When flying between two destinations, airlines not only pay to land and take-off from the departure and arrival airports but also for en-route navigation (ENav) service provided by the countries over which they fly. The charges are levied by ANSPs (Air Navigation Service Providers) and cover the cost of providing air traffic management (ATM) services. Within Europe, fees are collected by EUROCONTROL on behalf of its member states.
Once the pride of the so-called “Kangaroo Route” from the UK to Australia, Qantas has been losing market share to Middle Eastern hub airlines over the last decade and a half, and in 2016 operates just two rotations per day to Europe. However, the latest announcement of non-stop services from Perth to London could be a game-changer.
The prices that airlines are paying for fuel today are some of the lowest in the last decade, whether they are expected to last or not, there is no doubt they are having a significant effect on the airline industry. While the obvious impact is on lower costs for airlines, the story has some troubling twists – billions spent on new technology that doesn’t seem such a good investment in today's conditions, low cost business models undermined by handing lower costs to their competitors, and could the industry be heading for catastrophe when prices rise again?
In the current favourable environment of relatively cheap oil, Low Cost Carriers (LCCs) find themselves operating in the right consumer segmentation to accommodate growth of the middle class and the consequent increase worldwide in the propensity to fly. This has translated into a compound annual growth rate (CAGR) of 7.1% for LCCs in the last decade while the total global market (including all commercial flights) achieved only a 3.5% CAGR.
There is no doubt that the Low Cost Carrier (LCC) business model is a success. Measured by 2015 net profit margins for all carriers worldwide, the four airlines with the highest margin globally are all short-haul LCCs, namely Ryanair, Cebu Pacific, Allegiant and Spirit. Will the long-haul LCC prove to be just as successful?