaul (MRO) engineering perspective as it makes bet-

ter business sense in terms of spares management.” (Izmee 2007)

Besides a uniform fleet and synergies, a bigger aircraft can lead to significant cost reduction.

Particularly the new wide-bodied aircraft, such as the A380, have to be mentioned. Tim Clark,

president of Emirates Airlines, makes a plausible case for an Airbus A380 in an all-economy

configuration of 720-seats breaking even at 80% loads and charging only $500 return on a

route such as London-Stansted to Adelaide via Colombo (Anonymous 2004). Other authors

argue that the use of big aircraft has to be seen as infeasible, except when big airlines “feed”

the airplanes at a hub with new passengers (Francis et al. 2007).

b) Airports

The airports are an important element within the business model of short-haul low cost

airlines, since they provide the necessary infrastructure. Savings are made possible by taxes

conceived, in most cases, particularly for low cost carriers. They are directly negotiated be-

tween the airlines and the respective airport and include various quantity discounts while al-

lowing marketing grants.7 Although the negotiated taxes do not allow some airports to cover

their costs, they agree to the conditions sometimes dictated by the low cost airlines because of

the beneficial direct and indirect economic effects for the airport and the surrounding region.

Experiences from the long-haul sector are not known to the authors, but it has to be seen as

more unlikely that major airports will agree to concessions, given the increased demand by

the low-haul low cost airlines.

c) Outsourcing, catering, waste-disposal, fuel

Since most short-haul low cost airlines do not have the required economies of scale, technical

services such as maintenance and repair are assigned to specialists (outsourcing) who are able

to carry out these jobs with greater cost-effectiveness, thus avoiding extra fixed costs for the

airline company (Pompl 2007, Doganis 2001). Also, to a large extend passenger handling and

other ground services (“ground handling”) are assigned to external contractors (handling

agents). This allows low cost airlines to abandon almost entirely station facilities and man-

ning, with the exception of counter services. It is therefore typical for short-haul low cost air-

lines to incur low costs for ground staff and office/waiting rooms. Larger waiting rooms, for

example, are superfluous given the point-to-point connections and therefore - no transfer pas-

sengers (Doganis 2001) Some airlines have even gone a step further by introducing automatic

and/or Internet check-in procedures (e.g. Air Berlin, dba, easyJet, Germanwings). Check-in

via mobile phone (e.g. Air Berlin via MMS-capable mobile) or SMS Seat Reservation has

been introduced by low cost airlines. Such outsourcing is also easily possible for long-haul

traffic and already used by airlines (for example Lufthansa, Alaska Air or Air Asia X).

Although catering included in the flight price is mostly not offered by short-haul low cost

airlines, a selection of food and drinks is almost always sold. This does not only allow savings

7 With regard to subsidies, the EU adopted new regulations in September 2005 according to which financial incentives shall still be allowed, but within narrow bounds: a) Subsidies must not be paid for the ordinary flight operation of an airline, but only for start-up costs of

new routes (depending on the specific airport, 30-50% of these expenses may be reimbursed). b) Refunding shall be limited to a period of three years, for particularly less-favoured regions to five years. c) Only regional airports with less than 5 million passengers shall be allowed to pay financial incentives, in

exceptional cases, such as business slumps, also airports with 5-10 million passengers (Pranger 2005).

of catering costs, but generates additional revenue. Another positive effect is generated by

reduced turnaround times of airplanes, since less time is needed for loading and because of

lower in-flight food consumption toilets need to be cleaned and emptied less often. In long-

haul traffic the topic catering has to be handled differently: “It is difficult to eliminate ‘frills’

altogether. The longer the sector the more frills required. Some form of catering service is

required on flights of 8-10 h, even if paid ‘on demand’, the costs of the galley space and the

complications of loading catering and cleaning the aircraft remain.” (Francis et al. 2007, p.

393) Therefore, it has been ascertained that the no-frills concept is only rarely adopted.

Whereas business-clients specialized airlines offer full-service, Air AsiaX offers merely a

basic product “Economy” and demands an extra fee for express boarding and/or catering (see

table 5).

Cost savings are also achieved by short-haul low cost airlines with respect to waste collection

and cleaning inside the cabin, since these services are partly undertaken by cabin staff, thus

saving costs for external ground-handling contractors. Even the inevitable nausea bags are

only distributed by the crew on demand during Ryanair flights. Such cleaning duties can also

be undertaken by the cabin crew on long-haul flights, but the implementation is more difficult

to organize given the size of airplanes and length of working time.

