passengers’ perceptions of low cost airlines andfull service carriers- a case study involving...
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Journal of Air Transport Managem
airlines business model? Is there a difference in passengers perceptions between low cost carriers and full service incumbents in a
rapidly growing Asian economy. Surveys have been
summary of the main differentiating characteristicsbetween incumbent network carriers and no-frillsscheduled airlines.
ARTICLE IN PRESSPrior to 2002, there were no signicant low costscheduled carriers operating in the Asia Pacic rim.
0969-6997/$ - see front matter r 2005 Elsevier Ltd. All rights reserved.
Corresponding author.E-mail address: [email protected] (J.F. OConnell).undertaken to ascertain why passengers are choosingone particular airline over another. This paper con-tributes to the literature by examining the differences inpassengers perceptions between the two airline modelsin contrasting geographical markets.The paper begins by examining the background of the
selected carriers including trafc carried and operatingcost performance. It then concentrates primarily on thesurveys that were conducted in Europe and Asia,highlighting key ndings such as passenger character-istics, journey purpose, booking methods, fares, con-
Low cost carriers have reshaped the competitiveenvironment within liberalised markets and have madesignicant impacts in the worlds domestic passengermarkets, which had previously been largely controlledby full service network carriers. In Europe, 14% ofavailable seat miles are now provided by low costairlines, with the two largest players easyJet andRyanair accounting for nearly 9%. These carriers havepursued simplicity, efciency, productivity and highutilization of assets to offer low fares. Table 1 provides aparticular airline model? How could a legacy carrier encourage passengers to return and so regain their domestic market share?
These questions are addressed using information obtained in passenger surveys that were recently conducted in Europe and Asia.
r 2005 Elsevier Ltd. All rights reserved.
Keywords: Full service airline; Low cost carrier; Passenger perceptions
The aim of this paper is to compare passengersselection criteria between a full service airline and a lowcost carrier in a mature European market and in a
necting trafc, carrier choice criteria and types of tripsundertaken in the previous 12 months.
2. Background of the airlines surveyedmature European market and in a rapidly developing Asian economy? What are the principle reasons why a passenger chooses aPassengers perceptions of low coA case study involvin
Air Asia and M
John F. OConne
Air Transport Group, College of Aeronautics, C
Direct competition between full service airlines and no-frills c
airlines have lost a signicant proportion of their passengers to
markets of Asia. This paper attempts to provide answers to a ns is intensifying across the world. US and European full service
ost carriers, the experience now being repeated in the domestic
r of critical questions: What are the key drivers of each type ofent 11 (2005) 259272
airlines and full service carriers:yanair, Aer Lingus,
eld University, Bedfordshire, MK43 OAL, UK
ARTICLE IN PRESS
Medium to high: union contracts
Low turnaround: congestion/labour
re Multiple integrated products
d sales Focus on the primary product
ality Multiple types: scheduling complexities
nment Generous pitch, offers seat assignment
forms Full service, offers reliability
g) Extensions: e.g., maintenance, cargo
Low cost carriers currently operating in the Asia-Pacic rim
Carrier Base Start date Fleet
Air Asia Malaysia Jan 2002 737-300
Air Deccan India Aug 2003 ATR-42 adding
Air Do Japan Dec 1998 767-300ER
Cebu Pacic Philippines Mar 1996 757-200, DC-9
Freedom Air New Zealand Dec 1995 737-300
Jetstar Australia May 2004 717, A320
Lion Air Indonesia Jun 2000 MD-82/-83
Nok Air Thailand Jun 2004 737-400
One-Two-Go Thailand Dec 2003 757-200
Pacic Blue New Zealand Jan 2004 737-800
Singapore tba 737-300
ir TrCarriers such as JAL Express, Air Do and Skymark inJapan and Citilink in Indonesia existed some yearsearlier, but did not signicantly impact their respectivemarkets. The initial slow development was in part due tothe perception that the low cost model adopted in theUnited States and Europe could not be replicated inAsia, because of the longer aircraft stage lengths, lack ofsecondary airports and regulatory restrictions prevent-ing access to international markets. The latter beingparticularly relevant given that the bulk of trafcand revenues are drawn from international markets inAsia.Thus, the low cost experience is a relatively new
phenomenon in the Asia Pacic rim with much of thenecessary management experience brought in from
Product features of low cost and full service carriers
Product features Low cost carrier
Brand One brand: low fare
Fares Simplied: fare struc
Distribution Online and direct bo
Airports Secondary (mostly)
Class segmentation One class (high dens
Inight Pay for amenities
Aircraft utilisation Very high
Turnaround time 25min turnarounds
Product One product: low fa
Ancillary revenue Advertising, on-boar
Aircraft Single type: common
Seating Small pitch, no assig
Customer service Generally under per
Operational activities Focus on core (yin
J.F. OConnell, G. Williams / Journal of A260outside the region, for example, from Ryanair. Asianlow cost carriers accordingly are in the initial growthphase of their development, while many of theirAmerican and European counterparts are approachingor have reached maturity. Due to this, little data isavailable about low cost operations in Asia. Table 2highlights the surge in low cost airlines commencingoperations in the Asia Pacic rim within the last 2 years.
