May 8, 2008

Move over, LCCs, here come the hybrids

A Sabre study shows that hybrid airlines are edging out traditional Low Cost Carriers, which are themselves transforming.

A new breed of “Hybrid” carriers is quickly overtaking traditional Low Cost Carriers (LCCs), according to a study released today by Sabre Airline Solutions, the global leader of technology solutions for the airline industry, which reveals that more passengers travel on a new breed of “Hybrid” carriers than on traditional LCCs.

The global study of 540 airlines revealed that out of 123 self-nominated LCCs, 59% had added enough complexity to their business model in recent years that they had now evolved into a full service airline (7%) or were part of an emerging breed of “Hybrid” carriers, which blend low cost carrier traits with that of full service carriers (52%).

Only 41% retained true LCC characteristics including point-to-point routes, single aircraft types, single cabin configuration, simple fares with no interline or codeshare agreements and direct distribution usually through the internet.

Furthermore, passenger numbers from 2007 show that these “Hybrid” airlines carried 64% of all passengers in the broader LCC segment.

Gordon Locke, Vice President, Airline Marketing & Strategy for Sabre Airline Solutions, said there had been a lot of speculation about the evolution of the LCC model, but up until now, no quantifiable research existed to show how these airlines were changing their businesses to stay competitive.

“The LCC segment is one of the most competitive in the airline industry and this has spurred many pure LCCs to explore new ways of evolving their business to remain competitive and sustainable. For many, this has meant adopting some full-service carrier business practices to help grow their passenger base and expand their reach in the market place, although they have often added their own twist on how these business practices are implemented,” said Mr Locke.

The study shows that full-service carrier attributes being introduced by LCCs include: international routes, GDS distribution, codeshare agreements, connecting services, multiple fares available at any time, advanced ticketing procedures, multiple aircraft types, multiple classes of service, interline agreements and long-haul destinations.

“Airlines that introduce more than three of these full-service characteristics should be considered a hybrid carrier because each attribute adds a level of complexity and cost to the operating model that is inconsistent with the fundamental principles used to define low-cost carriers,” said Mr Locke.

Based upon this, within Asia/Pacific, low-cost airlines that may be considered “Hybrid” carriers include Virgin Blue, Bangkok Airways, Lion Air, and Jet Airways. Globally, the trend is just as strong with industry leaders such as Southwest, Frontier Airlines, Jet Blue, West Jet, AirTran Airways, bmibaby, and Flybaboo also falling into this new category.

“Many of these airlines have evolved into a hybrid carrier in order to make a play for the highly lucrative business traveller, who has a completely different set of needs and shopping behaviours from the leisure traveller that LCCs have traditionally targeted.

“That’s why some have introduced GDS distribution, multiple products, new classes of service and interline agreements. They’ve also invested in sophisticated revenue management tools and techniques that help them maximise the revenue generated by every seat on every aircraft, every day of the year,” said Mr Locke.

“In comparison, pure LCC airlines don’t use these tools. They stay true to the LCC model – a simple, no-frills offering using discounted airfares to appeal to a single travel segment, in this case, the price-conscious leisure traveller,” said Mr Locke.