As far as procurement of fuel is concerned, there are hardly any opportunities for saving.

However, an airport may be able to offer fuel at more favorable prices if it sells it itself. Re-

sults of various studies differ with respect to this issue. While Doganis determined savings for

fuel of 20 pence per seat/km for short-haul low cost airlines (comparison of easyJet and Brit-

ish Midland), the Boston Consulting Group’s finding is that no costs can be saved here

(Doganis 2001). However, fuel savings may be achieved in short-haul traffic through higher

seat occupancy rates (fuel per passenger) and a lower weight of the aircraft due to abandon-

ment of comprehensive catering and freight services, thus allowing the achieving marginal

savings. In long-haul traffic it is even more noticeable that when buying fuel money can

hardly be saved, because fuel is a bigger proportion of total costs in long-haul traffic than in

short-haul. “For the AEA airlines, it accounted for more than 25% of expenses on North At-

lantic routes in 2006, compared with less than 15% on European services.“ (AEA 2007, p. 13)

3.2 Process management

a) Strategic flight scheduling

The established airlines focus on network-based structures while short-haul low cost airlines

(and also charter airlines) concentrate on point-to-point operations between mostly passen-

ger-intensive economic centers. Airports are mainly offered in parallel markets, i.e. cities with

several airports which are not yet being served by competitors, or secondary airports near lar-

ger economic centers (Pompl 2002, Pompl 2007). Because they use mainly secondary air-

ports with free capacities and without any congestion, low cost airlines usually do not have

problems in obtaining slots.

Table 4 gives an overview of the long-haul low cost airlines and their destinations and routes.

For example, Oasis Hong Kong until their failure in April 2008 used the secondary airport

London-Gatwick for the route London – Hong Kong. And flyglobespan flies from Vancouver

directly to Glasgow and not as British Airways does via London-Heathrow. But not all of the

known secondary airports offer the required infrastructure, capacity on the ground and runway

length to handle long-haul flights. Low cost airlines in the long-haul sector also use primary

airports, especially in Asia, because there are fewer secondary airports available. At some of

these airports there are already separate low cost carrier terminals (LCCT). As an example,

the Kuala Lumpur International Airport can be mentioned, where the LCCT is around 20 road

kilometers away from the main terminal. As soon as they switch to primary hubs, costs and

charges for airlines rise. However, since airplanes in the long-haul sector are in the air longer

and on the ground for a shorter time, the advantages of lower costs and lower utilization at

secondary airports dwindles anyway. Summing up, it can be said that the strategy of ap-

proaching secondary airports is less effective in low cost long-haul traffic than in the short-

haul sector.

As far as flight distances are concerned, low cost airlines have mostly confined themselves to

short and medium distance flights with a maximum flight time of circa 2.5 to 3 hours, as

otherwise an increased number of daily flights cannot be achieved.8 Since direct operational

costs per seat-kilometer decrease as the flight distance increases, short-distance flights are

characterized by an unfavorable relation of ground time to flight time and thus not (really)

economical.

8 In the US, longer flight routes are successfully sold, such as the Jet Blue connection between New York and California with a flight time of four hours (Jegminat 2005).

Name Destinations

2008 (thereof long haul)

Number of routes

(round trip counts as one trip) Network configuration

AirAsia X 3 (3) 2 Kuala Lumpur - Hong Kong Kuala Lumpur - Gold Coast Airport (Australia

point-to-point and integra-tion to Air Asia Hub (KUL)

Eos Airline (when ended Service)

2 (2) 1 New York (JFK) - London Stansted

point-to-point

flyglobespan 23 (10) 14 from North America to Europe: 3 from Calgary 7 from Toronto/Hamilton 4 from Vancouver

point-to-point

L’avion 2 (2) 1 Paris-Orly - Newark Liberty International Airport

point-to-point

Jetstar 21 (6) 6 from Australia to Asia (plus feeders)

point-to-point (interna-tional) and feeder

Maxjet (when ended Service)

5 (5) 4 From London Stansted to Las Vegas, Los Angeles, New York (JFK) and Washington

point-to-point

Oasis Hong Kong (when ended Service)

3 (3) 2 Hong Kong - London Gatwick - Vancouver

point-to-point

Silverjet 3 (3) 2 London-Luton - Newark Liberty Interna-tional Airport - Dubai

point-to-point

Tiger Airways 28 (3 direct, 9 connecting

flights)

