Low Cost Carrier Market Analysis

Low Cost Carrier Market Deep Dive – PESTLE, Porter, SWOT

The low-cost carrier (LCC) market has become a transformative force in the aviation industry, transforming the travel experience and the traveler. It has attracted a diverse range of travelers, from budget-conscious families to business professionals looking for cost-effective options. The industry has been characterized by the proliferation of new entrants and the introduction of new business models, relying heavily on technology to enhance the customer experience and drive down costs. The LCC industry has been quick to adapt to changing consumer preferences, offering tailored services that meet the growing demand for convenience and value. This report analyzes the key trends, challenges, and opportunities shaping the LCC market, shedding light on the strategic maneuvers of the major players and highlighting the implications for the entire aviation value chain.

PESTLE Analysis

• Political:
  The market for low-cost carriers is influenced by various political factors, including government regulations and international relations. For example, the European Union has introduced a new aviation policy that requires a reduction in carbon dioxide emissions of 30 per cent by 2030. This will have a direct impact on the activities of low-cost carriers. Similarly, the American government has allocated $US1 billion to support regional carriers. This could indirectly benefit low-cost carriers by increasing competition and improving the air transport network in remote areas.
• Economic:
  In 2024, the economic climate for the LCCs is shaped by the fluctuation of fuel prices and the spending habits of consumers. Jet fuel is at an average price of about $2.50 per gallon at the start of 2024, up about 15 percent on the previous year. This could force the LCCs to adjust their fares. However, travel spending is expected to rise 5 percent in 2024, and the US alone is expected to spend about $145 billion on air travel, indicating a strong demand for low-cost air travel.
• Social:
  In 2024, the tendency is to favour budget travel among the younger generations. In the course of the year, it was estimated that the share of LCCs in the market would increase from 8% to 12%. Moreover, the development of remote work is leading to a 25% increase in weekday leisure travel, which is mainly dominated by low-cost travel, as people look for cheap holidays.
• Technological:
  In 2024, technological development is playing a crucial role in the low-cost-airline market. Artificial intelligence (AI) is increasingly being used for customer service and efficiency. For example, more than half of the low-cost carriers use chatbots, which are artificial intelligence-based tools that answer customers' questions. Also, the use of advanced booking systems has reduced the average time taken to book a flight by a quarter, improving the customer experience and reducing the cost of the operation.
• Legal:
  Legal factors affecting the LCC market in 2024 will include a greater emphasis on passengers’ rights and safety standards. In the European Union, a new regulation requiring compensation for delays and cancellations of up to €600 per passenger will have a negative impact on the operating costs of LCCs. In addition, the IATA’s safety standards must be met in order to maintain an operating license. Approximately 80% of LCCs currently meet these requirements.
• Environmental:
  In 2024 the LCCs are increasingly concerned with the environment and the issue of sustainability. About forty per cent of them have committed to the purchase of more fuel-efficient aircraft, with an average investment of fifty million dollars in new technology per company. Also, the industry is under pressure to reduce its carbon footprint and by 2050 to achieve zero net emissions. The LCCs are looking at the possibility of using alternative fuels and trading carbon credits.

Porters Five Forces

• Threat of New Entrants:
  The low-cost-airline industry has comparatively low entry barriers, which makes it easy for new carriers to enter the market. But significant capital investment, regulatory approval and the establishment of a brand may deter some potential new entrants. Moreover, the industry’s major players have already captured a significant market share, which makes it difficult for new entrants to compete effectively.
• Bargaining Power of Suppliers:
  Suppliers to the LCC market, such as aircraft manufacturers and fuel suppliers, have a medium degree of bargaining power. Several aircraft manufacturers exist, but the number of alternative suppliers is growing and the LCCs are able to negotiate bulk-purchasing agreements that can mitigate this power. Fuel suppliers are few, but changes in fuel prices can have a significant impact on operating costs, giving them some bargaining power.
• Bargaining Power of Buyers:
  Customers of low-cost carriers have a high bargaining power because of the great number of alternatives. They are highly sensitive to the price differences between the various carriers and easily switch to the cheapest. This forces the low-cost carriers to offer highly competitive fares and attractive promotions to retain their customers.
• Threat of Substitutes:
  The alternative means of transport include the railways, buses and private vehicles. However, the advantage of air transport in the case of long distances is a speed and comfort that these alternatives do not always offer. In regions where the railways are well developed, the threat is greater, especially for budget travellers.
• Competitive Rivalry:
  Competition in the low-cost market is intense, with a large number of competing carriers. Price wars, frequent special offers and the need to differentiate services create a highly competitive environment. New entrants and established players are constantly innovating to win and retain customers.

SWOT Analysis

• Strengths:
  • Cost-effective travel options attracting price-sensitive customers.
  • Flexible scheduling and increased frequency of flights.
  • Strong brand loyalty among budget-conscious travelers.
• Weaknesses:
  • Limited services and amenities compared to full-service airlines.
  • Higher operational costs due to fuel price volatility.
  • Dependence on ancillary revenue streams, which can be unpredictable.
• Opportunities:
  • Expansion into emerging markets with growing travel demand.
  • Partnerships with travel technology companies for enhanced customer experience.
  • Continuing emphasis on sustainable and eco-friendly practices to attract travellers concerned about the environment.
• Threats:
  • Intense competition from both other LCCs and traditional airlines.
  • Economic downturns affecting discretionary travel spending.
  • Regulatory changes and potential increases in airport fees.

In 2024 the low-cost-carrier market is characterized by its flexibility and low-cost-travel, which appeal to the budget-conscious traveler. However, this market is faced with the challenges of limited services and reliance on ancillary revenues. Opportunities for growth exist in emerging markets and through technological alliances. Competition and economic uncertainty pose a threat to profit. Strategically, a focus on sustainability may enhance brand appeal in a competitive environment.