The Impacts of Foreign Low Cost Carriers

With the entry of low-cost international airlines into the US market American LCCs such as JetBlue Airways have faced direct competition. There is ample evidence that low-cost carriers on a route result in cheaper pricing and more traffic on other routes at the airport’s entry. Norwegian Air, for example, has made flights to Nordic countries more affordable in recent seasons. The self-proclaimed LCC (low-cost carrier) has been actively spreading across the globe, resulting in a low-cost American airway business. In order to compete with Norwegian Air, US LLC enterprises have had to decrease their pricing as well. The Norwegian Air uses a low-cost model management type where it gets away with charging low inexpensive price by taking advantage of low costs of operation. The popularity of the airline has grown immensely that the airline’s management is trying to penetrate deeper into US markets, although problems with permits and active resistance from local carriers have caused delays. Foreign LCC have also affected competition, tourism, and frequency of flying. This paper makes use of existing literature to investigate the effects of the low-cost international airline in the USA and understand strategic courses of action.

Keywords: LCC, passenger, ticket, airline, aircraft

Impacts of Foreign Low Cost Carriers

America boasts of a highly integrated airline carrier made of numerous local and international firms. These carriers, known as low cost carriers, manage to offer affordable air space by cutting down on operational expenses. They mainly offer seats in the aircraft, and unlike the more expensive and traditional carriers, cheap tickets can only be found when passengers book months in advance. LCC airlines have a significant impact on the development of aviation market in the USA. The word low-cost carrier refers t an airline that deals in transport services at lower costs y denying passengers luxury ad comfort provided by full cost traditional carriers. The concept of LCC was started in the USA in the 1990s from where it was implemented in other parts of the world. The word is commonly associated with southwest airlines which marked increase in revenue every year. Currently, Southwest Airline is the fastest growing and the most profitable Airline in the United States. It is the dominant carrier ion the domestic market.

Most of the LCC carriers do not provide food and drinks during flights, and the comfort has been significantly reduced due to a high number of seats and maximum usage of the passenger cabin. The aircraft of low-cost carriers, according to Vidovic and Babic (2006), lands at less frequent airports which allow these companies to save more. The passengers, therefore, have to incur extra costs given that some of these airports are located miles away from city centers. With more international carriers in the USA, competition will increase, and airlines will be forced to lower prices. In this way, quality of service will keep going down and only attract persons who prefer low cost to safety and comfort. The expansion of foreign low-cost carriers is favored by their ability to adapt to US market. They base their operations on the regular elimination of non-profitable lines and introduction of new ones. Malighetti and Redondi (2009), notes that these airlines tend to focus on minimum operation costs and maximum efficiency use regional airport and involve single fair classes. Also, they have no onboard aircraft service with a point to point service. A For these reasons, people are attracted to the airline’s one-way ticket which has no restrictions. The airport taxes are cheaper, no in-advance seat reservations and passengers can travel without tickets. The frequency of flying is high, characterized by short handled time and low labor costs.

Effects of Low-cost Airlines on Price

Increased competition has led to drop in ticket prices where on one hand, tariffs are not subjected to the regulatory mechanism. On the other hand, the cheap nature of foreign airlines has ensured low local costs airlines have also reduced their prices. The low costs airlines have enabled people to travel by air at affordable prices and presented new opportunities for social, economic growth. The presence of international LCC carriers has affected every aspect commercial airline industry. However, the most significant effect is the reduction of the price of plane tickets. The price of air travel in the past substantially declined in real terms. Between the years 1995 and 2006, the price of air travel had gone down by about 17 percent while demand increased by 42 percent in the same period. This can be attributed to the concentration of local and foreign low cast carriers which have not only made increased competition but also made air travel service better. Low-cost airlines effectively reduced price through occupation rates of aircraft seats, fleet standardization and accommodation of a larger number of passengers into the aircraft at the expense of comfort and luxury. There are substantially shorter handling times with additional charges for baggage. The service of travel agencies makes it simpler to purchase tickets in a cheaper way. In most cases, low-cost airline tickets are available on the internet. All these benefits can lead to lower operational costs of up to 40 percent compared with the full-service classical airlines.