2 (direct) Singapore - Perth - Darwin 15 routes as connecting flight (from Australia to Asia) over Singapore

point-to-point, connecting flights over Singapore

V Australia 2 (2) 1 (December 2008) Sydney - Los Angeles

point-to-point and feeder Virgin Blue (Australia)

Viva Macau 5 (5) 4 Macau - Jakarta - Sydney - Ho Chi Min City - Tokio (charter)

point-to-point

Zoom Airlines 18 (18) Connections between eleven North-American and seven European cities

point-to-point

Table 4: Destinations, routes and network configurations (April 2008)

Source: own compilation based on company details on websites (status: April 2008); Flight International 2008

The longer the average flight distance, the lower – under conditions of appropriate occupancy

rates – the overall operational costs per seat-kilometer (Sterzenbach/Conrady 2003). In order

to compensate for the disadvantages of relatively short flight distances, aircraft turnaround

is maximized by short-haul low cost airlines. Optimization of the cost-intensive production

factor aircraft is achieved through short turnaround times (mostly less than 30 minutes), quick

boarding and no seat assignment, a one-class system (i.e. no separate boarding of business and

economy class passengers), no guarantee of connecting flights and consequently, no time-

critical transfer luggage, no freight transport and abandonment or reduction of catering (with

the result that catering containers either don’t have to be exchanged or less frequently by

means of external vehicles).10 If correctly managed, this system allows short-haul low cost

airlines to keep their aircraft flying up to twelve hours per day and to achieve a higher fre-

quency between two destinations.

In the long-haul traffic, the ground time can also be shortened, whereas some components of

the low cost business model on short-haul traffic can not be adopted one-to-one. For example,

free seating is more difficult to implement in long-haul traffic because families especially are

unwilling to be split up for that length of journey and/or because of the aircraft’s size, free

seating is more complicated to implement (Francis et al. 2007). It also raises the question of

the benefit of a 10 minutes shorter ground time if the machine is in the air 13, 14 or 15 hours

anyway.

“It is difficult for low cost airlines to match the utilization improvements that have been

achieved on long-haul routes as long-haul aircraft are already flying 15-16 h a day with carri-

ers such as KLM and Lufthansa, many sectors being overnight.” (Francis et al. 2007, p. 392)

Furthermore, longer turnaround times in long-haul traffic can be observed because bigger

aircraft are used and, consequently, higher catering and cleaning expenses are involved. An-

other important point with respect to flight scheduling is the problem of return of a respective

aircraft and its crew to the home airport. More favorable conditions may be negotiated with

the respective airport for parking of aircraft, allowing savings in costs for accommodation and

labor. On long-haul, flights between Europe and South-East Asia for example, it is not always

possible to return to the point of origin within 24 hours. Airlines therefore with flight schedul-

10 The success of the free seat choice system can be explained through the psychological effect with passen-gers tending to board earlier in order to get the best seats. The boarding procedure is speeded up and delays due to late passengers can be avoided (Schweinschwaller 2002).

ing with one connection per day, require more available aircraft. Maintenance, which is ide-

ally carried out overnight at the home airport, has to be done somewhere else (Wittmer,

2007). Another difference on long-haul routes is cargo transport: “LCCs avoid cargo on short-

haul routes as it complicates the operation and slows down turnaround times. On long-haul,

cargo is too significant a source of revenue to ignore, particularly if flying aircraft with large

belly hold capacity. This therefore, pushes airlines towards the traditional operating model.”

(Francis et al. 2007, p. 394)

b) Personnel policy

Due to their concentration on core competencies and related outsourcing operations, short

haul low cost airlines managed to downsize their workforce to a minimum. Owing to limited

onboard services, less in-flight cabin staff is required. Since most of the low cost airlines have

been on the market for a relatively short period of time and given the fact that they hired staff

during economically difficult times and unions rarely had a say, it was possible to achieve

low-pay agreements with longer working hours. Other factors which contribute to cutting

costs are the maximum utilization of permitted working hours within the legal limits11, avoid-

ance of voluntary social charges (such as holiday allowance or Christmas bonus) as well as

flight operation with minimum staff. As far as drafting of labor contracts is concerned, differ-

ent national legal regulations are applied in order to employ staff with the most benefit

accruing to the low cost airlines. Employees of Ryanair concluded contracts which are subject

to Irish employment law, so that employee rights are greatly restricted in comparison to the

German ones (Bjelicic 2004, Göttert/Schmidt 2005).

