Low-Cost Carriers (LCCs) have grown successfully on the back of streamlined operational models that offer low fares, making air travel accessible to more travelers across the world. I’ve now been supporting LCCs with technology that powers a value-focused sales model for 30 years.
It’s interesting that the broader airline industry, through its move to an offer and order approach, is now adopting many of the principles that Navitaire helped to pioneer with LCCs decades ago. There’s very strong logic to this move. Through a better understanding of the customer, traditional airlines can also now present a service bundle, or offer individual services, based on what travelers need and then administer the trip more simply than traditional industry data structures allow.
But as the industry pushes forward with Offers and Orders, how are LCCs planning to leverage technology to innovate and stay ahead? That is the focus of a major study that Navitaire and Amadeus recently organized with senior leaders from LCCs.
Technology supports new growth ambitions
One of the most frequently asked questions in our industry is ‘how will LCCs continue to grow as their traditional short-haul leisure markets become more mature?’ Various options have been explored, from offering low-cost, long-haul flights, to creating product bundles that appeal to business travelers.
Our research suggests another avenue is likely to become popular in the years ahead – partnering with other airlines. For example, for a LCC looking to extend its reach and to increase margins, partnering with a Full-Service Carrier (FSC) can provide additional bookings and potentially access to higher-yielding business travelers. Of course, these partnerships already exist today and, in our study, a third of LCC leaders confirmed they already have relationships with other airlines.
But we know it’s about to become a whole lot easier for different types of airlines to partner with each other using the ‘retailer – supplier’ standard that facilitates interoperability between different business models. As FSCs and regional airlines become modern retailers they can establish connectivity to LCCs using NDC and ONE Order messages. These connections are less costly, less complex and less time-consuming to establish than traditional interline agreements. It’s exactly the type of opportunity that practical and nimble LCCs are likely to consider.
Our research shows LCCs are already considering the potential. In fact, 54% of LCCs said that the coming simplification of interline means they’ll now consider partnerships with FSCs and regional airlines. The top reason for this was ‘accessing higher value fares’, alongside a desire to broaden available route options and grow overall bookings.
Indirect sales and merchandising is back on the agenda
Historically, many LCCs chose not to sell via travel agencies, preferring a direct to customer sales model. Some LCCs still take this approach. But change is happening here too for the same reason LCCs are looking to partner with other airlines. New avenues to achieve growth are crucial.
We asked LCC leaders about their distribution strategies. The perceived costs involved in agency distribution were cited as a challenge by 42% of LCCs, but pragmatic views were also expressed, with half of respondents saying agency distribution is important.
The top drivers for selling via travel agencies included the potential to reach potential passengers (cited by 56% of respondents), to ensure LCCS can provide the flight within holiday packages (50%), to improve competitive position (48%), improve reach in markets where brand is less well known (46%) and to reach ‘higher value’ passengers, including business travelers (34%).
LCC leaders estimate indirect sales currently account for 18% of their airline’s ancillary revenues on average but pointed to other potential reasons for growth. LCCs see potential to innovate, particularly as IATA’s NDC matures, with a significant minority of LCCs planning to offer dynamic prices (44%), personalization (40%) and ancillaries (40%) available via travel agencies over the coming year.
Focus on operational excellence
True to form, another key theme highlighted by LCC leaders in our study was operational efficiency. In fact, ‘high cost of operations’ was cited by LCCs as their number one business challenge. One-way LCCs are trying to overcome it through improvements to network and schedule planning, with new technology in this area being one of top priorities for LCCs to implement over the coming 12 months. LCCs also see an opportunity to modernize flight services at the ramp with new unified communication channels for load controllers – a third of LCCs told us they plan to invest in this area.
Similarly, with 46% of LCCs saying staff shortages remain a challenge, many are focused on automating the passenger experience at the airport. 32% of LCC leaders said their airline offers airport self-service today but this is expected to rise to 68% by 2030. In addition, approximately one-in-three are planning to deploy biometrics over the coming year, with 72% expecting to offer biometrics at check-in, bag-drop and boarding by 2030. LCCs have always prioritized investments that help minimize costs and simplify their operating model, so I’m not surprised to see the growing interest in biometrics.
On average, LCCs told us they plan to increase investment in technology by 14.4% – representing a significant increase, and this is slightly higher than for traditional carriers. In my experience, LCCs only invest when there’s a solid business case backed by cost reduction or revenue increase opportunities. With cloud, biometrics, generative AI and Machine Learning having all matured to the point where they can now deliver significant business value, I do expect some very interesting deployments in the years ahead.
If you’re interested in diving deeper into LCC tech investment plans you can download our full report here.
Article by Dave Evans, CEO Navitaire, An Amadeus company