2.1. Ryanair and Aer Lingus
Fig. 1a and b show the annual passenger trafccarried by Ryanair and Aer Lingus between 1997 and2003 and their respective falling unit cost levels over thisperiod. The incumbent has managed to reduce its unitcost to a level that it can now challenge its low fare rival.The carriers business model has been effectivelyreshaped for it to compete out of Irish markets withRyanair.When Ryanair was restructured and re-launched as a
low cost carrier in 1991, it carried 0.7million passengersFull service carrier
Brand extensions: fare+service
Complex fare: structure+yield mgt
Online, direct, travel agent
Ticketless, IATA ticket contract
Interlining, code share, global alliances
Two class (dilution of seating capacity)
ansport Management 11 (2005) 259272and Aer Lingus transported 3.7million. It took only 78years for Ryanair to catch up. Fares charged by AerLingus on the DublinLondon and CorkLondonroutes were cut by 70% when Ryanair entered themarket (Barrett, 1999).During the late 1990s and early 2000s, Ryanair
achieved a compound annual trafc growth rate of30.5%. The company has set itself the target ofbecoming the largest airline in Europe with over40million passengers a year (Ryanair, 2002). Thisambitious plan is evidenced by the airline taking deliveryof its 51st Boeing 737-800 in March 2004.
Skynet Asia Japan Sept 1998 737-400
Skymark Japan Sept 1998 767-300ER
Thai Air Asia Thailand Feb 2004 737-300
Tiger Airways Singapore July 2004 A320
Valuair Singapore May 2004 A320
Virgin Blue Australia Aug 2000 737-700/800
Source: OConnell and Ionides (2004).
ARTICLE IN PRESSir Tr0
1997 1998 1999 2000 2001 2002 2003
J.F. OConnell, G. Williams / Journal of AIn late 2003 the carrier ordered 125 Boeing 737-800sand placed options on a further 125 (Air TransportIntelligence, 2003). It increased its capacity by 44% in2003 alone and has tripled its seat capacity overall since2000.A signicant proportion of its earnings are derived
from ancillary revenues. In 2003, the carrier madeh28million from commissions on car rentals, h23millionfrom in-ight sales, h12million from Internet sales andh35million from nonight sales. It also gave away 20%of its ights for nothing in 2003 and aims for 50% freeseats by 2009.Aer Lingus, the Irish ag carrier, which is 95% state-
owned and part of the Oneworld alliance, now carriesover 6million passengers annually using 7 long-haulAirbus aircraft and 24 short-range types. The carriers120 weekly transatlantic ights account for 40% of itsrevenue. Trafc feed via code sharing to British Airwaysat London Heathrow is key to its UKIreland prot-ability. Eighty-eight percent of Aer Lingus cargobusiness is accounted for by its transatlantic andGerman markets; however airfreight overall is impor-tant to Ireland as nearly one-quarter of the countrysexports and imports by value are transported by air.
01998 1999 2000 2001 2002 2003(b)
Fig. 1. (a) Passengers carried on Aer Lingus and Ryanair. (b) Cost per
ASK for Aer Lingus and Ryanair.
