Aviation Advanced Economics: Low-Cost Carrier Business Model Analysis

This report assesses the success of the low-cost carrier business model, focusing on the cost-reducing element of short-haul routes. It explains how these routes enable lower fares and increased profitability through efficient techniques like point-to-point services, short turnaround times, and high aircraft utilization. The report highlights the importance of seat-kilometer cost and load factor in determining prices. It also discusses why global network carriers are unable to implement this model due to factors such as longer distances, different time zones, and higher labor costs. The report references key academic sources to support its analysis of the aviation industry and business models.

Running head: AVIATION ADVANCED ECONOMICS
AVIATION ADVANCED ECONOMICS
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Author Note

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Executive Summary
The purpose of this report is to assess the success of the archetype low cost carrier business
model in the present situation. The topic clearly states the concept about the low cost carrier. One
of the elements for the low cost of the carriers has been selected. Short-haul services have been
selected in this report and how it is reducing the cost has been clearly mentioned. The reasons
why global network carriers are unable to take such advantages have also been discussed in this
report.

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Table of Contents
Discussion........................................................................................................................................3
Short-haul routes and low cost....................................................................................................3
The reason global carrier networks cannot enter.........................................................................3
References:......................................................................................................................................4

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Discussion
Archetype low cost carrier business models attempts to expand the business by making
the fares low and increasing the profitability by reduction of the cost. The element chosen in this
discussion is the serving of the short-haul routes often.
Short-haul routes and low cost
The short-haul low cost business model is predicted on the basis of adopting the best
efficient technique like the point to point service, short turnaround times, efficient capacity of the
carrier, capital utilisation and workforce utilisation and the fare unbundling unlike the large
international networks. The Seat-Kilometre cost is one of the important indicators in terms of
determining the cost in the short-haul air services (Marien, 2016). In order to reduce the cost the
ratio of the passenger-kilometre to seat-kilometre, which is the load factor is ascertained. The
load-factor helps the airline company in deciding the prices of the tickets. Pricing is done using
the concept of bucket pricing. The prices are thereafter selected in a manner so that the fixed cost
of the carrier is covered up and there is enough profit. Furthermore, the change in the technology
and the extension of low cost engines (737 MAX and A321ER) in the short haul has also
reduced the cost to a greater extent.
The reason global carrier networks cannot enter
The global network carrier cannot implement this business model because of the larger
distance to be covered and the larger time it takes. There is involvement of different time zones
and geographical areas in case of the global network carriers. The labour cost is also low in case
of short-haul services. There is very less differentiation between the new aircraft entrants and the
long-haul carriers in terms of aircraft utilisation (Bieger & Agosti, 2017).

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References:
Bieger, T., & Agosti, S. (2017). Business models in the airline sector–evolution and perspectives.
In Strategic management in the aviation industry (pp. 41-64). Routledge.
Marien, T. (2016). Seat Capacity Selection for an Advanced Short-Haul Aircraft Design. In 54th
AIAA Aerospace Sciences Meeting (p. 1283).