Thursday, 16 February 2017

Cheap Flights are what we want. But are they?

I have been waiting for it to happen and now it has. The major national airlines that have been fighting low cost carriers are finally joining them with a vengeance that is creating its own backlash.
Naturally it is about money or should I say profit and ‘shareholder value’. Let me explain. Those same airlines that denigrated those ‘cheap’ airlines in the past have seen their profits suffer and have found it necessary to respond in order to maintain their position as market brand leaders.
Now, they are not going to give away their profit margins and pricing models are they? No. What they are doing is changing them into possibly more profitable returns. You see low cost airlines relied mainly on new routes, new markets, low charges for high volume and almost a carte blanche to do what they want as they were new kids on the block. In fact the crazier their actions seemed the more they were admired.

The big airlines could do very little to start with. These new guys were a pain but did not really hurt them too much on key routes. Meanwhile they still earned enough loyalty from business and other higher end markets to cope plus they had solid schedules to key cities to reduce the damage. In fact I think they did not want to play with low cost in those early evolution times. Then things moved on. Or at least they have on the smaller routes.

The new ‘cheap’ market reached almost saturation point. These airlines introduced as many new routes as they could and filled them with as many passengers that were ready and willing to use them. But what happens when there are so few new routes available anymore? How do these darlings of the City maintain the expected rapid, continuing growth expected from them? The answer is they have to compete for those passengers they once scorned and mainly ignored the mainstream airline traveller.

How did they do this? By in part becoming a bit like their adversaries by flying in and out of major airports and fighting on a far more level playing field. By this I mean they kept their opening fare at the same low levels but charged add-ons for everything else from meals, drinks, bags, credit cards to reserved seats, extra legroom and most of the other things you get (or used to) as standard from mainstream airlines. This has created a massive change which will grow before it diminishes.

To some extent this is what the big world airlines were waiting for. People started finding that low cost airlines are not as low cost as they used to be. The ‘cheap flight love affair’ was beginning to be questioned. Those airlines that could get away with murder in recent years started being called to account when directly and openly being compared with their bigger and more established rivals.

Finally it seems the national airlines have started to act and I am not sure how popular it is going to become with Joe Public who enjoyed slating them but needed them to be around too. As ‘low cost fares’ went up so did ‘full fare’ prices go down. Except they were no longer the ‘full service’ fare.

The opportunity for these global carriers was there for the taking and being openly displayed to them by those competitors they feared were their nemesis. If you change elements of pricing you can milk extra profit. So now the low cost charges are being introduced by the big boys, particularly on short journeys. Food and drink quality have gone down but now you have to pay for them on top of your fare. The airline takes out a cost and replaces it with a new income stream! This is not the only example of this rapidly growing income stream. On flights cabin crew numbers are getting smaller and compelling reasons present themselves for reducing pay and benefits too. After all it is what ‘the people’ (you and me) want. Now we are finding that major airlines are more often the same or cheaper than low cost airlines on main routes. Sadly it must be at our cost not theirs.

It is a bit sad really but I think the major carriers are going to get a bit of a public bashing over this but hey, they are more profitable and the city institutions will love them! The will also be able to defend themselves by saying they are reacting to what the public want. Meanwhile, as I said before, ultimately Joe Public will end up paying more for less.

Finally a look to the future. I think the short flight market will level out and airlines of all persuasions will compete on more equal basis albeit we, the public, will probably get a more reduced service and at higher prices. As far as the longer distance destinations are concerned, I personally think that it will be a while before this, what I call ‘cost plus’ model takes hold. Companies bankrolled by city institutions have tried before to start up new low cost long haul airlines and have failed miserably. This may change and I see airlines like Norwegian trying their new model in this market but I hold out little hope for such in the near future.

But who knows!

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