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The Budget Revolution Jobs

by | Feb 8, 2022 | Commercial | 0 comments

Budget Airlines, or Low-Cost Carriers (LCCs), have been on the up recently, demonstrating that it takes more than a pandemic to keep them grounded.


Return flights to Spain for 30 quid. No frills travel and all the optional extras you can think of, should the need arise. LCCs have certainly cemented their status in the airline industry as the go-to choice for many looking for cheap travel abroad. The appeal of avoiding paying an arm and a leg for a flight and thus keeping more of that hard-earned spending money for your actual holiday destination is, in my opinion, irresistible, and as such, has provided a market for these airlines to thrive in. But how did that market come about? What cosmic stars aligned to create such optimum conditions for the evolution of the multitude of different budget airlines, from EasyJet to Wizz? More importantly, how has the pandemic affected these carriers, and how has the changing shape of the market brought on by Covid either helped or hindered their growth? In this article, I’ll take a deep dive into the world of budget air, taking you through the history of the LCC revolution, how they help shape the market, and how the pandemic has provided a unique opportunity for these plucky carriers to expand and thrive – potentially even threatening the position of the legacy giants we’re so familiar with today.




It all started back in 1978. Space Invaders had just started a new chapter in video gaming, the first test tube baby was born, and domestic air travel was still in its infancy. Back then, pioneers like Southwest Airlines had only recently brought mass air travel to the public, where beforehand it had been an incredibly expensive and exclusive affair. More change was afoot, however, with the 1978 deregulation act. This saw control of the industry partly shift away from the US government and into the private sector. This would eventually lead to the termination of the US’s Civil Aeronautics Board, which had previously controlled ticket prices and other essentials – effectively eliminating any opportunity for competition within the industry. What this meant is that the aviation industry was suddenly flooded with new players keen to make their fortunes and establish themselves as the next big name in aviation. This is where legacy carriers like Southwest (now the largest airline in the US) either began or cemented their status as the top dogs in the industry. The growth the industry experienced was huge. Ticket prices falling was probably the most relevant knock-on effect from deregulation, with prices dropping around 35% as of 2019 from highs in the 70s. This drop in cost, and the deregulation of the industry, created a fertile competitive market for LCCs to flourish in. Spreading heavily across the globe from the 90s onwards, LCCs have come to occupy a 35% share of the total industry market.

It wasn’t just deregulation that encouraged this growth, however. New innovations in the way we travel sped up the process even more, forging a solid divide between the legacy carrier model and that of LCCs. You see, legacy carriers did, and still do, operate something called a ‘hub and spoke’ model of travel. This sees large jets like superjumbos carrying as many passengers as possible between massive hub airports, where they then transfer and take a second flight on a smaller aircraft to their final destination. This makes sense for a large airline with a fleet of even larger aircraft as it boosts filled seats, which enables them to offset the massive costs incurred of running craft like superjumbos. It also increases the number of available destinations, allowing these carriers to tap into some of the most expensive long-haul routes (England to Australia springs to mind). If you’ve ever been on one of these long-haul routes, you’ll probably remember all the amenities which go into making that ticket so expensive. Personal TV sets in the back of seats, armchairs and even personal cabins in business and first classes. Legacy carriers have gone to great lengths to make that eye-wateringly expensive ticket seem worth it. There are drawbacks to this model, however. Beyond the price of tickets putting a lot of people off, longer travel times and increased infrastructure costs due to the complex logistical requirements of the model result in a very expensive and maintenance-heavy system. As you can imagine, this doesn’t lend itself to the narrow profit margins LCCs exist in. A new model was required – enter ‘point-to-point.’ This aviation model does exactly what it says on the tin, connecting origins and destinations via direct flights. In doing so, point-to-point reaps massive savings by cutting out a hub airport, reducing travel time and allowing LCCs to restrict their fleets to (predominantly) cheaper, easier to run twin-engine widebodies. Of course, this does result in LCCs losing out on some of the most lucrative long-haul routes, but that seems to be a small price to pay to enable rapid growth for a small airline.


Consequences of the pandemic


Covid and flying don’t pair well for airlines… or do they?’


