The rise and rise of LCCs and ULCCs, new technology and how taxes are a barrier to LCC growth in Honduras – further insights from the CAPA Americas Aviation Summit

This week the CAPA – Centre for Aviation Americas Aviation Summit has been taking place at a key time in the United States of America (USA) as it approaches the next generation of aviation. As consumer demands change rapidly, as infrastructure needs remain unsatisfied, and as longstanding policies are under attack, the US airlines are unprecedentedly profitable. But, there is much that needs to be fixed if they are not to be marooned in the present, domestically and internationally.

Here’s some further insights and observations from delegates during the event at the Hilton Americas hotel in Houston… 

Indigo Partners on hybrid LCCs seeking yields: ‘Once you start down that path – it’s a path to hell’
Indigo Partners managing partner Bill Franke said that hybrid LCC models have started trying to compete for higher yielding passengers. He said “once you start down that path – it’s a path to hell”. He described competing with full service carriers as a “major task” for an LCC. He said that it is the hope of full service carriers that LCCs “cheat” by moving away from the pure low cost model because it is easier for them to compete. He added LCCs should focus on being “as efficient and low cost as possible”, staying “true to the model”. 

Irelandia Aviation says market opportunity for LCCs in Latin America is ‘fantastic’
Irelandia Aviation member of the advisory board Tony Davis, said the market opportunity for LCCs in Latin America is “fantastic”. He said people are “fed up of being ripped off by legacy carriers in the region”. acknowledged some of the biggest challenges for LCCs in Latin America are operational, such as bird strikes and weather conditions. “”There’s a disproportionately high number of birds that like flying into our engines across Latin America,” he said. 

Lufthansa: More personalised pricing expected in airline industry
Lufthansa VP airline sales Tamur Goudarzi Pour said while the airline industry is unlikely to see any more booking classes over the next five to 10 years it will see more personalised pricing. In addition, Mr Goudarzi Pour believes non flight products will be added to a large extent. He said airlines can address the threat of the Googles and Amazons of the world by creating new products that people value. He noted: “It is a race and we have to hurry and catch up”.

Indigo Partners sees ‘favourable environment’ for ULCCs in Latin America; ‘only a matter of time’ before an ULCC is launched in Canada’
Indigo Partners managing partner Bill Franke says there is a “favourable environment” for ULCCs in Latin America. He said Chile, Mexico and Colombia are “fertile countries” for ULCCs due to the growing middle class, historically high airfares and high internet penetration. Meanwhile, he says it is “only a matter of time in my mind before an ULCC is launched in Canada”. In his belief Canada presently has “no true” LCCs. For Central America he says ULCCs need to approach region as a “unified market” to be successful. Brazil remains a big gap and he says it occupies a unique space in Latin America and is well suited to the ULCC model. He describes it as a “massive” and “important” market, and believes ULCCs must continue to look at it despite regulatory hurdles. 

Irelandia Aviation: LCCs in Latin America need to educate airports and regulators on LCC model and focus on true ancillary revenue
Irelandia Aviation member of the advisory board Tony Davis said the biggest problem for LCCs in Latin America is developing in an environment designed for full service carriers. He said LCCs need to educate airports and regulators on the LCC model. He said airlines need to focus on true ancillary revenue and move away from unbundling. 

Travelport: Changing current distribution infrastructure will ‘take some years’
Travelport senior commercial director air commerce Craig Banks said changing the current distribution infrastructure will “take some years”. He said airlines will need to build API and merchandising capability and aggregators will need to build API link to multiple airlines and develop and enhance point of sale technology.

Largest ULCCs in North America have relatively low market share, will grow: Indigo Partners
Indigo Partners managing partner Bill Franke said the largest ULCCs in North America – Frontier and Spirit Airlines – have a relatively low market share at approximately 6%. Mr Franke believes that figure will grow to 20% over the next seven to eight years. He said it is clear looking at ULCC order books that “something is going to happen”. He said it is necessary for ULCCs to think “outside the box” in order to move forward. He suggested ULCCs should explore the possibility of developing innovative codeshare agreements with full service carriers and other innovative arrangements.