In the low cost long-haul traffic some of the previously discussed aspects are feasible and

reasonable, just as big cost savings in personnel are possible.12 Hence air traffic can be main-

tained with a minimum of personnel13, different national legal standards can be exploited,

employees from states with lower wage levels can be employed or a lower remuneration in

comparison to established airlines can be introduced. With cockpit personnel, attention cur-

rently has to be paid to the fact that because of an increased worldwide demand for pilots,

general increasing labor costs can be observed. “Indeed, the most viable model for a long-haul

airline may be to use lower cost labor (as wage rates differ greatly around the world) but leave

11 With 860 flight hours per year (allowed is a maximum of 900 hours), pilots of low cost airlines are the most productive among all pilots in relationship to their salary (Schweinschwaller 2002).

12 When looking at traditional airlines personnel costs account on average for 23.3% (Quaas 2008). 13 The safety conditions rules are rather complicated, but in essence they mean that there must be one cabin

attendant per 50 passengers up to 200, and one per 25 passengers over 200 passengers (Shaw 2004).

other services intact. This is essentially the strategy of carriers such as Thai International or

Emirates.” (Francis et al. 2007, p. 394)

Performance-related price differentiation inevitably necessitates increased service offer on

board, as travelers in higher booking classes (Business or Premium Economy Class) first of

all expect a more intensive support service by the cabin crew. This will make the assignment

of a minimum crew difficult.

3.3 Marketing

a) Product policy

The distinction between different booking categories (compartments), which can be con-

sidered as classical in air traffic, is mostly not applied by short-haul low cost airlines. Product

differentiation is of far greater importance in long-haul traffic than in short-haul: “With Pas-

sengers at the front of the cabin paying many thousands of pounds for their tickets, the mar-

ginal cost of the economy class seats at the back of a mixed configuration aircraft falls con-

siderably.” (Dennis 2005, p. 21) Tim Jeans, managing director of UK leisure airline Monarch

Scheduled, says that he must have looked at a dozen business plans of low cost long-haul

starts-ups and not one has been able to work unless it offers a premium class (Anonymous

2004). In the long-haul low cost market there are airlines that offer one-class configuration

and seek to attract mostly business clients (Silverjet, L’avion) or tourists respectively (Tiger

with only economy seating), and airlines that offer two classes (see table 5).

Seat density, which is a product feature, is determined according to principles designed to

optimize revenue. Tighter seating (with short-haul low cost airlines, the seat distance is be-

tween 74 and 76 cm instead of the usual 79-86 cm with traditional short-haul airlines) as well

as the abandonment of different booking classes (most times only economy class) lead, on the

one hand, to a restriction of product quality while allowing, on the other hand, transportation

capacity to be increased. Consequently, costs per seat and flight prices drop and the priority

service feature desired by customers is achieved (Schweinschwaller 2002, Sterzen-

bach/Conrady 2003). A higher seat density is also possible in the long-haul sector. However,

it has to be wondered if passengers will be willing to accept a lower seat pitch, as they do on

short-haul, on flights lasting several hours. “(…) seat pitch on long-haul cannot realistically

be reduced below 31” or 32” already provided by the major airlines. On some aircraft types it

is possible to squeeze an extra seat across the cabin (e.g. 8 abreast instead of 7 on the Boeing

767, 10 instead of 9 on the MD 11).” (Dennis 2005, p. 21)

Name Compartments

(number and name) Price discrimination

(ticket name) Frequent flyer

program

Range of

services (e.g. catering)