Source: Air transport intelligence and analysis from company reports.Aer Linguss structural reformation into a low faresairline caused Ryanairs prots on the city pair to fall by20% in 2003. In 2001, Aer Lingus had accumulated anet loss of h149million and was losing h2.5million aday, with passenger numbers having fallen by 4.6% overthe previous year. The new management instigated asurvival plan targeting an annual cost reduction of 16%,representing h90million. The carrier turned in a netprot of h69million in 2003, producing an operatingmargin of 9.3%. Between 2001 and 2003, the trans-formed carrier increased its passenger trafc by 7% andits load factor by 11%, while reducing seat capacity by6%. Over the same period, Aer Lingus managed toreduce its operating costs signicantly as a newlyfocused management team trimmed 31% off fuel costs,28% from airport charges, 51% off aircraft rentals, 12%from maintenance, 53% off distribution, 21% from staffcuts, 36% off overheads, 21% from depreciation and49% off other miscellaneous direct operating costs,which netted the carrier an overall saving of h340mil-lion.Tables 3 and 4 provide details of the passenger trafc
carried by Aer Lingus and Ryanair between each mainIrish airport and the ve London airports between 1997and 2002. The growth in trafc carried by Ryanairbetween 1997 and 2002 is very high, with Dublin-Stansted increasing by 36% and CorkStansted by 58%,while ShannonStansted grew by 300,000 passengers injust over 3 years. Aer Lingus has also witnessed agrowth in its trafc, with passenger numbers on theDublinHeathrow route increasing by 29% and onCorkHeathrow by 30% between 1997 and 2002. Thetrafc carried by Aer Lingus on the ShannonHeathrowroute however remained at.By the end of 2002, low cost carriers accounted for
one-third of the total intra-European market involvingthe UK and Ireland. Between Ireland and the UK, lowcost carriers accounted for 47.2% of the trafc(Aviation Strategy, 2003b). By 2004, Ryanair hascarried over 45million passengers to/from Ireland sinceoperations commenced in 1985.According to forecasts from Tourism Ireland, ap-
proximately 7.7million tourists are expected to visit in2005 and the tourism minister is expected to invest overh110million in support of tourism of which almosth70million will be spent in support of marketing andpromotion. Travellers from Britain, France, Germanyand the US accounted for 83% of the total number ofvisitors to Ireland in 2002.
2.2. Air Asia and Malaysia Airlines
The history of Malaysias Air Asia is similar to that ofRyanair, as both carriers have transformed themselvesfrom loss making regional operators to protable low
ansport Management 11 (2005) 259272 261cost airlines. Perhaps this is not surprising, given that
ARTICLE IN PRESS
1999 2000 2001 2002
1,282,036 1,174,986 1,207,018 1,274,928
n/a 198,541 174,992
n/a 20,887 168,002 164,486
371,852 348,190 380,226 409,232
317,159 338,684 284,183 312,533
1999 2000 2001 2002
786,648 824,672 854,191 1,048,618
285,382 297,404 358,356 368,146
287,567 283,310 302,779 322,679
252,536 251,619 234,402 290,753
138,375 268,137 307,795
Malaysia AirlinesAir Asia
ir Transport Management 11 (2005) 259272Air Asia is managed by Conor McCarthy, an ex-Ryanair director. Besides attracting passengers frombuses and ferries, both carriers have experienced a largeproportion of rst time yers, largely attracted by thelow fares on offer.Air Asia currently has a 30% share of the domestic
Malaysian market. Since the airlines inception in
Aer Linguss trafc on IrelandLondon markets
DublinHeathrow 986,832 1,063,822
DublinStansted 230,393 299,953
CorkHeathrow 314,205 319,335
ShannonHeathrow 303,079 295,957
Source: Aer Lingus.