There are several ways that low-cost airlines use to ensure prices remain low without affecting profitability. The first strategy is aircraft utilization; the aircraft is kept flying as much as possible. The first fight takes place early in the morning and the final ends at midnight. The turnaround is a critical aspect to make sure the time spent on the ground is minimal. These airlines have a turnaround time of about 25 minutes, compared to full-service airlines that take about one hour turnaround time. The aim of low-cost airlines is to get a person to his/her destination. As a way of cutting cost, anything else such as beverages, assigned seating, and ticketless airlines, are considered to be the luxury. There are no free meals and drinks; it’s only those who purchase the luxury from the airline’s website that enjoys these services. Guests are not allowed to request for a seat unnecessarily; they receive boarding passes with pre-assigned seats. However, they are welcome to pay an extra small fee if they prefer a single seat. Ticketless airline ensures customers do not worry about collecting tickets before traveling.

Another way foreign low-cost airlines keep prices low is through strategic streamline of operations. The key to success of these airlines is having a simple process of operations. To achieve this, some have a single type of aircraft characterized by pilots, engineers, mechanics and operational personnel who specialize in a single type of aircraft. This ensures there is no need for regular training of staff for maintaining different types of aircraft. Also, there is a single class seating although guests who want the privilege of choosing a seat can do so by purchasing a seat. Low-cost carriers make use of secondary airports that are not always the busiest. Operating from a secondary airport is cheaper than using major airports. They are less congested and the turnaround time, compared to major airports, is shorter. Other than using secondary airports, LCC operate simple point to point network. Expensive procedures associated with full-service airlines such as luggage labeling, flight transfers and making arrangements with other carriers on connecting carrier are not used in LCC.

Full services carriers are expensive due to the high cost of distribution they incur. They rely on travel agents and sales offices to market their services. They are characterized by complex distributing networks that are integrated into their systems with multiple global distribution systems. Low-cost carriers tend to keep their distribution channels simple. They cater to the needs of their travellers through the internet and credit cards and make use of technology to reach people in the most remote locations. A lot of sales are made through the company’s website where fares are put using credit cards and online banking. They have few sales offices and avoid reliance on travel agents to ensure there is reduced commission paid to these officers, which would have otherwise been reflected in the customer’s fare. Furthermore, they do not take part in world reservation systems, allowing them to save costs.

Effects of Low-cost Foreign Airlines on Competition

The presence of low-cost international airlines caused by liberalization has increased while integration of aircraft market competition has gone up in the US Airline industry. The increase in competition has also been caused by the emergence of budget airlines, and increased globalization has significantly affected the level of competition in the market. Globalization has resulted in growing demand for air transport services between nations. The movement of people and goods from country to country will ensure extra supply given by the commercial orientation of international air travel. Meanwhile, there has been an increase in the number of passengers in some of the neglected secondary and regional airports. This has forced other airports to improve their efficiency as they explore markets in the neglected airports. Air transport in the US and other regions has also been simplified and forced traditional carriers to improve their services and be more efficient. Foreign LCC have opened new workplaces, and previously neglected areas have claimed their importance as aircraft destination centers.

Competition has stimulated the introduction of novel products and aims to reach locations that were poorly connected before. It allows airlines to operate more efficiently and improve service quality in terms of flier programs and flight frequency. Due to the stiff competition that US LCC carriers face from international airlines, various innovations and improvements in air travel have been made. LCC airlines have led to new demand in the market segments which were poorly served by full-service carriers. Moreover, liberalization of air transport and the presence of foreign dealers have brought traffic growth by allowing efficient competition. The increase of traffic has been driven by the absence of constraints on pricing, route entry, and cooperative managements. The introduction of a few airlines like Boeing 747 has ensured there is increased capacity of passengers to carry and made it affordable for people to travel with comfort. The US government has also taken significant measures to protect local airlines by developing resorts and modern infrastructure to attract tourists from all parts of the world.

