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History Of Low Cost Carriers Worldwide
This Project primarily deals with the Low Cost Carriers from around the world with a special focus on the domestic market in India, their business strategies, the different markets and how this seemingly ubiquitous segment soon rose to challenge some of the legacy air service providers in terms of operational efficiency, revenues and profit margins.
Low Cost Carriers have a special set of features and business strategies that help them achieve high operational efficiencies at such low costs like for instance, operating a single aircraft model, only catering to a single class of travellers, offering no freebies on board, planning flights so as to have very low turnaround times, E- ticketing, using a smaller, less experienced crew and so on. These strategies have become the norm for most LCC; therefore nowadays different carriers are setting themselves apart from each other by offering a bunch of benefits such as frequent flyer programs and so on.
In a price sensitive market like India, despite the low penetration of air travel the LCC segment offers tremendous growth potential, because of its lower prices. Air Deccan was the pioneer in the Indian LCC market, over the years we have seen the emergence of several more carriers like GoAir, IndiGo and so on, who have all performed extremely well in tumultuous market conditions present today.
The importance of a sound business model cannot be stressed more especially considering the recent Kingfisher Airlines (KFA) debacle. How a company that had just acquired the largest LCC in the country could crash so soon is debatable. But a closer analysis reveals the flaws in KFA's business model. KFA's existing business model was the antithesis of Air Deccan's model that they acquired. In the meantime, IndiGo another LCC has slowly but surely placed itself in a commanding position in the Indian market through carefully planned decisions so much so it's the only Indian airliner to report a profit in the last FY also earning the distinction of becoming one of the fastest growing carriers in the world. What KFA did wrong or what IndiGo did right these are the questions that are answered in the conclusion of this paper.
The prime purpose of this project was to understand the management strategies employed in the low cost aircraft carrier (LCC) business, as well as to answer some questions related to this industry like; how has the recent economic slowdown affected this industry? Why is it that some companies have fared better than the rest? Are the Indian LCC industry standards different from that in other countries? The recent Kingfisher fiasco will also be scrutinized. How and what could they (Kingfisher) have done differently in terms of business strategies? Are there any heuristics that can be applied to the industry in India in general?
The scope of this project was limited to the LCC operations in India, with some references being drawn from international operators as well. The primary intention was to study the business strategies employed in the industry, moreover an exhaustive study of the entire LCC operations, globally and their business strategies were not feasible in the given time frame.
数据收集法——DATA COLLECTION METHOD
The primary source of information was data from some sources in the aviation industry. The chronologically collated files contained all the information about the companies, their financial transactions, balance sheets and revenue data. Apart from this, some discussions were held with a Senior Manager of the Airport in Chennai. The Senior Manager gave an overview of each area in the airport and how LCC were different from premium carriers and the general trends noticed in an airport with respect to patronage of LCC and so on.
The secondary sources of information were obtained from various papers on the same area of research. Journals and research papers were used to analyze the current level of research in the area. Websites were used for fundamental understanding of various terminologies and jargon used in the LCC industry.
The project focusses on the Low cost carrier services currently plying in India. The major focus of the study would be on their business strategies, and how the LCC business caught on in India. This is of importance as the airline industry in India is on a complete downward swing due to the global economic crisis, in spite of this some LCC in India have managed a turn around and gone on to make healthy profits. At the same time some other carriers have failed miserably in the quest to aggressively expand. A critical analysis of the entire KINGFISHER fiasco would be done and the results and recommendations of the study would help different LCC services to better understand the Indian airline industry.
The study was conducted on a very small group of LCC (those in India) and most of the results, discussions and analysis are based on my view point of the current scenario in India and as a person who doesn't travel a lot by air they may not be perfect and may or may not be applicable to all LCC, in fact the recommendations given may only be applicable to the consideration set. It is in order to offset this limitation that I have incorporated a couple of international LCC and their business strategies into this report.
2.1 关于业务——2.1 ABOUT THE BUSINESS
Any airline service that has in general a lower cost or fares and fewer comforts when compared to any regular airline service maybe referred to as a Low Cost Carrier. It is important that this service not be mixed up with local flights that ply for short duration and therefore do not offer a lot of on on-board services. As expected this strategy of lowering the cost of the airfare is going to take a chunk out of their revenue and to make up for the same they almost always charge extra for standard features like food on-board, priority boarding, carrying of extra baggage and also for choosing desired seats on the flight. This will be discussed in detail during the course of the paper. These are some of the characteristics that set LCC apart from the rest of the airline industry.
At a time when flying was a mode of transport reserved for the rich and famous (1950 - 1975), few companies (notably Southwest Airline) started selling cheaper tickets at unimaginably low fares, they managed to do this by cutting costs and running a more efficient business model. This led to the advent of the budget or low cost carrier model. The business model adopted by Southwest airline has since become the empirical model for the entire LCC industry. For several years different LCC around the world have stuck to the tried and tested model of Southwest airlines. In recent times, due to rising costs and increased competition in the airline industry, small amendments have been made to the Southwest airlines business model in order that the other LCC survive the industry.
The airline deregulation act passed in 1978 by the government of the United States marked the advent of the LCC business. This act allowed new players into the market as well as giving them the power to set their own prices. It is important to note that 60 - 65% of the cost for airlines come from external factors this means a lot of the cost can't really be controlled. A generic break up of this cost would be 40% for fuel, 12 - 15% cost of maintenance and another 12 - 15% as the cost of ownership. The LCC business players therefore need to cut costs in some other avenue and they found the source in in air services.
低成本航空公司历史——HISTORY OF LOW COST CARRIERS - WORLDWIDE
The low cost airline concept was started by the American domestic carrier, SOUTHWEST Airlines in the early 1970's. Their sole objective was to offer air travel at a cheaper cost to the end users. At that point in time air travel was considered a mode of transport for the elite few, so when Southwest announced these slashed prices, it caused the well-established legacy carriers to lose a significant amount of market share to Southwest airlines, purely because of their ability to charge a lower price over traditional full cost airlines.
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