Ryanairs trafc on IrelandLondon routes
DublinStansted 766,267 787,724
DublinLuton 237,646 299,044
DublinGatwick 279,910 293,185
CorkStansted 236,769 236,962
J.F. OConnell, G. Williams / Journal of A262December 2001, the market has grown from 9millionpassengers annually to 13million. Bankers are valuingthe carrier between $750million and $1.2 billion(Ionides, 2004). Currently, the airline has 14 Boeing737-300s in its eet and by the end of 2004 it will haveacquired up to 30 aircraft, representing a 114%compound growth in capacity. In mid June 2004, itissued a tender to manufacturers that it was interested inacquiring up to 80 new aircraft comprising 40 rmorders and 40 options (Air Transport Intelligence, June2004).Figs. 2a and b show passenger enplanements and unit
costs for Malaysia Airlines and Air Asia between 1998and 2004. The unit cost differential is very signicantand is due to Malaysia Airlines excessive labour force,its poor productivity, low aircraft utilisation, unpro-table domestic routes and the limitations of intra-Asianbilaterals.With the worlds lowest unit cost of $0.023/ASK and
a passenger break-even load factor of 52%, Air Asia isshowing all the signs of being a Ryanair clone. It hashedged 100% of its fuel requirements for the next 3years, achieves an aircraft turnaround time of 25min,has a crew productivity level that is triple that ofMalaysia Airlines and achieves an average aircraft
1998 1999 2000 2001 2002 2003 2004F
1999 2000 2001 2002 2003
Malaysia AirlinesAir Asia
Fig. 2. (a) Passengers carried on Malaysia Airlines and Air Asia. (b)
Cost per ASK for Malaysia Airlines and Air Asia.
Source: Analysis from company reports.
1985 of $121.4million but has had an average operating
surveyed in the relaxed open landside public area of theairport. The airports where permission was granted to
tional airline products not offered by the low cost
ARTICLE IN PRESSir Transport Management 11 (2005) 259272 263utilisation rate of 13 h a day. In comparison, MalaysiaAirlines has hedged only 20% of its fuel requirements,achieves 1-h turnaround times and has an aircraftutilisation rate in the domestic market of just over 8 h aday. Air Asia has captured the growth in the domesticmarket of 45% in 2003 and consequently left MalaysiaAirlines with stagnant trafc.Equipped with a strong low cost formula, Air Asia is
beginning to move into new intra-Asian markets, suchas Thailand, by developing a franchise, under the brandname Thai Air Asia. It is taking a 49% shareholding inthe franchise, with the remaining shares being taken upby the Thai Prime Ministers Thaksin Shinawatras ShinCorporation, which will enable the carrier to operate byacquiring international landing rights in what wouldotherwise be a tightly regulated environment. Thepartnership with the Thai government is having itsbenets, as Sreenivasan (2003) has revealed. The currentThai transport minister Suriya Jungrungreangkit willremove the current minimum airfare regulations to openup the Thai market. The minimum airfare ruling wasestablished to prevent the undercutting of fares in thelocal market, with the probable intention of safeguard-ing Thai airlines.Air Asia has also pushed forward with its expansion
program into Indonesia, where it is operating out ofthree cities: Jakarta, Surabaya and Bandung. It isoffering tickets priced between 40% and 50% lowerthan the other domestic carriers. This growth outsidethe domestic Malaysian market follows a similarstrategy of Ryanair and easyJet in Europe, which haveexpanded by creating hubs in different neighbouringcountries. This was achieved in the EU as a result of fullderegulation of the sector, however. The tightly regu-lated international intra-Asian market is a majorobstacle to the full-scale development of low costcarriers in the region.Malaysia Airlines, the countrys ag carrier, is over
90% owned by the government. It carries over16million passengers annually and has extensive codesharing agreements with 24 international airlines. Thecarriers eet consists of 100 aircraft of which 54% areused in the domestic and intra-Asian markets. A further10 aircraft are on order, including 6 A380s. It has anextensive overhaul and maintenance facility that specia-lises in engine and avionics repair. The currency crisis of1997, followed by three successive years of poorrevenues and a debt of $2.6 billion forced the MalaysianGovernment to intervene and rescue the airline. Ittransferred ownership of 73 aircraft, leases on another17 and liabilities of $1.8 billion to the MalaysianFinance Ministry (Penerbangan Malaysia BerhadPMB). As a result, Malaysia Airlines today with nearly22,000 employees operates on behalf of PMB. In 2002,the airline achieved a net group prot of $89million.
J.F. OConnell, G. Williams / Journal of ASince then, the carrier has posted its best prot sincecarriers.
1Cork and Shannon Airports had a throughput of approximatelyundertake the surveys were Cork and Shannon1 inIreland, and Kuala Lumpur International in Malaysia.Small teams of personnel were involved in capturing thedata, as pilot studies concluded that the second page ofthe survey was often omitted and it was important thatall questions were understood and fully answered. Thepersonnel also assisted with language barriers and inanswering any issues raised regarding the open-endedquestions, in which each respondent could give apersonal response in his or her own words. A total of281 responses were collected at the Irish airports, 52%of which comprised Ryanair passengers, and 247responses at Kuala Lumpur International airport,48% of which were from Air Asia passengers.
