The key to delivering low fares is to consistently keeping cost low. Attaining low cost requires high efficiency in every part of the business and maintaining simplicity. Therefore every system process must incorporate the best industry practices.
The key components of the LCC business model are the following;
1. High Aircraft Utilisation
Aircraft is kept flying as much as possible, the first flight starts as early in the morning commercially possible and the final flight typically ends at midnight. A fast turnaround is critical to ensure time spent on the ground is minimal – an airline makes money when the aircraft is flying, not when the aircraft is parked. AirAsia's turnaround time is 25 minutes; as compared to a Full Service Carrier (“FSC”) which typically has a one hour turnaround time. On average, AirAsia's utilisation per aircraft is 12 block hours per day, a FSC might do about 8 block hours per day.
2. No Frills
The underlying business for a LCC is to get a person from point A to point B. Everything else is considered to be luxury items or "frills", of which can be acquired for a small fee. Among the many frills that AirAsia has excluded include;
- No free food & beverages. Some of our passengers may prefer not to consume food & beverages when onboard. There are those who prefer to rest throughout a flight or those who prefer having their meals before flying off. Hence we do not force our guests to purchase something they do not want or need. Guests are most welcome to purchase food & drinks at an affordable price from our website before the flight, of from the cabin crew during the flight.
- Assigned seating. Guests receive boarding passes with pre-assigned seats and are not allowed to request for a seat change unnecessarily. If the guests have preferences on where or with whom they would like to seat on the aircraft, they are able to do so by paying a small sum when checking-in online. This feature is called “Pick-a-Seat”.
- Ticketless airline. Less hassle for the customer, as guests need not worry about collecting tickets before travelling. This also allows AirAsia to keep our costs down (less paper, lower printing and distribution costs) and continue to offer low fares to our guests.
- Online check-in. Guests are highly encouraged to check-in online so they do not have to waste time lining up at the check-in counters at the airport. This helps us to improve efficiency and reduce congestion in the airport.
- No refund. Airlines waste a lot of money, time and resources due to refunds and rescheduling when guests do not show up for a flight. Whether or not a guest shows up, the cost of flight to the airline is the same. LCCs are strict when it comes to no show guests and do not offer refunds for missed flights.
3. Streamline Operations
Making the process as simple as possible is the key of a successful LCC.
- Single type of aircraft. Pilots, flight attendants, engineers, mechanics and operations personnel are specialised in a single type of aircraft. This means, among others, that there is no need for costly re-training of staff, for maintaining stock with parts for different types of aircraft, for different knowledge and skills to operate and maintain different types of aircraft with their own specifications, or for new work requirements.
- Single class seating. There is only one class seating, i.e first class. Should a guest want to have the privilege of choosing his or her seat, they can do so by purchasing “Pick-a-Seat”.
- Standard Operating Procedures. SOPs are important to ensure same level of competence among all staff. This way we can ensure the homogeneity of service throughout the company.
4. Secondary Airports
Low cost carriers mostly fly to and from airports that are not necessarily the busiest. These are often referred to as secondary airports. Operating from secondary airports is cheaper than the major airports. They are also a lot less congested and "turnaround times" for aircraft are a lot shorter. For instance, to minimise fees AirAsia flies into Clark Airbase in the Philippines which is 70km away from Manila as appose to flying into Manila Ninoy Aquino airport. And in Thailand, AirAsia operates from Don Mueang instead of Suvarnabhumi airport.
5. Point to Point Network
LCCs operate simple point-to-point network. Almost all AirAsia flights are short-haul (4 hour flight or less). No arrangements have been made with other airline companies on connecting flights, on possibilities of flight transfers, nor on having the luggage labeled and passed through from one flight to another.
6. Lean Distribution System
Distribution costs are something that FSCs most often ignore. Very often, FSCs rely on travel agents and their sales offices. Furthermore, FSCs tend to complicate their distribution channels by integrating their systems with multiple Global Distribution Systems, which are very costly. LCC will keep their distribution channel as simple as possible and will cover the whole spectrum of the clientele profile. For example, AirAsia can cater to the most sophisticated European traveler via internet and credit card sales. And at the same time, AirAsia has an established system to sell our tickets to the most remote and technology deprived locations, such as in Myanmar.
- Internet sales. The bulk of sales (85%) are done via the airline's website (www.airasia.com), whereby the fares are paid using credit cards, debit cards or via online banking. This is the most cost effective distribution channel.
- Sales office. AirAsia only has a few sales offices. We only establish a sales office if we are confident the sales derived from the centre will be worth it.
- Travel agents. LCCs avoid reliance on travel agents as much as possible. This means that the airlines do not pay any commission to travel agents, which would otherwise have been reflected in the fares. Also, as LCCs do not use travel agents, we do not use nor participate in the world wide reservation systems. This allows us to save costs, which again are reflected in our pricing.
- Call centres. Ticket sales can be done via telephone - a simple and cost effective method.