How Do Low Cost Airlines Make Money

Less than $50 Ticket Price? How do Airlines Make Money?

Now everyone can fly!

This is a famous tagline of a low cost carrier company based in Southeast Asia. About two decades ago, flying is a luxury. Ticket price was so expensive that only a group of people can afford to fly. Now, flying is a common means of transportation we use.

With more and more airlines in the market, airli n e company tries to win the competition. They tried bring more value by increasing service or even adopt a new business model we know as low cost carrier (LCC). With the increasing price of oil, how exactly does these airline company made money?

In order to operate an airline, there are a few costs such as: fuels, maintenance, employee training, airport charges, taxes, and the need to meet global safety standard. So, airline company charges price ticket and baggage fees to meet all these cost and make profits.

We often see increasing and decreasing price of an airline ticket. How does an airline determine price ticket?

Airline ticket are charged based on supply and demand. Airline company uses a system called "Airline Revenue Management System". The key in using this system is data of its passengers. In today's Airline Revenue Management System, Artificial Intelligence is embedded in the system.

Basically airline profile its customer based on two types: leisure and business.

Leisure passenger's habits usually planned their holiday so they are more likely to book in advanced. Airline will charge a higher price in advanced and adjust them accordingly to market demand using a system with one goal: to maximize profit. How do airplane know that these passenger are for holidays? Airline planned this strategy to holiday routes such as Bali, Las Vegas, Maldives, etc. So this strategy could be implanted in a London to Bali flight or Hong Kong to Maldives.

In contrast, business passengers usually book last minute. They are 60% most likely to buy even though company increase price. Airline then charged lower price in advanced and steeply increase price. Therefore, passenger would be require to pay higher price if they decided to book last minute. Usually this strategy works on business routes such as London to Hong Kong or New York to Singapore.

However, low cost carrier are able to charge less. European low cost airline like EasyJet is able to charge a very low price. This made us think, if the ticket price is so low, does it mean that it is not safe? So, how on earth do low cost carrier is able to charge less price?

The key thing about low cost airline business model is low cost and more efficiency.

No Business Class
Usually low cost carrier do not have business class. This means, airline can put much more economy class seat. For example an Airbus A320 can have 150 up to 180 seats.

New airplane
LCC buys new airplane because younger fleets means more fuel efficient. Fuel efficiency means that the company would not need to have high maintance cost or fuel cost.

One type of aircraft
What LCC company do to reduce training cost for employee is by only having one type of aircraft. That means, company can conduct a mas training to all employees from captain, first officer, steward & stewardress, engineer, technician, and so on. They also tried to have a non reclinable seats so company will cut cost for seats maintanance. Some do not have a seatback pockets to reduce the cost and time for crew to clean between seats.

Fly Non-stop
LCC plane usually have lots of routes to lots of destination. Company make sure that the each plane operate non-stop all day. More routes means that more people being transported, resulting in more revenue from ticket price. LCC airplane usually have only 30–45 minutes between landing and takeoff so everything need to be fast and efficient.

So, now you know that it is LCC business model to operate efficiently and effectively in order to cut cost and maximize profit. Therefore, we have no reason to be scared of airline safety since all airlines must obliged to aviation safety rules.

Do you know that before take off and after landing a pilot is required to do some checklists and paperwork? This is to ensure the safety of all the passenger in the airplane, although there are still room for human error despite all the regulation and developed technology in the aviation industry.

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