4. Survey ndings
As expected, the low-cost carriers attracted a highnumber of younger people, with 24% of the Ryanairpassengers surveyed and 47% of Air Asias being in theunder 24 years age group. Eighty-seven percent of thisage group were travelling for non-business purposes thatincluded visiting friends/family and trips to/from placesof education. Parents mostly paid for these trips. For the2558 year age group, which represented 84% of thosesurveyed, passenger choice changed considerably infavour of the incumbent carriers.The age segregation between the carrier types is very
clear, with the older passengers tending to prefer theincumbent carriers, possibly because these offer addi-margin of only 0.3% in recent years.
Using a similar methodology to that adopted byMason (2001) and Turner (2003), data was collected ineach of the two regions from two large groups ofpassengers, one ying with a low cost carrier and theother an incumbent. Both groups were travelling to thesame city destination, but not necessarily to the sameairport. There has been no previous research onpassengers perceptions of low cost carriers in Asia.The airlines surveyed were Aer Lingus and Ryanair
operating in the mature European market, and MalaysiaAirlines and Air Asia operating in the recently liberal-ised Malaysian domestic market. The passengers were2.1million and 2.4million passengers in 2003 respectively.
Group travel is particularly signicant to airlinerevenues. Business travellers usually tend to travelsingularly but leisure travellers often journey in smallgroups. Low cost airlines carry more passengers whotravel as part of a group than do the incumbent airlines,with almost 40% of Ryanair passengers travelling inpairs and 31% of Air Asias passengers travelling as partof a group of people comprising three or more.It is only in recent years that the incumbent carriers
have sold discounted one-way tickets. This has been inresponse to the provision of such fares accessible via theInternet by the low cost carriers.The mode of surface access and the distance travelled
to the departing airport was also ascertained. Thesignicance of having a frequent high-speed, non-stoptrain service from the city centre of Kuala Lumpur tothe airport was apparent, with one third of thepassengers surveyed making use of this. In contrast,there is no such service linking any Irish airport, and onaverage 76% of passengers accessed their ights bypersonal car, which provides a signicant income to the
carrier are travelling further to reach their departureairport. The positioning of secondary airports longdistances from the major cities does not seem to pose asignicant barrier to the use of low fare carriers.Finally, questions were asked about the type of
accommodation used. There was a noticeable differencein the type of accommodation used by low cost airlineusers in Europe and those in Asia. A total of 31% ofRyanairs passengers stayed in hotels, while almost 49%of Air Asias passengers stayed in places such as inns,guesthouses, bed and breakfast establishments, orhostels. The European travel trade has often suggestedthat passengers who travel on a low cost carrier tend touse the savings that were derived from the lower fares instaying at more luxurious accommodation, such as ahotel. The incumbent carriers passengers tended to optfor hotels, which generally reects their requirement foradditional full service attributes, with an average of 39%of them staying in this type of accommodation.
