Video insights from the inaugural CAPA Low Cost Long Haul Global Summit – Part 1

Earlier this month the CAPA – Centre for Aviation Low Cost Long Haul Global Summit in Seville, the capital and largest city of the autonomous community of Andalusia, Spain, brought together industry experts to discuss the latest emerging airline market.

New aircraft technologies, evolving passenger preferences and stable fuel prices are pushing LCCs (and restructuring full service airlines) to consider new growth opportunities. High fare long haul markets are ripe for disruption and airports/destinations are aggressively courting new routes. New city pairs are emerging, and secondary airports are featuring regularly in the long haul low cost networks.

Here, in the first part of our video review of the event, we highlight the first of the panel sessions…

  • Can the full service carrier and low cost long haul model exist in the market side by side?

While LCCs are still a relatively young force they have massively disrupted air travel and the way all airlines now think about serving the public. With a nimble strategy offering point to point connectivity, industry innovations, ancillary focused activities and modern digitalisation and technological practices, they have become the new ‘normal’ in the industry, causing major headaches for the full service carriers on short haul markets. Whether low cost carriers will create a similar transformative effect in the long haul sector remains to be seen.

No less than 19 LCCs have launched widebody services in the last six years, while further disruption is on the cards in the long haul narrowbody space. The new generation single aisle Boeing 737 MAX and Airbus A320neo aircraft families have brought long, thin routes into the realm of operational and financial viability for LCCs, in turn stimulating new traffic between secondary city pairs and allowing passengers to bypass traditional hubs. Yet the low cost long haul model doesn’t have the same inherent cost advantages as the short haul model, which potentially narrows the cost gap between LCCs and FSCs, and growth has come at the expense of profits for many LHLCCs.

The prospects for independent low cost long haul carriers aren’t particularly promising either; it’s rare for secondary point to point markets to be large enough to operate sustainably without additional feed. Still, low cost long haul airline growth shows no signs of abating. As the average passenger profile moves towards the price sensitive end of the spectrum, outstripping growth in premium markets, it becomes harder for higher cost airlines to sustain previous expansion rates without deploying radical strategies to address the low cost long haul onslaught.

  • Generating non-ticket revenue streams – leveraging retailing and ancillary initiatives

LCCs are constantly looking at finessing their retailing and merchandising strategies – whether it’s during the booking phase, pre flight or onboard, with relevant, timely offers that are easily accessible (preferably via mobile) and easy to pay for. This is especially important in today’s digitalised environment, where onboard connectivity is virtually a must have and almost as critical for the traveller as getting to the destination.

  • Financing and funding growth: managing risk with large aircraft orders

LCCs, as the newer players in the industry, are competing to meet future growth needs. They can scarcely afford to stand still if they are to assert themselves in the long term – especially as newer models enter. The need to plan for fleet expansion and replacement, as well as making decisions on leasing and purchasing. For larger LCC groups, one notable strategy to offset the risk inherent in large forward orders has been to establish a leasing capability, to absorb any excess capacity as new aircraft are delivered.

  • LCCs working as part of a full service/low cost group: secrets for success

The majority of low cost long haul airlines operate either as part of a larger low cost group or they are subsidiaries of full service carriers. Indeed the number of successful independent low cost long haul operators is rare; currently there is only one independent airline in the newly launched French Bee, while another start up, US based World Airways, is in the works.

But independent long haul LCCs have historically struggled because they have lacked short haul feed from a sister airline, adding merit to the argument that long haul LCCs work better if they are part of an LCC group with short haul connectivity.

Meanwhile in an attempt to combat growing LCC competition, many full service carriers have wisely avoided unsustainable price matching (although tiered fare products are a popular tactic amongst the US majors) and launched their own LCCs. Yet embedding a low cost culture within a legacy environment poses its own set of challenges, especially where services and systems are shared.

A constant threat is that the subsidiary cannibalises the principal’s mainline traffic. But the success of Qantas’ Jetstar, launched more than a decade ago, shows that if executed correctly, low cost subsidiaries can generate remarkable synergies for both parent and child carrier.

  • Adapting marketing and distribution strategies for long haul customers

It is questionable whether LCCs can continue to adhere to simple, low cost distribution methods, given the inevitable complexity that low cost long haul generates. At the very least, a more flexible approach to marketing and distribution is required and LCCs are responding and adapting to the (often different) needs of long haul customers, where price for example, doesn’t hold as much sway in promoting brand stickiness.