The low-cost airline model will lead post-Covid recovery and help revitalise demand. Frugal cost-cutting measures taken and operational responsiveness will see these carriers move quickly to absorb pent-up demand and capitalise from any opportunities ahead of other, high-cost model airlines.
Low-cost airlines have curtailed costs well
All airlines have drastically reduced costs to weather the storm created by Covid-19, and it is evident that low-cost carriers (LCCs) have managed to push already low-cost bases even lower. These carriers can now operate cash-positive routes with a lower load factor than before, which is incredibly important with the current low levels of demand.
LCCs were the first off the blocks to capture any pent up demand in the market and were successful in doing so. Wizz Air responded quickly by adding capacity from the UK to the Canary Islands when it was added to the travel corridor list. Relaxation of travel rules across Europe in the summer and the rapid increase in capacity deployed by LCCs to absorb the high levels of pent up demand showed that low cost airlines remained nimble and flexible during the pandemic.
LCCs have shown a high degree of resilience and flexibility to network planning and aircraft deployment. The sale and leaseback agreements forged by easyJet have given them a high degree of fleet flexibility to better respond to changes in demand over the coming years. This places them in a much better position than legacy carriers that have retired plenty of aircraft from their fleets.
LCCs can better address affordability concerns
The Covid-19 pandemic has amplified consumer concerns around personal finances. GlobalData’s latest COVID-19 Recovery Survey (2–6 December 2020) showed that globally, a staggering 87% of respondents were ‘extremely’, ‘quite’, or ‘slightly’ concerned about their personal financial position.
The low fares offered by LCC’s will better cater to the increased need of affordability. Cost-cutting measures will allow LCCs to push ticket prices to new lows and still break-even, leaving other carriers flying unprofitably if they choose to compete. These airlines will likely gain a stronger foothold in the market as a result of the pandemic.
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By GlobalDataLeisure traffic will rebound first
LCC’s tend to target leisure and ‘visiting friends and relatives’ (VFR) travelers, and their desire to travel will return quicker than business travellers, a big target market for full-service airlines. The reliance on these travellers will mean LCCs will see greater uplifts in traffic in the short-term. Also, the short distance, point-to-point networks offered by LCC’s will better suit pandemic-cautious travelers looking for trips closer to home.
As consumer travel habits have changed for at least the short-term, frugal cost-cutting and operational agility deployed by many LCCs will help to accelerate recovery. These airlines will likely emerge from the pandemic as leaner, more competitive airlines and will win larger market shares as a result.