AirAsia X

2 • Economy Seat • XL Seat

• Economy Fare/Eco-nomy Promotional Fare

• XL Fare/XL Promotio-nal Fare

not available not complimen-tary in economy class

Eos Air-line

1 • Lowest Restricted • Unrestricted

Club 48 complimentary

flyglobe-span

2 • Premium Economy • Business

not specified not available, but access to Lounge

complimentary

L’avion 1 • Best Fare • Flexible Fare

Le Club complimentary

Jetstar 2 • Economy • StarClass

• Jet Saver Light • Jet Saver • Jet Flex • Jet Star

Quantas Fre-quent Flyer

Economy class: not complimen-tary14, Star-Class: compli-mentary

Maxjet B not specified not specified not specified complimentary Oasis Hong Kong

2 • EconomyOasis • BusinessOasis

• Hot Deal • Super Saver • Value Fare • Flexi Fare

not available, access to Lounge for BusinessOasis passengers

complimentary

Silverjet 1 • Saver Standard Flexible

not specified complimentary

Tiger Airways

1 • Internet Discounted Fare/Regular Fare

not available not complimen-tary

V Aus-tralia

3 • Economy • Premium Economy

• Business

• Economy: V Promo/ V Deal/V Saver

• Premium Economy: V Flexi Premium Deal/Premium Flexi

• Business: Business Deal/Business Flexi

Velocity Rewards

not specified

Viva Macau

2 • Economy • Premium

• Special • Economy Saver • Saver Special • Premium

not available not complimen-tary

Zoom Airlines

2 • Economy Seating • Premium Seating

not specified not available complimentary

Table 5: Compartments, price discrimination an range of services (April 2008) Source: own compilation based on company details on websites (status: April 2008); Flight Interna-tional 2008

14 “Economy class passengers can pre-select and pay for the option of having their meals included during their flight when they make their booking or they can purchase from a range of food and beverage items once on board. When pre-selecting the option of having meals, passengers can indicate if they would like vegetarian meals. Pre-purchased meals will include a beverage of the passenger's choice, which they can select once on board during the meal service. Additional snacks and beverages will be available for purchase inflight. Bev-erages will include water, juices, soft drinks, tea, coffee and a range of alcoholic drinks.” (www.jetstar.com)

A cost-intensive product component for low cost and traditional airlines is in-flight enter-

tainment. It could be done without, of course, but especially in long-haul traffic the in-flight

entertainment is more important than in short-haul. Selling in-flight entertainment to passen-

gers and providing in-flight entertainment systems for low cost long-haul airlines could con-

tribute to realizing profits (e.g. introduction of in-flight videos for a fee, i.e. passengers can

rent video players and movies and watch movies, or the introduction of gambling on board).

Both technical and legal (e.g. lottery law in Europe) difficulties (still) stand in the way of

introducing the latter.

Frequent flyer or bonus schemes, such as Lufthansa’s “Miles and More” program, are part

of the standard services offered by established airlines. Since cost reduction is given priority

by low cost airlines and those programs involve high administration costs, most short-haul

low cost airlines have not introduced similar programs up to now (exceptions are e.g. Air Ber-

lin or Germanwings in Germany). Price is considered a sufficient instrument for customer

loyalty under the slogan “We are always the cheapest”. Other reasons may be considered to

be low passenger rates of a low cost airline (less than 5 million passengers per year), a too

small network size as a condition for a frequent flyer scheme or missing partnerships for cash-

ing bonus points (e.g. hotel accommodation or hired cars) (Klophaus 2003). When establish-

ing a low cost long-haul offer, attention has to be paid to the fact that especially business trav-

elers are interested in the use of their frequent flyer cards, as they can redeem their collected

points or miles for benefits. This is similar to the use of lounges at airports (flyglobespan

attracts its business travelers e.g. with access to lounges and Eos Airlines has a Frequent Flyer

Program Club 48). The financial expense of this is however hard for long-haul service provid-

ers to reconcile with the objective of cost reduction.

b) Pricing policy

Since the feature of “low fares” has by far the greatest importance for consumers, pricing

represents the most important marketing instrument for low cost airlines while being a long-

term factor for customer loyalty. For pricing, short-haul and long-haul low cost airlines use a

mixed calculation, i.e. the average ticket price determined by cost accounting procedures

(fixed and variable costs for a certain occupancy rate) serves as a basis for the offered prices.

Flights are sold at different prices, with some of the tickets – namely the low cost tickets –

being distributed at a loss which in turn is compensated for by the high-priced tickets. In con-

trast to traditional pricing policy, which is applied, for example by charter airlines, the time-

related price discrimination is implemented through penetration pricing.

At first, low base prices (initial prices) corresponding to the strategic pricing policy aims are

determined, i.e. market-orientated pricing based on competition and demand is undertaken.

These base prices are communicated to the consumers in order to encourage them to book

early. In contrast to “last-minute prices” which are perceived by customers as being reduced

as time goes on, thus increasing the occupancy risk, this price system conveys to the customer

the idea of a price guarantee, i.e. there will be no cheaper prices for a certain flight at a later

point in time. As booking goes on, pricing becomes more cost-orientated and prices increase

as the departure date draws closer. There may be a constant increase in prices or prices may

be adjusted according to the revenue management parameters (e.g. booking details from the

past, prognostics or price flexibilities) and the actual booking situation.

