LCCs lose the cheap air tickets advantage in long run

Low budget airlines have been a successful business model worldwide by and large. The biggest impact that these airlines have made is to create new aviation markets worldwide, opening up new sectors of air connectivity as well as increasing the customer base of existing ones. Their main USP of cheap air tickets has made the hitherto reluctant people to take to aviation for reaching different places. While low fare flight tickets give the push into the new markets, there have been statistics to show that these airlines are not always able to maintain their price advantage in the long run.

Competition

The low budget airlines (also called LCCs) operate on simple pricing structure and on small margins of profits. Any factor which has the impact of increasing the prices of flight tickets puts these airlines in a difficult position as compared to network carriers. LCCs do face competition from other LCCs as well as network carriers. The latter, in order to protect their customer base, might respond with reduction in prices to a certain level. With considerable space for maneuvering the prices of cheap air tickets due to their yield management practices, the full service carriers are in better position to withstand the unfavorable times as well offer reduced air fares with better amenities and services. So, LCCs make regular carriers rationalize their tickets prices by raising the level of competition. In the long run, as the market matures, the LCCs tend to face stiffer competition from full service carriers and the magic of cheap air tickets does not work to their advantage to same extent as it happened in initial period.

Consumer Behavior

LCCs also see their cost-competitiveness being eroded over a period of time due to rise in incomes of the people as they seek more comfortable and luxurious flight experience. In the price sensitive markets, this might factor might not play a big role but there is a definite tendency to move to carriers with better amenities and services as the income levels rise. This change in consumer behavior is associated with the fast developing regions where prosperity levels increase. For the other sectors where economic growth is stagnant or laggard, there is no perceptible change in consumer behavior in long run.