Low Cost Airlines and Tourism - Case Study Example

Frugal skies – Low cost Airlines and tourism For the low cost, no frills airliners, it’s the destination and not the journey that matters. In the era of competitive global business, Aviation industry plays a vital role in connecting the resources by offering the quickest possible way to assess and finalize a deal taking place thousands of miles away. Due to the business going global, many countries have now opened up to foreigners with a comfortable level of understanding. Business leaders have started to harness this opportunity by designing the tourism industry into an organized business model. They are aggressively targeting tourists by offering destinations of natural and cultural wonder. Aviation industry is witnessing an intense surge in demand, owing to large number of tourist destinations that offers unique cultural and natural experience. Luxury tourism is no longer exclusive. This evolution has led to the inception of Low cost Airliners (LCA). With the increasing number of tourists seeking adventure and tranquility in nature, tourism business leaders have utilized this demand into a business model that caters to all classes of modern society thereby strongly influencing and changing the socio economic perspective in and out of the country. The LCA business model took the aviation sector by storm when South West Airlines, founded by Herb Kelleher and Rollin King, began it operations in 1971. They are the pioneers in the LCA sector who gave a different dimension to flying by introducing the concept of budget flying that later gave an economically viable logistical solution to the tourism industry. Many more such as Ryan air, WizzAir, Easy Jet, Virgin Blue and so on followed suit. The LCA business model has the following Unique Selling and Operational Points, namely; a) Simple city to city connect b) Internet as the prime booking source, that in turn, reduces the cost incurred in travel agents commission. c) Utilization of less congested airports, thereby increasing the turn time of the aircraft. d) Uniform aircraft types i.e.737-300 e) Simple systems of yield management. (Smith, 2005) Tourism sector has seen a significant growth in the number of young tourists who can now avail the LCA and embark on multiple destinations offered by the latter at affordable rates. For an attractive tourist destination, it is pertinent that the logistical issues are primarily taken care off. Ultimately it’s question of financial viability. Basic characteristics of a popular tourist destination are: a) Geography: The natural impression of flora and fauna, and terrain of a new or an existing destination encourages tourists to plan out the vacation. Whether it’s a beach, a mountainous terrain and so on. b) Openness of the local population towards foreign tourists: It plays a significant role in promoting tourism. South East Asian Countries such as Thailand and Malaysia have been benefitted by this culture as foreigners have an option to home stay with the local population at reasonable rates which enables them to enjoy the authentic local cuisines. A delight for any visitor. c) Climatic conditions: The frequency and demand of the budget flights has surged owing to the European tourist wanting to experience the tropical and natural beaches of Asia. This inclination has immensely favored the airline industry as it provides sectors where the airlines can fly out maximum number of tourists. Cold countries in Europe are enjoying the boost in the number of low cost airlines as tourists are able to afford the pocket friendly journey to the sun, sand and the sea. d) Government regulations: Reformed government policies in countries such as India, Brazil, Mexico, El Salvador etc have encouraged LCA to plan out a favorable business model. It is imperative for the government to realize the potential of the natural resources as a revenue generating means and introduce policies that favors all the above mentioned entities. Liberalization of policies in East Europe have immensely benefitted Air Baltic, which is one of the popular LCA for the Europeans. e) Airport / Road infrastructure: Switzerland and Australia are amongst the top ranked countries that has world class Airport and road infrastructure and they rank in the top five of the most favored tourist destinations. Managing the airport traffic and avoiding congestion can save costs for the LCA as well as generate revenue for the airports. (Mayer,2003) Focused marketing is the most important aspect for a destination that is being introduced to the cost conscious tourists and the first thing that concerns them are the airline tickets. Trade fairs like ITB Berlin and ITB Asia serves as an interactive business platform for visitors and exhibitors for showcasing economical, exotic deals. Based on this marketing strategy, the LCA has introduced the concept of offers for previously unfrequented places. They do so by collaborating with the local hospitality and the entertainment sector and offer quality deals. India is one of the most sought