Consequently, short-haul low cost airlines practice a dynamic and flexible pricing policy with

a mixture of cost- and market-orientated elements. In a first step, a specific low-price contin-

gent is determined. Its size varies from one airline to another, comprising about 10% to 70%

(Ryanair) of the offered seats. In general, this part is about 20-30% (Ramm 2002). When this

contingent is sold, prices increase in steps and may reach or even go beyond the prices of es-

tablished airlines. Due to their restrictive conditions policy, most low cost airlines do not en-

counter the problem of overbooking and of related costs for compensation payments to pas-

sengers. However, if there are delays which may occur anyway because of the tight time slot

available for ground handling operations – a delay occurring in the morning can hardly be

made good – and which lead to an undesired overnight stay, the passenger has a right to claim

compensation.15

In order to make statements on the price development of low cost airlines on long-haul routes,

the results of a research project which was completed at the University of Applied Studies and

Research Harz are given below.16 Within a six-week observation period (13 Nov. 2007 – 31st

Dec. 2007) four possible flight dates in the lowest booking class available on the airlines fly-

globespan, Oasis Hong Kong and Zoom Airlines were examined daily on the following

routes:

15 The EU commission has put into force from 17 February 2005 new regulations to protect passenger rights, in order to compel low cost airlines to also assume liability for cancelled and delayed flights (up to 250 km, there is an compensation of 250 Euros, up to 3,500 km 400 Euros and for long-haul flights 600 Euros in the event of overbooking’s, delays or cancellations).

16 All results displayed here are based on the examinations by Anett Quaas (Quaas 2008).

Airline Route

From to

Distance Date of

departure

Flyglobe-span

Belfast Intl. Airport

Dublin Intl. Airport

Glasgow Intl. Airport

Orlando/Sanford

Vancouver Intl. Airport

Calgary Intl.-Banff

6,550 km

7,170 km

6,501 km

Middle of Dec. 07 & Middle of Feb. 08

Middle of May 08

Middle of July 08

Oasis Hong Kong

Hongkong Intl. Airport

London/Gatwick

10,268 km

9,633 km

Middle of Dec. 07

Middle of Feb. 08 and middle of May 08

Zoom Air-lines

London-Gatwick

Paris-Charles de Gaulle

New York (JFK)

Glasgow Intl. Airport

New York (JFK)

Toronto Lester B. Intl. Airport

London-Gatwick

Calgary Intern.-Banff

5,576 km

6,006 km

5,576 km

6,501 km

Middle of Dec. 07

Middle of Feb. 08

Middle of May 08

Middle of July 08

Table 6: Analyzed flight connections from selected low cost airlines in long-haul traffic

Source: Quaas 2008, p. 106

30 1 2 3 4 5 6 7 8 9 10

Oasis Hong Kong: London (LGW) - Hongkong International

Zoom Airlines: Paris (CDG) - Toronto Lester B. Pearson International

flyglobespan: Belfast International - Orlando/Sanford

Figure 2: Price development of air tickets within the observation period for departures in the

middle of February 200817

Source: Quaas 2008, p. 110

17 For this figure the first observation result from 13/11/2007 was fixed at 100% and the following changes were related to this result.

observation period 13/11-31/12/2007

Nov. Dec.

Figure 3: Price development of air tickets within the observation period for departures in the

middle of May 2008 Source: Quaas 2008, p. 112

In summary, the following statements can be made concerning all examined airlines, routes

and dates of departure: Both distinct price fluctuations (dynamic strategy concept of the reve-

nue management) and a constant increase in prices18 can be observed. As an exception, a de-

scending price curve was noticed in the case of flyglobespan for the period of February 2008.

No price strategy in principle for long-haul low cost airlines can be ascertained in this analy-

c) Distribution policy

Short-haul low cost airlines sell their services through few channels, mainly directly through

the Internet or booking machines (direct self-distribution) or through their own centralized

call centres established at cost-competitive locations. More savings of distribution costs are

achieved by issuing flight tickets together with the boarding pass and by using electronic tick-

ets. Printing and material costs are even partly shifted onto the passengers (e.g. print-out of

tickets when booking online). By abolishing seat reservations and the introduction of reusable

18 „Only about 10% of Oasis’s economy passengers will pay the low-end £75 ($142) fare, and on average they’ll be more likely to pay £150 ($285) (…).” (Olson 2006)

observation periode 13/11-31/12/2007

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Oasis Hong Kong:

London (LGW) - Hongkong Int.

