Wall Street tends to be lazy. LCC is a nice abbreviation for a marketing strategy, even though it's a goal that has to be reached if a carrier wants to compete on price--Wal-Mart is another low cost company competing on price. There is nothing to stop a carrier from aggressively reducing costs, then competing on a differentiation strategy. Heck, the folks on Wall Street haven't figured out that they're using the term "biotech" incorrectly. ;)

MaxJet and EOS are definitely lower priced airlines. They'll probably be called LCC; I don't know if this moniker really applies to them. For their going to have to try to differentiate themselves in some way; I don't see price alone as being a successful strategy--at least, it hasn't worked in the past.

MaxJet seems to be marketed more as an LCC than EOS, albeit as an all J, international LCC. But with such limited routes and only a handful of aircraft, I don't see how these carriers don't have low operating costs when compared with traditional, larger international carriers. Sure, none of it matters if they can't sell seats, but that's a different issue.

I'd guess that there are high, non-scalable fixed costs with which every airline has to contend--marketing is one that I sure is eating through their cash. Your last comment is really food for thought: they have to get keisters on those cushions.

I'm sorry this has really nothing to do with CO or Onepass. I'm going to move this to travel buzz.

You sure?Again, LCC's focus on costs not price. Their prices - and large part of their marketing image - would be infeasible if costs were not inline to support them.

Your example of WMT is a good one. WMT has focused on ways to keep costs down from the get go and therefore they have realized a tremendous competitive advantage in that they can offer their "everyday low prices".

However, just because a company has a low cost strategy does not mean their price the products for the low cost market. Toyota’s a good example of this; their costs for auto fabrication, from start to delivery, are significantly less than their competitors. Yet, one does not traditionally associate “low cost” with Toyota (or Lexus for that matter) as the products are not necessarily the cheapest in their respective market. Subsequently, Toyota enjoys a greater premium on their goods as there are lost costs to eat away from potential profits.

Their two ways to go about being a LCC stratgey: 1) low costs, low prices; 2) low costs, normal prices.

But in brining this discussion back to the airlines I do agree with you that a low cost strategy equates to low costs tickets. There is no domestic airline I can think of which has the cost structure of a “LCC” but prices their product at traditional legacy rates.
I think you're absolutely correct on this one. Do you have any insight into why EI is leaving OW besides product quality issues?

This one's long!
 

Yep ;) Here's what I said. . . I think if you want to call yourself a true LCC, get rid of the front cabin.

You responded: How does having a first/business cabin define an airline as being a true LCC?

I followed up with: Having a first/business cabin does not define an airline as being a true LCC

Your response did not follow from any statement I made. I didn't say that "having a first class cabin defines an airline as being a true LCC."


IMHO, you're missing the mark on this one. The carrier decides on a marketing strategy, then builds an airline around that strategy. If any company wants to compete successfully on price, it must be the low cost provider: marketing strategy first, financial model next. It is possible for a company to cut costs aggressively but have a marketing strategy other than price.


Wal-Mart is the quintessential example of this strategy. They market on price, so they have to focus on cost. I'll give you an example of how successful this strategy was for WMT. In 1984, when Olympic tickets were sold, Sears was the outlet of choice. I recall hearing that something like 80 or 90% of Americans were within a 20 to 40 mile drive from Sears. Wal-Mart was nothing then, comparatively speaking--things have definitely changed.


My point exactly. However, if you want a marketing strategy based on price, you have to be the low cost provider, otherwise, you're going to lose. Cost and price don't necessarily follow. There are other examples besides Toyota. Toyota is a good example because of how they developed systems to not only reduce costs but improve quality (in reality poor quality is a cost, if you view costs correctly!)


I don't agree with this statement. The term LCC as used in the financial community means competing on price. It's short hand for a marketing strategy. Every airline wants low costs and they work hard to maintain them.

That's my point. USAirways claims that it's following the LCC model; from what I can tell, that's just a bone to Wall Street. LUV has been working to increase fares and has a pretty healthy RASM figure. However, that's really due to the fact that the legacies have lost their pricing power for the moment. Their numbers should grow in the next few quarters. I wouldn't be surprised to see CAL hit a RASM 10.48 or 10.49 this quarter.