In some cases, foreign airlines received subsidies from their respective governments. The grant allows them to compete unfairly with US-based firms. An article by Gregory Karp detailed how top CEO of US airlines cried foul about unfair foreign competition (2015). CEOs of United Airlines and American Airlines complained that the Persian Gulf, which flies directly from O’Hare International Airport, received unfair subsidies from their governments. The airlines claimed that the fast-growing Persian Gulf airlines received $42 billion in grants and other unjust benefits that made it difficult to compete fairly with them. With such grants, American low-cost carriers are less likely to maintain their market share given that these foreign carriers can offer luxurious services without having to worry about costs. Subsidized international airlines hurt the US ability to offer competitive low-cost carrier services. Some of these foreign airlines use large aircraft to fly in unprofitable routes because they do not care about making losses since they are subsidized.

Impacts of Foreign LCC on Tourism and Social Inclusion

Increased foreign low-cost carriers have influenced the development of tourism in less recognized US cities. This impact is due to a low-cost carrier business model of cost-cutting and the use of secondary airports (Olipra, 2012). The aggressive marketing strategies employed by these carriers help them generate high demand for air travel and improve the number of tourists. This strategy focuses on a wide range of overlapping market niches, such as cultural tourism. Foreign low-cost carriers, in addition to local airlines, have taken a central role in the development of weekend and short-term tourism activities. They have extended the range of motivations and frequency of travel for leisure reasons, while at the same time affecting the radical expansion of new and existing destinations. They also allow relatives and friends in the US and other parts of the world to visit more often. Also, it has been argued that the development of international low-cost carriers has facilitated people to fly, leading to social inclusion (Graham and Shaw, 2008). However, the change in demand for air travel is not drastic, and it is still the middle and high-income class who are flying more often than in the past. Although it is not clear whether low-cost carriers airline have polished social inclusion, it is evident that they have taken a significant step in ensuring people fly more often.

Course of Action for Low-cost Foreign Airlines in the US

The competitive nature of low-cost foreign carriers requires a strategy that offers low cost to stimulate demand and increase market share. Such an approach should allow local carriers to retain their customers, provide quality and affordable services while enjoying the maximum profit. A practical course of action would be a low-cost strategy. This method is used where the service being offered has little competitive advantage or in cases where the scale of economy is achievable with higher production volume. Given that the majority of consumers are price-sensitive, it would be ideal to use a low-cost management position as the key to strong competitive edge. The goal of low-cost management of international aviation is to make sure the cost is low to the level of industry rivals and that it creates a sustainable cost advantage over other airlines. To achieve this position, the management needs to gain the advantage of cost that can be copied by rival airlines.

Since LCC has adopted a low-cost leadership model, there has been an increase in the number of price-sensitive consumers who shift from one carrier to the other. Also known as the discount carrier strategy, the low-cost management model is characterized by minimal control procedures and tends to be common with short routes. Unlike the full-service carrier model, this approach involves reduction of fares when a foreign or other carrier competes in the same route. However, care should be taken to ensure two competing airlines make no start price wars. The price should be adjusted accordingly in a manner that stops the competitor from retaliating.

Ethical Issues in Low-cost Foreign Aviation

One of the most ethical issues related to low-cost foreign airlines is safety. Security has become an international concern for passengers seeking low-cost airlines given that a lot of air travel firms are outsourcing flights to regional carriers. In most of the contracts, it is stipulated that the regional carrier is wholly responsible for passenger safety, its operations, and crew training. These contracts, therefore, eliminate major airlines from legal responsibility for the security of passengers. According to Mcguiggan (2012), most safety concerns are caused by poor pilot training and qualifications. The high incidence of safety concerns with low-cost carriers can be attributed to the fact they operate on a low-cost model. This model allows the airlines to offer the lowest possible prices by minimizing operational costs.