Zoom Airlines: New York (JFK) - London (LGW)

flyglobespan:

Dublin Int. - Vancouver Int.

Nov. Dec.

plastic cards, time and costs can be saved during check-in. The collection of payment, which

has been ensured up to now through travel intermediaries or special accounting agencies (e.g.

Airplus), is practiced cost-effectively through credit cards, creating a positive impact on the

low cost airlines’ solvency situation (Pompl 2007).

In the long-haul traffic cost-saving online booking systems, booking via SMS or electronic

ticket can also be used. However, it has also to be considered that traditional airlines are still

dependent on GDS systems and therefore low cost airlines on long-haul also will not be able

to avoid GDS systems. “Major airlines such as BA, Lufthansa and American sell a significant

part of their long-haul capacity through their own websites in their home markets but in for-

eign markets are still dependent on travel agents and the Global Distribution Systems.” (Fran-

cis et al. 2007, p. 393)

d) Communication policy

The communication policy is designed to inform (potential) customers about the available

services offered by a low cost airline. Public relations work is partly carried out through

spectacular actions, helping low cost airlines to attract great public interest and, thus gain free

publicity.19 Sales promotion should be considered in close relationship with this. This in-

cludes enabling of both self- and third-party distribution channels, while it is also directed

towards the end consumer. Low cost airlines run various sales promotion actions such as the

sale of tickets at a symbolic price (e.g. for one cent or Euro) or giving away flight tickets as

gifts.20 Furthermore, communication is practiced through intensive advertising addressed to

the end consumer. Advertising is focused on the price, in which the net price is mentioned

most of the time. Any extra charges such as general taxes, handling or safety duties and fuel

taxes are charged separately and not mentioned at all or only as a footnote in advertisements.

Low cost airlines prefer advertising above all in daily newspapers (“daily prices need a daily

press”). The communication concept incorporates both classical advertising through selective

presence in relevant markets (i.e. particularly the catchment areas of the airports served) and

the use of modern information technologies. But there are also innovative approaches which

are being followed by low cost airlines. On British TV there is, for example, a documentary

19 The public appearances of Ryanair’s CEO, Michael O´Leary, are often referred to. In 2003, for example, dressed up in military camouflage clothes, O’Leary drove a scrapped Second World War tank to Luton air-port in the north of London where, supported by his minions, he started chanting anti-easyJet slogans (Göttert/Schmidt 2005).

20 It should be noted that these supposedly loss-bearing flights might be absolutely profitable due to a number of secondary businesses (e.g. revenues from hotel and car hiring businesses, sale of food and merchandising articles on board). In 2005, Ryanair gave away 25% of all tickets for free; in 2006 this part shall rise to about 30%, with Ryanair’s target set at 60%.

series run by easyJet (“fly-on-the-wall”), which is about the life of passengers and staff of the

airline. After it had reached an audience of 75 million viewers in the UK, it was even sold to

other countries (e.g. New Zealand, Australia, Japan). In addition to corporate behavior and

corporate communication, the corporate identity encompasses the external image (corporate

design), including, among other features, branding of aircraft. Low cost airlines use the air-

plane surface for communicating booking phone numbers (easyJet) or Internet domains (vola-

re.web).

All the stated communication instruments can also be implemented by airlines in long-haul

traffic. Jetstar, for example, pursues innovative approaches in communication policy with its

own TV series (“Going Places”), the sponsoring of a rugby team (Gold Coast Titans) and the

Australian program “The Morning Show”. The use of airplanes as advertising space for other

companies and hence the generation of profit was, for example, put into action by Jetstar

(pizza advertisement).

3.4 Valuation of the long-haul business model

Provided that the prospects for success are judged on the basis of the cost advantages

achieved by today’s short-haul LCA, it becomes clear that not all the savings can be expected

and/or are possible for long-haul traffic. The limitations on long-haul low cost airlines in com-

parison to their short-haul colleagues are among others (Airneth 2007, p. 1):

• Opportunities for cost reduction on long-haul limited,

• Fleet utilization on long-haul operations of legacy carriers is already high,

• Second-hand market for long-haul aircraft is more or less swept clean at the moment

so that used aircraft can hardly be obtained,

• More efficient crew scheduling is difficult and assignment of a minimum crew is made

more complex because of different booking classes,

• Potential for use of secondary airports is limited since many secondary airports lack

sufficient runway length/facilities to accommodate long-haul aircraft,

• Airport costs are only a small proportion of total costs on long-haul flights,

• Some frills must be maintained on long-haul flights, such as minimum seat pitch or ca-

tering,

• Difficulty in creating fare advantages on all-economy long-haul flights. Legacy carri-

ers offer long-haul economy class capacity in excess in order to materialize large air-

craft unit costs advantages. Economy class tickets are dumped at low fares onto the

market to fill the excess capacity. More opportunities may exist to tap into the pre-

mium market,

• There are hardly any cost savings when buying fuel, either in short-haul traffic or in

long-haul. In long-haul traffic fuel is a bigger proportion of total costs and therefore

the influence is greater.

