The End of “Low Cost” – convergence in LCC and “Full Service” models

The ongoing fight between passenger airlines that describe themselves as “full service” or “network” carriers (FSC) and those self-described as “low cost” (LCC) is taking an interesting turn.

First, recent evidence suggests that ticket prices of LCCs may even be higher than some FSCs. Fly Dubai and Air Arabia, two self-styled LCCs were charging higher prices than their FSC counterparts Eithad and Emirates this summer on selected routes. Similar evidence was found for price comparisons between British Airways and its alter-ego Ryanair. This can be explained by several factors but one that catches my eye is the price competition unleashed by LCCs forcing FSCs to price downwards.

But what has really been eye catching has been the slow ‘upgrading’ of LCC product offerings. From Southwest Airlines’ modest Business Select service offering priority boarding, a free alcoholic drink and fast check security lines to more ambitious announcements such as JetBlue’s decision to offer business class seating for their transcontinental services, it is clear that the line between LCC and FSC is blurring – and quite quickly.

What’s also very interesting is that this probably means bad news for many FSCs. In their attempt to stop their financial bleeding, they forced themselves to cut costs, reduce inflight service and where possible cut prices to match the LCC competition. That lowered themselves to the LCC level making the choice to fly LCC much easier for passengers. Why after all should I pay $150 extra for peanuts and water (if I am lucky, I get a cheese sandwich)?

Now the LCCs are stepping directly into their apparently gilded territory: the premium customer. Whenever I would point out to industry executives how they are eroding service quality, they would point to their premium services (business and first class) as evidence of how they recognize that their most valuable customers deserve better treatment. However if the LCCs I mention below are able to raise their game to the premium level, the decision to completely abandon the FSCs on long-haul flights may be even easier to make.

As you’ll see below several LCCs are now offering premium cabins on their flights. And offering business class quality for a fraction of the price. And of course what have the FSCs done in response? Of course – they are offering cheaper business class seats and reducing the number of miles they offer to their premium customers. They just don’t get it. Well, some do – take Singapore Airlines, Emirates, Qatar or Etihad. They’ve worked out that premium quality benefits that get eroded only lead to one thing: passenger defections…

JetBlue’s premium cabin (below)