Challenges facing low-cost carriers (LCCs)

Times have changed and airlines seem to have adapted to the daily travels of air travelers. Mainly because airlines mainly focus on providing cheap flights, more and more people are able to travel by air. Although low-cost airlines have had great success in making air travel more accessible, they face some unique challenges that adversely affect their sustainability and profitability.

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1. Cost control and service quality

Fundamentally, the business model of low-cost carriers is to reduce costs by not having many additional services on board, charging baggage fees, and flying to secondary destinations. While discounts are undoubtedly passed on to consumers due to this approach, the issue of poorer quality compared to other operators needs to be addressed. This requires low-cost carriers to be thoughtful in both cost control and customer satisfaction. Over time, passenger demand increases and only a few are willing to receive sub-par service, meaning low-cost airlines are forced to offer more for less.

2. Fuel price fluctuations

Fuel prices are the most difficult part of aircraft operating costs to manage; therefore, fluctuations in oil often have a direct impact on profits. Low-cost airlines have the lowest profit margins and are hardest hit by volatile fuel prices. Despite hedging fuel price increases, the peace could still be broken and prices suddenly rise, which would lead to financial difficulties for airlines. This creates a bigger problem for LCCs operating in highly competitive markets, as they can pass costs on to customers through fare increases, leading to poor customer reviews.

3. Competition is fierce

Competition in the low-cost airline sector is fierce, with different low-cost carriers hoping to compete for the market in the same place. Price wars triggered by airlines have resulted in unsustainable low airfares. This highlights the decline in operator profit margins. Just when people thought that traditional airlines would be hit hard by newcomers, traditional airlines joined the competition and launched low-cost routes on some flights, which intensified competition among low-cost airlines. Competition is becoming increasingly fierce, and low-cost carriers must continue to invest in development while competing in various market categories.

4. Fleet Utilization and Maintenance

The main operating strategy of low-cost airlines is to maintain high levels of demand in the form of scheduled flights and ensure long utilization cycles through faster collection of aircraft in and out of airport terminals and doubling of flight services. It has been shown that a process like operations that needs to be done at all costs is continuous maintenance. Even with the heavy burden of continuous running, this presents them with one of their most difficult tasks. Keeping the fleet away from sudden maintenance locations and possible accidents and disasters during operation can be achieved not only through proper technical management, but also through perfect decision-making by management.

5. Infrastructure limitations

Some low-cost airlines operate from secondary and smaller airports to minimize costs. This approach would obviously reduce airport fees, but could also lead to logistical issues such as longer travel times for passengers and more aggressive flight schedules. Additionally, growth in aviation passenger traffic threatens to overstretch secondary airports, negating initial savings. According to Consegic Business Intelligence Report, Passenger transport service system market The airport size is expected to increase from US$8,167.56 million in 2022 to US$20,058.57 million by 2030, with a compound annual growth rate of 12.3% from 2023 to 2030. In addition, many airports are still hampered by infrastructure constraints, such as short runways or lack of terminal space, which can also hinder LCCs from expanding their operations.

6. Regulatory and Compliance Costs

Low-cost airlines are experiencing a difficult regulatory environment and must comply with very strict safety, security and environmental regulations. In fact, achieving compliance with these regulations is the result of significant investments in training, technology, and operational adjustments. Due to changes in environmental standards, low-cost airlines will face one of the following choices in the future: operate more fuel-efficient aircraft, or bear carbon emission penalties, which will increase operating costs. In addition, different countries have different regulatory systems for aircraft operations, which means that international operating conditions are complex, causing low-cost airlines to face more difficulties in their global expansion.

7. labor relations

Labor costs are also an important part of airline operations. For example, although low-cost airlines tend to employ fewer people per plane than legacy airlines, labor relations can still be an issue. As airlines expand their operations and become more successful, employees such as pilots, cabin crew and other so-called “ground staff” are the most likely to seek better wages and working conditions. Disagreements between employees and the companies involved can lead to strikes or other labor-related issues. Labor issues such as strikes or strikes can cause significant disruption to operations and adversely affect air transport companies, as has been the case in many parts of the industry. In practice, the balance between negotiating with unions and controlling labor costs is a difficult matter for LCCs.

8. Customer expectations and ancillary revenue

Low-cost carriers (LCCs) largely rely on extras such as baggage fees, seat selection fees and on-board food and drink charges to boost profits while still operating at a loss. But in essence, these fees do make passengers more dissatisfied, leaving airlines isolated and suffering losses. Characteristically, the industry is becoming price-sensitive and cost-conscious, with low-cost airlines having solved the problem of generating more travel revenue by selling ancillary services without incurring additional travel costs for customers. This remains the case even as airlines struggle to survive in the absence of basic low tariffs as they continue to seek additional funding.

9. Environmental issues and pressures for sustainable development

Low-cost airlines, which rely on flight frequency and increased aircraft utilization as part of their low-cost business model to survive, find sustainability a huge challenge. Due to environmental requirements and common sense that pollution emissions should be reduced, airlines are now forced to invest resources in developing and operating cleaner technologies and more energy-efficient fleets. But the expense associated with such improvements could prove to be a hurdle for low-cost airlines. This is certainly the case when we consider specific airlines whose margins are already razor-thin. In order to adapt to changes in climate policies, low-cost airlines should regard environmental protection principles and operating profits as dual goals and strike a delicate balance.

10. Impact of global events

Low-cost airlines, in particular, are the most sensitive to global events that impact travel demand, such as pandemics, natural disasters or geopolitical instability. On the other hand, the COVID-19 pandemic has strangled the aviation industry by grounding fleets, laying off workers and seeking government benefits from budget carriers. Their weakness in many cases is limited financial reserves compared to traditional carriers, which can amplify disaster. Therefore, adaptability and resource efficiency in response to global crises will be key factors for airline success in the near future.

in conclusion

While low-cost airlines have democratized air travel by lowering flight prices around the world, there are many layers to managing business model challenges for low-cost airlines that require repeated reinvention and innovation. The tasks of LCCs range from maintaining financial stability and complying with regulations to managing environmental issues and responding to world events. They should make changes in improving their business practices in order to win and remain a market player in such a crowded field. Their future potential depends largely on their ability to find a compromise between performing well and providing a good service, and only in this case will they win.

source: Passenger transport service system market