March 20, 2017
Few things have changed the way people travel than the arrival of low cost airlines.
Starting with the likes of Southwest in the US and perfected a couple of decades later in Europe by carriers such as Easyjet or Ryanair, the low cost airline phenomenon has completely transformed the airline industry...at least, when it comes to the short and medium haul.
The long-haul market, however, has remained the last stronghold of many legacy carriers that, unable to adjust their cost structure fast enough, withdrew to the only market segment that was thought defensible from the low cost threat.
And indeed, some of the key elements of the low cost business model - frequent aircraft rotations, simplified crew shifts, etc. - appear to be more difficult to replicate over long-haul routes, but perhaps more importantly: with plenty of room to grow in the nearest markets, why bother with the complexities of a long-haul operation?
In the Asia-Pacific region, with its’ longer average distances, the long-haul low cost concept has, actually, been successful, with the likes of AirAsia X, Scoot, Cebu Pacific or JetStar showing that it can be done.
Europe and America have been lagging behind in this field, but not for much longer...
Norwegian has been busy setting up long distance routes out of several European bases, while legacy airlines such as Lufthansa and Air France, determined not to be outdone this time, have also set up their own long-haul low cost subsidiaries.
Filling all these wide-body airliners may prove a challenge, though, in most cases some kind of feeder is needed. This is why some low cost airlines are defying one of the industry’s rules: interlining and flight connectivity.
Ryanair is said to be readying an agreement with Norwegian to feed each other’s flights, while in the US JetBlue connects at its New York - JFK hub with a number of international airlines. Vueling has also connection agreements with Oneworld alliance members Qatar Airways and American Airlines.
If there is no longer an operational barrier between low cost and more traditional airlines, a number of interesting scenarios start to take shape when it comes to distribution. In particular when it comes to the challenges and opportunities brought about by interlining between full service and budget airlines and also between low cost carriers.
Low cost airlines often sell most of its’ tickets directly through their websites, this allows full control not only of the user experience but also of the way ancillary services are sold. An
essential point for low cost carriers since ancillaries represent a major, and growing, share of their revenue.
And what about traffic that originates through a partner? How are the airlines’ websites going to handle the multiple options opened up by interline connectivity?
Long haul airlines may prefer the direct low cost distribution model of their new low cost partners over one that still gives agents and GDS platforms a major role.
Although indirect distribution is not going away anytime soon, there is an opportunity for those long-haul airlines that are still dependent on legacy distribution models for a large share of their sales, to move further towards a full disintermediation of the market and sell more tickets directly.
For example, someone traveling from Boston to Bordeaux may be able to book the whole itinerary on Ryanair’s website, even if it involves several partner airlines.
Conceptually not that different from the traditional hub-and-spoke model, but linking airlines with different approaches to distribution, particularly if it includes those that have traditionally shun all channels but direct distribution. In fact, the purest of low cost airlines have even avoided offering connecting flights within their own network.
Many unanswered questions remain on the technological front.
Is the airlines’ technology infrastructure capable of handling smoothly the new connectivity scenario. Are partners going to have access to the whole ancillary services catalogue? Are the different interlining airlines’ system able to talk to each other and with third party systems? Is it possible to guarantee a cohesive user experience?
Several Asian low cost carriers, for example, have launched their own alliance, the Value Alliance, and set up a common IT platform that allows them to each others’ flights and ancillaries, as well as build itineraries involving several of the alliance’s members.
Whether we see this type of “alternative alliances”, together with their own technological platforms, or more ad-hoc and limited inter-line agreements between long-haul operators and low cost airlines, it looks like this is a market that is likely to see much action in the coming years.
As often happens when a barrier previously thought insurmountable is shattered, change can happen really fast.
At Newshore we are experts in developing smart technological solutions for airlines. We have worked with some of the most successful low cost airline launches of the last few years, setting up their technological platforms: from implementing PSS systems to designing internet booking engines and deploying revenue-generating ancillaries software."
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