4.1. Journey purpose
ARTICLE IN PRESS
J.F. OConnell, G. Williams / Journal of Air Transport Management 11 (2005) 259272264airport authorities in parking fees.Passengers were also asked how far they had travelled
to the airport. In Malaysia, those who were using thenational ag carrier travelled an average distance of 50miles to reach the airport, while Air Asia passengerstravelled an average of 77 miles. The distance fromKuala Lumpur to the international airport is approxi-mately 40 miles. In Europe, the survey found thatRyanair passengers travelled 44% further than theincumbent carriers passengers to reach the airport.Lawton (2002) and Doganis (2001) have referred to thefact that European passengers ying on a low cost
Aer Lingus Ryanair SD
Business % %
Meeting 24.2 17.2 0.048
Conference 5.9 6.9 0.029
Training 7.3 4.8 0.028
Trade fair 0.0 0.0
Employment 0.0 0.0
Total business 37.4 28.9
Sports 10.3 13.1 0.038
Shopping 0.0 0.0
VFR 20.5 27.7 0.050
Weekend break 9.5 12.4 0.037
Holiday 14.7 12.4 0.040
Studying 6.6 5.5 0.028
Religious 0.0 0.0
Total Non-business 61.6 71.1
Total 100 100aThe p-value gives the probability that the observed differences in journeyTable 5 shows journey purpose and as expected, thetwo incumbent airlines carried a signicant proportionof business trafc, with meetings being the primaryreason for the trip. However, almost 29% of theRyanair passengers surveyed were also travelling onbusiness, which was only 8.5% less than the equivalentgure for Aer Lingus. Of signicance here is the fact thatRyanair is operating to a secondary airport, which addstime and inconvenience for business travellers in gettinginto central London. Some 40% of the passengerstravelling for business purposes with Ryanair were going
-valuea Malaysia Air Asia SD p-valuea
.110 14.0 5.8 0.037 0.03
.727 7.0 0.8 0.024 0.01
.377 5.4 1.6 0.023 0.103
2.3 0.0 0.013 0.070
1.5 0.0 0.010 0.154
.462 5.4 13.4 0.037 0.031
5.4 3.3 0.026 0.417
.168 16.9 23.2 0.050 0.213
.443 10.9 12.6 0.041 0.684
.575 10.9 15.1 0.042 0.328
.669 16.4 22.6 0.050 0.213
3.9 1.6 0.020 0.284
100 100purpose is due to chance.
to events such as conferences and training courses.These journeys would generally be considered as beingless urgent business trips. The low p-value means thatthe difference between the carriers is unlikely to be dueto chance.Approximately 8% of Air Asia passengers, all of
whom were male, were travelling for business purposes.The low p-values for the Asian carriers cited abovereects the fact that passengers are more likely to travelon Malaysia Airlines for meetings and conferences andare more likely to travel on Air Asia for sporting eventsand that these differences are statistically signicant. In
ARTICLE IN PRESSJ.F. OConnell, G. Williams / Journal of Air Trmore mature European markets however, this trend issomewhat reversed.Table 6 provides details of the sizes of companies that
the business passengers surveyed work for. It is perhapsnot so surprising that such a high proportion of self-employed people choose the low cost carriers. A crosstabulation of self employed passengers and primaryreason for choice of a low cost carrier revealed that 91%of these travellers chose the carrier primarily due to thefare and were not attracted by the extended full serviceproducts offered by the incumbent airlines. Businesspassengers travelling on incumbent airlines tend to comefrom larger companies that employ over 100 people.These companies would generally have larger travelbudgets and would adopt corporate travel policies.Mason (2001) states that 73% of business passengers hesurveyed at Heathrow had a company corporate travelpolicy, as opposed to 55% of the travellers using a lowcost carrier at Luton airport. Over one third of AerLingus and Malaysia Airlines business passengers workfor companies that employ over 1000 people, indicatingcorporate preference for the additional airline productsthat the full service carriers provide.The low cost carriers attracted proportionately more
leisure trafc, with Ryanair and Air Asia havingrespectively 10% and 22% higher proportions of theirtrafc comprising leisure users than their incumbentcounterparts. It was also apparent that the biggestleisure market segment comes from those passengerswho regularly visit friends and family.