I can only guess on this one. I have been trying to put together all the pieces--the various things that have happened recently. I also called the people in PR late last night (actually early this morning), no one could comment on the press release, but it's now on the website.

As I said, I can only guess, but I am thoroughly fascinated by what's going on. First off, EI has had the pleasure of competing directly with Ryanair for almost twenty years. More importantly, it's competed head on with Ryanair since it changed its marketing strategy and essentially copied Southwest. IMHO, EI has a huge latent advantage here, because more than any other European carrier, it has had to deal with a deep discounter.

Next it's a small country that has managed to get three pretty disparate groups to agree to disagree: management, labor and the government. Labor relations are pretty good, though EI has had some problems in this area and has found it difficult to lower costs.

On its once most profitable routes, the north Atlantic, EI now has to compete with a host of US based carriers. There was a time when every TATL flight had to land at SNN. Those rules are relaxed somewhat. I think EI has benefited from the changes in these rules.

I truly think there's only one reason that they left oneworld: it was more expensive to stay than to leave. My sense is that EI had to purchase miles when their customers flew on competitors carriers. They also probably had to pay each time a customer visited one of the clubs of a competitor. I suspect that they saw more cash going out that coming in. I know I am sounding glib, but I can’t think of another reason. My sense is that it’s not a marketing-driven decision.

So EI can, IHMO, do one of two or three things. (i) Get rid of the front cabin and compete on price. The carrier would focus on the 80% of the market that goes on vacation or cheap business trips. It would be a gutsy move to have an all Y configuration from DUB to LAX, but heck, most passengers already put up with it! By the way, this strategy has a certain logic to it, because EI has had to learn to survive in a world with Ryanair. (ii) Continue with a mixed configuration, but find a new global alliance. If it doesn’t do this, the carrier will lose some of its business travelers. If you look at the route map, EI is good in Europe and across the pond, but little else. I am sure people want more reward possibilities. The final one, and the one I would bet on even though it’s a long-shot (iii) put the carrier on the auction block. I have skimmed the financial condition of a few carriers. I think that AF/KL would be a very nice new partner for EI. A merger between EI and AF/KL seems doable to me. I don’t see any cultural impediments in people accepting such an arrangement. Of course, never discount the fact that that EI’s old CEO is sitting over in the UK running BA; perhaps the new management team is thinking of have an “act of union” with the British ;) I would not at all be surprised to see the third option, a merger, take place. Perhaps the real reason EI left oneworld is so that they could be unfettered as the management explores possible exit strategies.

I'd believe it. Leaving OW leaves EI free to make deals with whoever it likes on it's own terms, which suits it just fine at the moment.

You misread my quote :( I think that EI will consider some other type of alliance. However, if I had to place a bet, I put money on EI merging into Air France/KLM. My gut tells me that EI is soon going to be up for sale--more likely, ready to merge!

O'Leary would have fun with that one: Ryanair--Ireland's national airline. :D

Now it seems that NW and KL are rethinking their relationship--here's the link. Yet more big alliance news.

Off their own bat, I don't think so - code shares will be their main interactions with other airlines considering their "low-cost" business model, lack of a "real" FFP (yes, they have one and it is currently alive in it's much reduced format, for the moment!) and no real focus on the premium travel market (the reasons they left OW). Now, if they do get gobbled up by a bigger player (such as AF/KL), then naturally they will probably end up back in an alliance. Until that though, I'd doubt it!

I think you're right. I do think it needs to keep a network of agreements to satisfy the needs of its high-end flyers. I know the Irish government has claimed that EI won't be 'sold' to a foreign company, but if the carrier really gets its balance sheet in order--and it's done a stunningly remarkable job--I don't see the airline flying solo, so to speak. Heck, I could see EI actively merging into some smaller European carriers. As I dig into EI in more detail, I am really intrigued by the carrier. I wonder is the new management team as skilled as the Willie Walsh. EI is a company to watch.