after tourist destinations in the world owing to its diverse culture, multiethnic customs, friendly people( they consider visitors as the harbinger of prosperity) , cheap living standards( as compared to Europe and North America, which forms the majority of the tourists) and recently relaxed government norms . Domestically, the policies have favored the low cost carriers with the advent of fiercely competitive private players. Airline carriers such as Indigo, Kingfisher light( earlier known as Air Deccan that pioneered budget flights in India, now taken over by Kingfisher Airlines) have increased their sectors to destinations that offer a unique travel experience without burning the pocket. The rise in income of an average Indian due to the globalized industrial infrastructure has given the LCC an opportunity to strike the iron when it’s hot by offering lucrative flying offers in collaboration with credit card companies. Points are awarded on credit card usage that can be redeemed for airline tickets. With the advent of the LCA now operating in most of the countries, places have been discovered as a viable tourist option. For example, the Andaman Islands. Situated in the south eastern graticule of India, previously unknown to 90 per cent of Indians as a touristic paradise, it is now flocked by as many Indians as foreigners. Ironically, after Tsunami devastated most of the islands in December 2004, the commendable effort made by the government and the LCA in making it accessible to the masses have changed the face of this Indian Union territory. There are now regular low budget flights that operates from Chennai( South India ) and Kolkata( East India) to Port Blair( capital of the Andaman islands) . The difference between a good destination and a great destination is the everyday experience that is felt due to the natural openness of the local people, safe movement, convenient infrastructure of lodging and communication links, and so on. LCA Review routing portfolio-its importance Low cost carriers operate in a volatile market where they are dependent on various factors. Reviewing their routing portfolio gives them an insight on profitably that drives the operation. Route optimization is essential for sustainability in the stiff competition amongst the low cost carriers. With the increasing price of fuel, routing review is essential to monitor routes that requires substantial amount of fuel and analyze the cost on the fuel per person. This unit wise calculation must include the basic expenditure incurred, namely; a) Aircraft purchase b) Fuel c) Labor d) Airport authority e) Aircraft maintenance/spare parts f) Inventory, Catering, Clearances such as operating license, environmental clearance etc. The above mentioned overheads are a part of the extensive analysis that determines the per unit (person) profit or loss, thereby assessing the feasibility to start and maintain an airline. The exclusiveness of the tourist destination is of paramount importance as it determines the influx of tourists based on which the above mentioned analysis is done. Some carriers expand their fleet or increase the frequency of flights in order to capture and broaden the incoming financial sources. However, it is entirely on the airlines business objectives and strategies. The LCA operators have the business model that follows the price elasticity (change in price will affect the demand) and Inelasticity (any change in price will not affect the demand), if a ticket is purchased closer to the flying date irrespective of the price due to urgency or any other reason but surely not pleasure travelling. Travel and Tourism goes linearly with Global economy. (Chiesa, 2009).Growth in the economy tends to raise the individual income thereby increasing the spending capacity. It represents the complex web of correlations of seemingly different sectors that drives the economy, where numerous minor fluctuations cause extreme scenarios. During the financial crisis, the demand for domestic and overseas travelling saw a significant downfall, forcing the low cost airline industry to rethink their routing strategies. The expansion of the tourism industry to explore new attractive places largely depends on the LCA effort in offering an economically viable solution for the tourist. LCA has and will continuously achieve major breakthrough in the modus operandi of the tourism sector. For some, the sky is limitless opportunity. Works cited Smith, Simon 2005.The strategies and effects of low-cost airlines. [Online]. Available: www.icea.co.uk/archive/low%20cost%20strategy%20040405.ppt [26 March 2010] Mayer, Florian 2003. A case study of Easy Jet and the airline industry Scholarly paper ( Advanced Seminar) [Online] Available: http://books.google.co.in/books?id=M2Cl342br5EC&lpg=PA6&dq=southwest%20airlines%20case%20study&pg=PP1#v=onepage&q=&f=false [26 March 2010] Chiesa, Thea, 2009. Navigating Yet Another Perfect Storm: The Promise of Sustainable Travel & Tourism [Online ] Available: http://www.weforum.org/documents/TTCR09/index.html [27 March 2010] Read More