VivaAerobus says most talented data scientists are more interested in other industries
VivaAerobus VP network planning revenue management and e-commerce Javier Suarez said one of the problems VivaAerobus faces dealing with complex pricing data is bringing in the correct talent and retaining that talent. Mr Suarez said the most talented data scientists are more interested in working with companies that are more technologically advanced.

Spirit Airlines says ‘communication is key’ to maximise revenue; now running ‘the best operation we’ve run in the history of the company’
Spirit Airlines SVP and chief commercial officer Matt Klein said Spirit’s revenue management, marketing and ancillary teams are not segregated but operate in a close, cooperative environment. He said “communication is key” to maximise revenue. A key focus of Spirit Airlines has been to develop a reliable product with a high level of customer service without increasing cost. Mr Klein said Spirit is now running “the best operation we’ve run in the history of the company”. He believes ULCCs “in general can in any economic environment outperform full service carriers”.

Argentina, Brazil have complications that turned Indigo away; more opportunity in Colombia, Chile
Indigo Partners managing partner Bill Franke said Argentina and Brazil have complications that turned Indigo away from looking at them as primary opportunities. He said other Latin American countries, such as Colombia and Chile, offer more fertile environments for ULCC growth. On the issue of aviation taxes and charges in the Argentina market, he said: “they have VAT tax on VAT tax” and added ULCCs need to be “very thoughtful” and have “very bright people” to manage those issues. 

Nawal Taneja notes potential for airlines to harness digital technology to reduce operational costs
Fisher College of Business executive-in-residence and airline business strategist Nawal Taneja said airlines are overlooking the potential to reduce operational costs by concentrating too heavily on the commercial side of the equation. Mr Taneja believes there is great potential for airlines to harness digital technology to reduce operational costs. He noted new technologies will not improve anything until the mindset in respect to data changes with a lot of “fragmented” data sitting in silos. He is “100% certain” airline revenue management and pricing policies will change in the future and while GDS will not disappear, its role will change in the future.

US labour unions happy to see Norwegian’s success in the US market: Association of Flight Attendants
Association of Flight Attendants-CWA International president Sara Nelson said US labour unions are happy to see Norwegian’s success in the US market, but they are just concerned about the “right to bargain fairly”. She has “huge concern over the controlling interests of US airlines”. Ms Nelson said the recent labour case with Norwegian demonstrates “where we could end up” if foreign ownership rules are relaxed. 

Volaris on barriers to Honduras entry: ‘I can’t with USD38 in taxes’
Volaris CEO Enrique Beltranena Mejicano explained why the carrier has not launched service to Honduras, stating: “The answer is simple… I can’t with USD38 in taxes in a market where we cannot generate massive growth”. He said the departure tax at every airport in Central America is higher than the average airfare of USD30. 

Caravelo believes chatbot technology will be particularly relevant to the millennial market
Caravelo commercial director Jonathan Newman said chatbot technology is a “great channel” to engage passengers on as it offers one-on-one communication. Mr Newman believes chatbot technology will be particularly relevant to the millennial market.

Air China says competition within China is a lot worse than competition with US carriers
Air China VP and GM North America Zhihang Chi said competition within China is a lot worse than competition with US carriers. He said consumers have benefitted “tremendously” as yields have come under pressure in both the China-Australia market and the China-Canada market as capacity has expanded. In terms of operations he believes the playing field regarding air service development between the US and China is reasonably level. He explained Chinese carriers face similar problems to US carriers when trying to establish air service. In addition Mr Chi noted Air China capacity share at both Beijing Capital International Airport and Chengdu Shuangliu International Airport is much lower then what US airlines have at their respective hubs.