• Cargo is too significant a source of revenue to ignore on long-haul,

• Frequent Flyer Programs and use of lounges at airports are especially important for

business travelers.

In an investigation by Francis et al. (2007) it was estimated by the example of a 4,000 miles

route (e.g. London to Chicago) how much cost a potential low cost operator could save in

contrast to Virgin Atlantic and how much cheaper tickets could thus be offered. Whereas low

cost airlines can undercut traditional airlines’ tickets on European short-haul routes by 50%

and more, operators can offer 20% cheaper tickets in long-haul traffic21 – and this is only pos-

sible if a set of product components is not or only limitedly offered, although they are more

important to passengers on long-haul routes.

“With all amendments, the average cost per one-way passenger reduces to £125.51. We can

now compare this with the cheapest return fare averaged across the year is £360 (£330 with-

out government taxes – airport facility charges are included in the cost analysis). The low cost

airline requires £251 to break-even. With a profit margin of 10% this rises to £276. It would

be possible to undercut the traditional airline by £54 per return journey or about 15%. For

many potential passengers this is unlikely to be sufficient discount to offset the disadvantages

of higher density seating, poor ground handling and no in-flight service. It has been observed

that low cost short-haul airlines can do more than break-even on the carriage of the passen-

gers, but make their profit margin of ancillary sales and activities. This would potentially give

a £79 price saving or about 22% if only concerning operating costs.” (Francis et al. 2007, p.

On the other hand, other examinations show that low cost long-haul traffic can be carried on

economically. Mark Darby (Unisys Consulting Partner and former employee of Freddie

21 Other examinations result in similar findings, so Dennis (2005). An investigation of the airport Co-logne/Bonn, on the other hand, concluded a slightly higher result: low cost airlines in long-haul traffic shall accordingly achieve cost advantages compared to traditional airlines of up to 30% (Scharrer 2007).

Laker) proved “(…) that to make it work, a carrier flying a daily, one-class high density con-

figuration Boeing 767-300ER from London Stansted to Boston would need a year-round av-

erage one-way fare of just over $200. The average load factor would have to be 65%, growing

to 80%, and there should be a revenue contribution from cargo and on-board sales.” (Airline

Business 2004) It’s relatively simple for the traditional airlines to react to a new offer by low

cost airlines in the long-haul traffic and reduce their costs (at least for a short time). With this,

the relative small price advantage would vanish, so that it would be even more difficult for

low cost airlines to organize their business profitably.

4 Conclusion

Analyzing the business models more precisely, it is clear that there is not one business

model. Differences can be seen in target groups and appropriate offers (from pure business

class offers with one class system to two classes with various types of rates), the service ele-

ments offered (low fare, high value or a basic product) the range of routes and the question of

point-to-point traffic, hub system or point-to-point between two hubs.

Flight routes up to a length of 8 hours on which the airplane can return to the point of origin

within 24 hours and which also allow enough time for maintenance and cleaning are certainly

more promising than more distant destinations. The air traffic market will most likely admit

long-haul LCA on high volume long-haul routes with particularly high point-to-point volume

and a high proportion of business travelers between major economic centers on which a pre-

mium product can also be offered. But an offer in pure leisure markets (first of all visiting

friends & relatives markets) can also be promising, especially if the frequency can be main-

tained at a low level and where additional demand can be stimulated by cheap ticket prices

(Airneth 2007, Bjelicic 2007, Francis et al. 2007, Wittmer 2007). Another promising approach

for low cost long-haul traffic seems to be development in connection with a solid short-haul

network (Hind 2007).

It is pointed out that the low cost business model on long-haul routes will probably not

achieve similar high market shares to that which it does in continental traffic (in Europe the

low cost airlines had e.g. an average market share of nearly 31%) and hence will not upset

worldwide air traffic in the same way the low cost short-haul operators did.

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