As a way of ensuring minimum operational costs, local and foreign carriers tend to hire pilots and engineers who go for the lowest pay; these are personnel with poor qualifications and insufficient training. The financial pressure to reduce costs forces managers to promote pilots into operational positions in as few as nine months (Mcguiggan,2012). As a result, passenger and crew safety is lacking in most of these low-cost carriers. Another fundamental cause of safety concerns is that major airlines that outsource their services to regional carriers only pay LCC after completion of the flight. In this sense, the LCCs are tempted to fly in unsafe conditions just to get paid. The problem of passenger safety is further complicated because in most cases, LCC management fails to inform the passengers about the safety problems they are faced with. They make specific provisions tailored in a manner that makes it hard for the travelers to completely understand the safety issues at stake. Major LCC carriers have managed to expand their operations and deceive travelers by contracting with regional airlines. They successfully make it look like it is their airline, and passengers even purchase tickets from their offices. The passengers are mostly ignorant of the idea that they are on a regional airline which has different safety procedures.

Kant’s Ethical Approach

There are several ethical approaches that can be used to address some of the ethical issues related to low-cost airlines. To address the issue of safety and outsourcing of airlines to regional operators, Kant’s perspective on ethics can help managers decide on the best course of action to ensure customer satisfaction. This approach revolves around duty rather than emotions (Schwartz & Carroll, 2003). Operations are performed based on some underlying principles; a standard of rationality. It is according to this duty that the moral worth of an action is judged. The Kantian approach in business, and specifically in low-cost airlines, is based on respect for other people. This way, any business organization that insists on making a profit at the expense of the people is immoral. As seen in the low-cost airline airways, some of these firms disregard passenger safety and put travelers at risk just to make more profit. Arguing from a Kantian perspective, it is wrong that airlines use extreme means to reduce costs, such as the hiring of unqualified pilots to offer low-priced air tickets. If managers were to base their organization on a Kantian approach, then they would avoid taking unnecessary measures to reduce operational costs that threaten traveler’s safety. According to Windsor (2006), Kantian ethics advocates negative freedom, which is the freedom from forceful persuasion and deception. Subscribers of the Kantian perspective believe that coercion and deception are the two most fundamental forms of evil. Therefore, the regional low-cost airlines and the major airlines act unethically by misleading passengers with deceptive information. These wrongdoings include the use of the logo, uniform, and color by regional LCC to make passengers believe they are part of a major airline identity.

Conclusion

Foreign low-cost carriers have significantly transformed the delivery of US airline services. They not only present travelers with numerous opportunities to reach their destinations, but also make traveling affordable. To ensure they can offer low-priced air tickets without hurting profitability, these firms use a low-cost strategy which involves denying travelers travel comfort and luxury such as free food and drinks. However, travelers can get these needs by paying an extra amount. This strategy has forced LCC companies to use a single type of aircraft. Leaders of major airways seeking to increase profit outsource airline operations to regional LCC firms. The regional LCC companies then use corporate identity symbols of the major airline such as color and logo to market their services. These measures have seen some of these airlines face ethical dilemmas regarding passenger safety. In most cases, the regional carrier is responsible for the safety of passengers and crew; this means the major airlines have no legal responsibility for the safety of travelers. Travelers might, therefore, feel deceived after realizing they were misinformed when making the purchase decision. According to Kant, such an ethical dilemma can be approached using rationality. Actions are judged as right or wrong using a principle and insist that people should be for freedom from coercion and deception. Although low-cost foreign LCC carriers raise questions about safety and comfort, they have significantly improved the air transport industry. Their affordability means more people can travel more often. They have increased competition and fueled local LCC to offer quality services so as to maintain their competitive position.

References

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