Alright, history lesson over. I hope this small bit of context has given you an idea of the separate spaces LCCs and legacy carriers occupy in the aviation industry. So, how has the LCC model benefitted these carriers in the pandemic? Well, benefitted isn’t quite the word I would use, more like sheltered. You see, the various intricacies of the point-to-point model have enabled LCCs to weather the storm of the crash in revenue (brought on by the pandemic) without the massive capital buffers which have kept legacies afloat. The key here is flexibility. While legacies are bound to a rather rigid model, the point-to-point model allows for much higher levels of flexibility for the airlines that adopt it – accommodating drastic changes in flight schedules and infrastructure changes that don’t have to be consolidated in connecting airports before being fed back to a main hub airport. The pandemic has seen massive change being made in how the industry manages itself, resulting in individual airlines having to accommodate insecurities such as travel restrictions and lockdowns. Investopedia’s analysis of the LCC market claims that “As long as the coronavirus crisis continues, it is clear that airlines will be operating very differently. Chronic losses, dependence on subsidies, and increasing political control over operations seem to be on the cards.” This, I’m afraid to admit, rings very, very true. It will be the airlines that are able to radically adapt to this new normal faster than their competitors who will reap the biggest rewards in this post-pandemic world.

LCCs have taken up this challenge head-on, and one of the biggest indicators of this is the emergence of a ‘low-cost long-haul’ market. Carriers such as AirAsiaX have begun offering flights on routes that have historically been only held by legacy carriers with their longer-range jumbos (such as Asia to Europe). This has been facilitated by two major factors. Firstly, modern tech has seen smaller narrowbody craft like Airbus’ new A320XLR able to reach maximum flight distances of 8,700km. While this is still a long shot from the ranges achievable by bigger aircraft, it has allowed LCCs – who will most of the time operate a fleet of just one aircraft type (like a Dreamliner, or 787 MAX) – to achieve long-haul distances without shelling out for the costs of bigger aircraft. Advancements like this have allowed LCCs like French Bee to start to operate new long-haul routes in the middle of the pandemic. “When we outlined the Newark to Orly launch plans, we knew we were taking a risk despite the restrictions in place,” stated CEO Marc Rocher. It is risk taking like that, however, that demonstrates the progressive attitude most LCCs tend to have. When you’re struggling to succeed in a post-pandemic market, risk-taking becomes a necessity. While many legacies slashed services to save money over the worst of the pandemic, LCCs have been busy branching out into new routes, and scooping up shares of the market left behind by the retreating behemoths.

It’s not just new routes that the pandemic has facilitated for LCCs, however. We’ve also been seeing an increased number of aircraft simply sold for scrap by airlines across the globe, not wanting to pay the costs of upkeep for craft that may simply remain in storage for years. I think you can see where I’m going with this. One man’s trash is another man’s treasure, and all that. The abundance of ‘unwanted’ craft has enabled LCCs to pick up more aircraft for their fleets at cheaper prices. This has enabled exiting LCCs to expand rapidly. When you take route expansion into account as well, the pandemic has essentially created a situation where new LCCs have entered a market flush with cheap craft, new routes and a lot of opportunities. On that subject, there’s a reason why you might have noticed a sudden influx of start-up LCCs over the pandemic. Not only do the above reasons lend themselves to quick and expansive growth, but there is also blood in the water. You see, the pandemic has saddled existing airlines with an ungodly amount of debt. LCCs and legacies alike (Ryanair lost a whopping 410 million euros in 2020 alone) have found themselves desperately trying to recoup and pay off the financial hole Covid has buried them in. For those that can’t manage, bankruptcy and the sale of their assets looms on the horizon. When all these factors combine, what you have is the market state equivalent of a tonne of chum chucked into shark-infested waters – a feeding frenzy for new, hungry players. The dulled competition from financially stricken airlines, the cheaper and more available aircraft, the longer, more lucrative routes now available – it’s no wonder start-ups like Avelo have appeared to thrive.