Company sizes of the surveyed business passengers
Aer Lingus Ryanair Malaysia
number of employees
% % % %
Self employed 9.6 32.1 12.3 67.4
124 11.3 26.5 8.2 20.7
2599 18.3 24.3 16.1 11.9
100999 26.2 17.1 29.2
10005000 29.2 23.7
5000 + 5.4 10.5Paci (1994) showed that the Asian leisure market, andin particular, the VFR segment was steadily growingand that culturally, time spent with family and friends isa very important leisure activity. Air Asias VFR trafcrepresents almost a quarter of its total market, whilethat of Malaysia Airlines fewer than 17%. This segmentrepresented the largest number of passengers carried onboth surveyed airlines. Student travel accounted for thesecond largest non-business market. Cross-referencingindicated that most of this travel was paid for byparents, although the choice of airline was largelyselected by the students. Most of these students havemigrated from travelling on trains and buses to AirAsia. Overall, a large proportion of Air Asias passen-gers are rst time yers (Aviation Strategy, 2003a). Thebrand perception of lower fares, large network, highadvertising awareness campaigns and 24 h booking viathe Internet is certainly pushing the Malaysian low costcarriers non-business market.The rivalry for domestic market share in Malaysia is
just beginning to surface. Air Asia has taken away theannual domestic passenger market growth of 45%from Malaysia Airlines as domestic leisure trafc wasstagnant in 2003 for the incumbent. This may be in partdue to the fact that Malaysia Airlines does not advertiseits domestic route network in the local media, incontrast to Air Asia, which has an aggressive mediapresence, somewhat mirroring that of Ryanair.Between 1993 and 1999, which covered the establish-
ment and growth phase of Ryanair, annual VFR trafcfrom Ireland to the UK grew from around 500,000 to835,000. The effect is even more revealing whenconsidering VFR trafc from the UK to Ireland, whichgrew from 950,000 to 1.8million over the same period(Mintel, 2000). This growth was primarily due to thelarge second and third generation Irish-British popula-tion living in the UK. VFR trafc constituted the largestsegment of non-business passengers surveyed, withrespectively 20.5% of Aer Lingus and 27.7% of Ryanairpassengers travelling for this purpose.The second biggest non-business segment consisted of
passengers travelling for holiday and short breakpurposes. Both the low cost carriers sampled carrymore of this type of trafc than the incumbents. InEurope, low cost scheduled carriers have encroached onthe charter market. Williams (2001) argues that packagetour charter carriers are vulnerable to low cost airlineson sectors of up to 2.5 h, given that travellers can nowintegrate their own ights and accommodation intopersonalised package holidays via low cost carrierwebsites. However this is not the case in Malaysia,where there is an absence of such charter airlines.Short holiday breaks have become very signicant
representing an important market in the leisure sector.The two low cost carriers attracted slightly more short
ansport Management 11 (2005) 259272 265break travellers than the incumbents, with this sector
accounting for an average of 12.5% of their trafc.Mintel (2002) estimates that UK nationals took5.6million short breaks in 2002, which representsaround 15% of all UK holidays abroad. By 2005 thisgure is forecast to increase to 7.2million, accountingfor around one fth of international holidays.The low cost airlines are extending their brands to
capture this short break market. Air Asia is marketinginclusive packages on its website under Go Holiday,offering a wide range of mini-breaks consisting of 23
incumbent only introducing its online booking engine inlate January 2004, when passengers became able topurchase domestic tickets to a select number ofdestinations. This would seem to conrm the ndingsof Gillan and Lall (2002), as the majority of ticketspurchased were via travel agents or call centres. In 2001,roughly 10% of the Malaysian population had personalcomputers, but this had increased to 18% by 2003, thistechnology enabling the development of low cost travel(Thomas, 2003). Low cost airlines are forcing change
ARTICLE IN PRESS
J.F. OConnell, G. Williams / Journal of Air Transport Management 11 (2005) 259272266nights. Ryanair also offers short break packages andadvertises leisure activities on its website. Thesepackages form an important part of additional ancillaryrevenue with the low cost airlines integrating packageholidays into their core business model. These shortbreak packages are generally absent from both the AerLingus and Malaysia Airlines websites.Attending sports events is the journey purpose for
around one tenth of travellers. It was apparent that over80% of groups that consisted of four or more passengerswere travelling to sporting xtures. Sporting activitiesare usually considered unimportant by tour operatorsand are left to the competencies and/or skills of localsuppliers. It would appear therefore that there is ampleopportunity for low cost airlines to capitalise on thismarket.
