The Growth in UK Low-Cost Airlines in Recent Years - Essay Example

LOW COST CARRIER AND TOURISM Introduction The aviation industry is one of the most essential in a country and the global environment at large, not only for facilitation of movements of people across borders but also for the growth and development the tourism sector. This realization has led to many countries developing this industry in order to benefit from the outcomes arising from tourism and other related activities that benefit from it. In the modern world, people are travelling from one part of the world to another for various reasons. These movements have prompted the desire to travel and enjoy the diversity that exists in various places, increasing the prospects for tourism. It is important to note that in many countries, tourism has been taken as an important sector that has caused growth and development of the economies of these countries (Fan 2006, 92). In this understanding, many of these countries have developed proper infrastructure in order to attract people to visit various sites and scenes for the growth of their tourism industry. The tourism industry has been offering various employment opportunities to people directly and indirectly. In this case, it has helped to achieve various micro and macroeconomic policies in these countries. People have exchange their cultures and learnt various things from those that come from various countries, underpinning the significance of the tourism industry. Aviation and Tourism Aviation services are inseparably interrelated with the tourism; it provides the essential links to the tourism destinations and gives straight and significant impacts in the business arena as well. As the general standard of living increases and the globalization goes by, the demand for overseas trip has been increasing (Davison & Ryley 2010, 437). Consequently, the importance of functionality of aviation services in tourism is being magnified these days. Due to the nature of the aviation industry, the overall profit structure of industry is inherently vulnerable to irregularity. According to the IATA statistics, aviation industry has earned over $ 1 trillion in the last 60 years, but they have produced mere $ 32 billion as profit. In other words, an average profit margin is only 0.3 % (Smith 2009, 14). Moreover, Losses and profits fluctuate in accordance with the cyclical pattern. Under these unfavorable circumstances, the United States deregulation act has brought enormous changes in the airline industry. This has enabled aviation corporates to begin turning to the Low-Cost Carrier (LCC) market to secure profitability and competitiveness. Low-Cost Carrier (LCC), which is also known as No-Frill airlines, refers to airlines that have lower fares by providing a less services. The origin of the LCC was in the Southwest airlines, which started in the United States. By imposing lower charging fee to the customer, they have been themselves distinctive with other corporates. In United Kingdom, the Ryan Air and Easy Jet are representative of the LCC, this essay will analyze the reasons for the growth in UK low-cost airlines in recent years and then discuss the implications for the tourism especially those related to the hotel industry by dividing into push, full and derived effects. The Airline Deregulation Act As it previously referred, the airline deregulation act, which occurred in 1978 in the US was aimed at maximizing the consumer benefit through extension of competition. This law enables the industry to enter into the competitive market and naturally, it decreases the passenger’s fares. The Act does this through elimination of restrictions on pricing, control over routes, frequency and new airlines entering into the market (Smith 2009, 32). These industry liberalizations have resulted into the emergence of low cost carriers into the market. The effects of this act were hereafter extended to Europe and allowed the three packages agreed by the European council of ministers to be effected. The first package was established between 1987 and 1989. It reorganized the agreements between the community airlines relating to capacity, revenue pooling, runway slot allocation and tariffs. Additionally, it eliminated the rules about the equal sharing of capacity on routes and by opening up new market access, it created the conditions for the emergence of the first European low cost airline, Ryanair. The second package was allowed between 1990 and 1992. It included the provision about further easing constraints on pricing, capacity restrictions and market access. Lastly, the final third package was enacted in 1993; it created the effective ‘Open Skies’ policy within Europe. In addition, Governments can impose restrictions only on issues such as the environment and finally the market began having no price controls by the governments. Advantages of the LCC  Contrast to the traditional full service carrier (TFC), LCC takes the cost leadership or cost minimization approach by removing non-essential services such as no catering or meals, little flexibility of flight changes, inventory management, which has been simplified though direct or online bookings as well as  ticketless system without the use of travel agents (Franke 2004, 317). By simplifying the distribution channels, considerable cost saving can be made, airlines can save the travel agency commissions and also avoid computer reservation system fees. Compared to TFC, they generally show on smaller scale except some major players like Ryan Air or Easy Jet. LCC approaches mainly take short haul routes to achieve the low operating costs per passenger required. These types of airlines tend to unify the aircraft type, try to fill as much as passengers on board and utilize the aircraft as often as possible. Moreover, by using a secondary airport they could avoid the delays occurred by congestion, minimizing the landing charge and not offering anything other than point-to-point services like interlining. Through these competitive advantages, LCC can significantly reduce the average unit cost of operations. Factors influencing the LCC According to the airline’s own research, the most important factors for its passengers when selecting a flight were:-Price of Ticket (78%) - Reliability/On-time schedule (68%). This is the reason why the Low-cost carriers (LCC) are expanding and gaining market share, thus stimulating passenger demands with attractive fares and new routes.    