Taking the plucky US LCC as an example, since being founded in April 2021, Avelo has obtained over $200 mill in series B funding, and has expanded rapidly to serve 19 destinations across the US with its 6-strong fleet of Boeing 737 NGs. The funding they received is indicative of the strong economic position LCC start-ups now find themselves in, a factor which will “enable the acceleration of Avelo’s growth trajectory in 2022 and beyond.” According to Avelo CEO Andrew Levy, and with investment backing from firms like Morgan Stanley – the planned expansion to double the airlines’ destination portfolio and expand their fleet seems more than obtainable. Now, don’t get me wrong, the pandemic has still had a massive negative impact on LCCs despite all the favourable market conditions. With the LCC market still being 45% down from pre-pandemic levels according to flight global, I think the numbers speak for themselves. These LCCs have the aforementioned market advantages on their side, however, and this has translated into a much faster recovery than the majority of the legacy market. Wizz Air is a great example of this, with the LCC experiencing a nearly 3x increase in passengers carried in December of 2021 when compared to the same month in 2020. It’s the market conditions mentioned, as well as risk-taking moves such as Wizz Air’s decision to slash ticket costs (while it needed more income) which have enabled LCCs to succeed, despite the pandemic (Wizz’s price cut resulted in it poaching take-off slots from its rival Norwegian airlines, due to increased passenger numbers). “In some ways, the pandemic has been less of a burden on these airlines than it has for their behemoth competitors.” Claims Willis Orlando of Scott’s Cheap Flights – and I must say, I completely agree with him. I didn’t even mention the influx of staff looking for jobs owing to pandemic lay-offs further facilitating LCC growth, as they’re understandably eager to snap up experienced talent. Covid has been a perfect storm of negativity for many, but for the LCC market, it’s provided a unique growth opportunity like no other.


Looking ahead.


What does the future hold for a bruised and battered industry?’


What does the future bring, then? If the market has shifted as drastically as I say, what kind of a future do our plucky little LCCs have in store for them? The short answer is (drum roll please) … I don’t know! That’s right, it’s impossible to predict what a future market will look like when we’re just coming out of a pandemic. There is a massively uncertain future ahead for the industry, and decades-old standards changing almost overnight have resulted in nobody really knowing what the future will hold. There are, however, some educated guesses one can make based on the information I highlighted earlier. A massive increase in competition is probably the most likely outcome for the rest of the decade. Not only do we have new LCCs fresh and raring to go, but a combination of individual players looking to recuperate lost revenue, large expansions from existing LCCs, as well as new tech allowing these carriers to compete directly with legacies on lucrative routes, makes for a highly competitive future market. We may even start to see the emergence of a dominant ‘tweener’ market (carriers like EasyJet who operate a middle ground between budget and legacy models). This is being driven not just by longer range narrowbodies, but by the incentive for LCCs to introduce new optional extras such as ‘premium economy’ to squeeze every last drop of revenue out of consumers. This will undoubtedly be facilitated by the massive production increase from manufacturers like Boeing, who have three years of pent-up demand to catch up on. Boeing especially will be looking to sell as many MAXs as possible after the aircraft was cleared for re-introduction into international markets. GlobalData’s recent analysis of a post-Covid industry correctly mentions how “Frugal cost-cutting measures taken, and operational responsiveness will see these [LCCs] carriers move quickly to absorb pent-up demand and capitalize on any opportunities ahead of other high-cost model airlines.” In a rapidly changing and uncertain market, it is the flexible and adaptable LCCs, especially the newer ones, who will see the largest growth and profits as we emerge into a new normal.

Another massive factor set to change the face of air travel for the future is the rise of Zoom in business meetings. The popularity of video calling brought on by the pandemic means that the market has essentially become leisure travel heavy – with quarantine on arrival and changing international restrictions making business travel essentially redundant over the pandemic in lieu of video calls. “With leisure travel most likely to rebound first and LCC’s short distance, point-to-point networks will better suit pandemic-cautious travellers looking for trips closer to home,” claims GlobalData. Now, I’m not saying that business travel is dead, but it’s certainly taken a hit and will most likely take its time to reach pre-pandemic levels. This is bad for legacy carriers, who will miss out on that sweet, sweet first-class revenue from sales execs, while LCCs will be raking in the profits from their cheaper holiday destinations. In my opinion, LCCs have essentially been granted a real Deus Ex Machina with Covid. A ‘gift’ (in market terms) that has really levelled the playing field between them and the indomitable legacy carriers. Like I mentioned earlier, it is still too early to predict with any real certainty what the future holds. On top of that, legacies still occupy over half the market, and shifting the balance in the favour of LCCs will take a very long time (if it happens at all). One thing is for certain though – expect to see a lot more innovative, fast-growing, and popular LCCs in the years to come.


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