Some of the differences between a full-service carrier and a low-cost carrier are obvious. Fares are cheaper on low-cost carriers, but the seats are squeezier, and you can forget about decent champagne. On some low-cost carriers, you are flat out getting a free cup of water. But there are also less obvious differences, and it’s those less obvious differences that this article will explore.
Those less obvious differences between full service and low-cost carriers include the airline’s strategic focus, fleet composition, operating bases, distribution channels, and revenue sources. Let’s take a dive into them.
Differences in strategic focus
Full service airlines like American Airlines or Lufthansa focus on network profitability, whereas low-cost carriers focus on route profitability. What do we mean by this? American Airlines still flies to 95 domestic destinations and 95 international destinations across 55 countries even in these straitened times. American has multiple hubs, including Dallas Fort Worth, Charlotte, Los Angeles, and Chicago. They’ll often let a marginal route survive if it feeds passenger traffic through a hub and onto a highly profitable route that helps subsidize less profitable routes. Why would American do this? It’s all about choice, service, and frequencies – key features of a full survive airline. Does it work? Let’s skip 2020 and look at a normal flying year. In the 2019 financial year, American Airlines had a net income of US$2.179 billion.
At low-cost airlines, routes live and die by their own performance. Rather than focusing on hubs and connectivity, low-cost carriers focus on point-to-point connectivity and individual route profitability. Low-cost carriers generally loathe cross-subsidizing underperforming routes. For example, Frontier Airlines frequently drops (or “suspends”) routes if they do not meet expectations. On the flipside, low-cost carriers have greater ability to experiment with a new routes than most full-service airlines.
Differences in fleet composition
Low-cost carrier Southwest Airlines has over 700 planes, and they are all Boeing 737 variants. Denver-based low-cost carrier Frontier Airlines has over 100 planes, and they are all from the Airbus A320 family. Over in Europe, Ireland’s Ryanair has around 280 planes, almost all being Boeing 737-800s.
In contrast, the full-service British Airways has seven types of aircraft across its 250 strong fleet. United Airlines also has seven different plane types across its fleet. Singapore Airlines only has 130 odd planes in its fleet but also runs seven different types of aircraft.
Running only one type of aircraft is cheaper. You only need maintenance facilities for one type of plane, and you only have to train employees for one type of plane. Across the whole organization, everything can be nicely standardized. This is critical to keeping fares down.
But that limits the type of route a low-cost carrier can fly on because a route needs to be right-sized to the aircraft. Full-service service carriers can match right-sized planes to different routes, swap planes in and out depending on demand. It means they can offer passengers more destinations and choices. Of course, it also costs more, both for the airline and the passenger.
Low-cost carriers focus on secondary airports
While not a hard and fast rule, low-cost carriers often skip big expensive airports for secondary airports, frequently located further out from the cities they fly to. Southwest Airlines, for example, favors Love Field at Dallas over the shinier Dallas Fort Worth Airport. Outside Melbourne, Jetstar flies to an otherwise lonely Avalon Airport. Ryanair skips Paris’ Charles de Gaulle Airport for the lesser-known Beauvais Airport 80 kilometers from the city. Low-cost carriers favor secondary airports. At these airports, landing and ground fees cost less than the leading city airports.
But big-city airports are part of the convenience package full-service airlines market. They are usually (but not always) closer to city centers and have better transport links. At the airport, the infrastructure is good and terminal facilities usually swish. There’s also a certain marketing cachet flying into leading airports that sits comfortably with the premium image many full-service airlines like to promote. But using the latest award-winning passenger terminal costs money, and this is passed onto airlines and ultimately the passenger. Airports served are a key point of difference between full service and low-cost carriers, and one more reason why flying a full-service carrier costs more.
Differences in distribution channels
One of the key differences between low-cost carriers and full-service carriers is how you buy a ticket. Unless you’re after a complex itinerary, many travelers buy their airline tickets online. But, if you are buying a ticket on a full-service airline, particularly in a premium cabin, you might search out a bricks and mortar travel agent. They’ve often got access to discounts and lurks not shown on websites. Plus, if you are ponying up a significant amount of money, there’s some comfort in dealing with a person rather than sending your Mastercard details off into the online void.
But airlines pay commission to travel agents, whether bricks and mortar or online. Low-cost carriers generally don’t pay agent commissions, so agents don’t sell their tickets. While full-service airlines have a range of distribution channels (which is reflected in their ticket price), low-cost carriers usually sell their tickets only on their website. That not only gives them total control over fare pricing, but it also cuts the costs of selling a ticket. This gets reflected in the lower fare.
Differences in revenue sources
As we’ve reported extensively in Simple Flying, low-cost airlines rely heavily on ancillary revenue to make money. Fares are often so cheap they are loss leaders or cost-neutral. But across 2019, European airlines generated US$31.5 billion from ancillary revenue – that’s a lot of checked-in bags, stale cheese sandwiches, and upfront seats sold. In the United States, low-cost carriers raked in more than $100 billion from ancillary revenue in 2019.
Full service airlines charge a flat ticket price, and theoretically, everything is included, although that’s fraying a bit around the edges at some full-service airlines. Full service airlines generally have multiple revenue sources, including cargo businesses, frequent flyer programs, and often interests in subsidiary airlines. It’s a portfolio approach to revenue generation that is designed to protect the airline should one aspect of its operations underperform across a period of time. This year, we see cargo and frequent flyer programs continue to generate income for full-service airlines will ticket sales are in freefall.
Conclusion
While there obvious differences between full service and low-cost airlines, there are also less obvious differences. While full-service airlines have lots of bells and whistles, these cost more to offer, and this is reflected in the final ticket price paid. Many low-cost carriers, especially those veering into ULCC territory would charge you to use the loo if they could. Still, this parsimonious approach is also reflected in the final (low) ticket price.
Ultimately, it’s up to the person buying the fare. Like most things, you get what you pay for and need to adjust your expectations accordingly.
What do you think? What else differentiates full service and low-cost carriers? Is cost or service more important to you when flying? Post a comment and let us know.