Obviously, Low cost airlines have brought a positive influence on tourism market and occupancy of hotels. LCC can affect tourism destinations in three different ways defined as the ‘pull’, ‘push’ and ‘derived’ effects. Firstly, some cities can experience a pull effect along with the introduction of low cost carrier services. Pull effect tends to occur in major gateway cities like London and Paris, which already show high domestic and international tourism demand. These cities can experience a decrease in long-term tourism demands when the numbers of domestic travelers who use LCC to travel abroad are greater than the numbers of international arrivals. As more and more domestic people travel overseas, these cities experience a sharp decrease in domestic arrivals by offsetting the growth of international demand. Although, the introduction of LCC has brought a consistent growth of passenger arrivals in London and the growth of secondary airports (Stansted, Luton and City airports). The total growth rates did not consistently magnify due to the decrease in domestic arrivals exceeding the growth in international demand. According to the data for London, the full effect takes some time to occur after the entrance of LCC to the market. Additionally, London did not show a rapid growth of tourism demand thus the launch of LCCs did not affect hotel supply in the city in particular.     Contrast to the major gateway cities, the introduction of LCC has brought the push effect to the secondary airport adjacent area. By selecting new routes to destinations, which were previously unavailable, bringing a strong increase in tourism. According to the airlines’ own research data, the most important factors for its passengers when choosing a flight were a price of tickets and the on time schedules for destinations. These trends flourish the growth of LCC and travel to the new destinations especially those related with secondary airport. A strong network of flight made LCC more attractive to the passengers and encouraging them to use budget flights. The launch of LCC increased the average growth of airport arrivals and boosted the entire tourism in the city. The increase in tourism could have positive ripple effects on occupancy and hotel performance, although this may e affected by other characteristics within the local hotel market. Following the major boost in tourism, it increases the hotel supply in the city by persuading hotel companies to open new hotels or increasing the number of bedrooms. Consequently, the hotel market has become highly competitive and saturated. The representative cities are Berlin, Barcelona, Budapest and Prague, they have considerably benefited from the push effect. Therefore, LCC has been seen as a catalyst for the development of relatively unknown places. Moreover, LCCs has been decreasing the impact of seasonality and creating a more all-year-round tourism destination for all cities.  The third effect on cities is described as the derived effect. Research has effectively shown that various districts in some countries stand to experience the derived effect, following the launch of the LCC flights in Europe. One of the most evident observable effects of the LCC in this case will be an increase in the number of beds for hotels and restaurants located near airports. However, it is important to note that most LCC are located in the secondary airports, which in most cases are found at significant distances away from the central business districts. In this case, tourists are forced to stay in these places located near the airports soon after they arrive in the country or a day before their departure to their countries. This is done for the ease of convenience so that they minimise the time that has to be spent in the preparations and meeting these airports. Five months after launching the Low Cost Carriers in Europe, Stansted, which is found approximately 56 kilometres from London, became the busiest airport that had adopted the LCC in the entire Europe. This was observed after the airport started managing an average of 225 low cost flights on a daily basis. Most of these strategies involved flights in most parts in Europe. This strategy was launched at the Stansted airport in 199. Since its launch at the airport, the strategy has continued to enjoy market acceptance and growth. After the launch of this strategy at the Stansted airport, Ryanair changed its base, moving from Luton Airport in London to find a place at the Stansted Airport, which was thought to be the next business hub as far as flight business is concerned. For the last decade, the airport has been steadfast, enjoying growth and expansion as witnessed by increased tourism and other travels to the country. The airport has effectively managed to increase the number of passengers arriving into the country from 4 million to more that 22 million yearly. In terms of percentage, this increase takes approximately an 18.9% from the past decade underpinning the importance of the Loc Cost Careers, not only in the United kingdom, but in the large Europe The Step Change in the numbers of passengers The analogy of the single route can be improved so that an effective understanding of the actions and behaviors large markets can be understood. These markets include those in the United Kingdom and the large Europe. It is important to appreciate the fact that EasyJet and Ryanair were the pioneers of this LCC opening up the idea to other companies, which have responded by adopting the system. The Adopting of the LCC has been instrumental in the growth of the tourism industry in the United Kingdom, because many people have shown preference for this means of air travel due to its various advantages in terms of costs and other conveniences that come with this strategy (Doganis 2006, 41). However, it is important to note the design and implementation of these carrier strategies has not been very easy. The airlines have had to struggle with the rippling effects of the economic meltdown that affected most companies in the large Europe. During this time, many people had to change their travel plan in order to squeeze their decreased pockets and meet their financial obligations. The tourism industry dwindled significantly, as people reduced their expenditure on this element. However, it is important to note that the emergence of LCC was a better step in the right direction because it enables people to manage their traveling amidst the economic challenges. Many passengers have shown great preference for these travel schemes because of the fact that it helps to improve and enhance people’s ability to travel to other destinations and enjoy their tourism and other functions (Graham & Dennis 2010, 129). These carriers have improved their services, matching those offered by large airlines in the process of attracting a large market and clientele group. This approach is phenomenal, something that promises to cause a major change in the flight industry thus increasing the need for people to travel for their economic and social functions. One of the most significant outcomes of the implementation of the Low cost Careers has been its ability to influence tourism activities and the development of areas that had long been seen as being inactive and underdevelopment. Additionally, it has been responsible for the increase in the number of people that can now travel to various places for tourism and other important activities. The main aim of the strategy has been cutting down costs for passengers as well as most of the airlines that have been flying to airports that are less busy in order to cut down on the maintenance costs in these airports. This has been facilitated by the kind of cooperation that has emerged because of the development of these low cost carriers. In the traditional airline models, airports have always been linked with high costs especially for the airline carriers, which are often motivated by the need to transport people and luggages to various places, while making profits in the process. In the new model, LCCs have been effective not only by opening up some of these airports, but also for converting them into important sources of revenue. Conclusion Ryanair and EasyJet provider better examples of careers that have developed competitive advantages and market position through the reliance on these strategies. These carriers are said to have engaged various airports in the process of developing these flight strategies. They had to engage various airports, discarding those that did not buy into their idea, until they found acceptance in some of the airports that were considered secondary like Stansted. Eventually, these airports have ended up creating better relationship and rapport with these carriers, opening up these places, which had been long regarded as underdeveloped. The UK has seen an increase in its tourism potential, as witnessed by the many people that are visiting most of its cities by using the low-cost carriers (Dobruszkes 2006, 155). Currently, many people continue to prefer using these carriers for the local and international travel, thus opening up other places for tourism and other aspect of social and economic development. One of the strategies that these carriers have developed is that of creating incentives and various kinds of approaches that encourage people to use these carriers for their travel, in the future, it is believed that these carriers will begin serving greater markets beyond Europe so compete effectively with other established airline companies across the world. Bibliography Davison L., & Ryley T. 2010. “Tourism destination preferences of low-cost airline users in the East Midlands.” Journal of Transport Geography, Vol 13, No. 18, 432-442. Dobruszkes F. 2006. “An analysis of European low-cost airlines and their networks.” Journal of Transport Geography, Vol 5, No. 14, 154-156. Doganis R. 2006. The Airline Business, Routledge, London, New York Graham A, & Dennis N. 2010. “The impact of low cost airline operations to Malta.” Journal of Air Transport Management, Vol 3. No. 16, 123-176. Fan T. 2006. “Improvements in intra-European inter-city flight connectivity: 1996-2004.” Journal of Transport Geography, Vol 9, No. 14, 87-98. Franke M. 2004. “Competition between network carriers and low-cost carriers - retreat battle or breakthrough to a new level of efficiency?” Journal of Air Transport Management, Vol 12. No. 10, 312-324. Smith A. 2009. “Effects of Low Cost Airlines on Efforts to Develop Cultural Heritage Tourism,” Anatolia: An International Journal of Tourism and Hospitality Research, Vol. 20, No. 2, 23-56. Read More