4.2. Booking methods
The distribution channels used by the passengerssurveyed are seen in Table 7. The carriers aresignicantly associated with method of booking, withRyanair passengers more likely to use the website (78%)than Aer Lingus passengers (58%). Many Aer Linguspassengers used a travel agent (16%), whereas this typeof booking channel was not available to Ryanairpassengers. There was no signicant difference in theuse of other booking methods. The contrast is evenmore apparent between Malaysia Airlines and Air Asia,with the latters passengers predominantly using theInternet to book their tickets and generally avoidingtravel agents, while Malaysia Airlines passengers do theopposite. Malaysia Airlines in particular stands out, asthere were no passengers that booked online due to the
Booking proles (%)
Website Travel agent Call centre Ofce booked Fam
Aer Lingus 58.1 16.2 8.1 9.6 2.2
Ryanair 77.9 6.3 11.7 3.4
Malaysia 50.8 18.0 14.8 8.6
Air Asia 64.4 3.4 13.6 1.7 7.6through the competitive advantage of online distribu-tion and it is predicted that 2530% of all Asian airlineticket sales will be online by 2005 (Ionides, 2001).There are only a small number of incumbents that
have fully functional e-commerce websites in Asia,including Singapore Airlines and Cathay Pacic. Lowcost airlines are formulated so that a large proportion oftheir sales are conducted via direct channels, such ashost websites. Air Asia launched its online sales facilityvia www.airasia.com in its fth month of operation andwas the rst airline in Asia to introduce Internetbooking with online payments and ticketless travel. ByMay 2003, 45% of its bookings were made through theInternet (Thomas, 2003). The carrier is extremelyinnovative, being the rst airline worldwide to offerSMS booking, and is processing 20003000 messagesper month. Additional channels include 10 sales ofcesand call centres each equipped with over 180 lines thattake 6000 calls a day. The carrier has also beeninnovative in providing alternative distribution chan-nels, such as enabling passengers to book tickets at postofces.Direct bookings were made by over 64% of Air Asias
passengers surveyed. This rises to 73.7% if theadditional channels of ofce booked and family/friendsare included. The call centre channel accounted for over13% of bookings. A relatively large number of tickets(10%) were purchased on the day of departure, whichnormally represents the most expensive time to purchasea ticket.There is a very noticeable discrepancy between the
booking proles of Malaysia Airlines passengers andthose of Air Asia. This reects the incumbents inabilityto implement change (technology) and keep pace with
ends Purchased today Other website Statistical signicance
2.9 2.9 x2 189:66; df 6, po0:0000.7
7.8 x2 868:53; df 5, po0:0009.3
its innovative rival. Even in countries where use of theInternet is not widespread, evidence shows that passen-gers will seek out all the available booking channels to
Over 58% of Aer Lingus passengers surveyed booked
ARTICLE IN PRESSJ.F. OConnell, G. Williams / Journal of Air Transport Management 11 (2005) 259272 267online. The airlines aggressive marketing campaign inpromoting a strong brand is having an effect on the waytickets are now booked. It recently removed theshamrock logo from a number of its aircraft andreplaced it with AerLingus.com, demonstrating itswillingness to lose its trademark link with traditionand heritage in favour of an innovative and technolo-gical logo to gain competitive advantage. One of theprinciple reasons for the carriers nancial reformationand its challenge to Ryanair has been the shift in itsdistribution channels. Aer Lingus benchmarked itspassenger processing costs against those of Ryanairand declared that there was a h20 difference perpassenger between the two carriers, the Internet provid-ing the solution to this cost disadvantage (OToole andPilling, 2003).
Lawton (2002) pointed out that the average fares ofno frills carriers were some 4060% lower than their fullservice competitors. Ryanairs one-way fares averaged50 Euros in 2002, with the airline having becomerenowned for stimulating markets through its low fareofferings, which has given rise to the term Ryanaireffect.Part of Ryanairs strategy for market stimulation is
the issuing of free tickets. For example, in the rst 6months of 2003, the carrier issued 100,000 free seats tocelebrate the opening of its new base at Bergamo inJanuary 2003; 66,000 free seats in May 2003 when itscompetitor easyJet announced half yearly losses of
2The 2003 Year End Google Zeitgeist survey (based on 55 billion
searches over the past year), that tracks the most popular sites, ranks
Ryanair.com as the fth most searched for brand across the worldwideaccess lower fares.Ninety-three percent of Ryanair passengers surveyed
booked online (this includes the combination of anumber of channels, such as website, ofce bookedand family/friends). Ryanair is now the fth mostsearched website worldwide, which demonstrates thestrength of the low cost carrier brand.2 By contrast,16.2% of Aer Lingus passengers used travel agents tobook their tickets. Commissions by the carrier to thetravel trade in the UK and Ireland have been cut to 1%;however in continental Europe commissions are stillbetween 4% and 7%. In November 2001, Aer Lingussold 1% of its tickets via the Internet, but by late 2003its Internet bookings had grown to 50%, with the carrierhandling 1012% of sales through its call centre.web.h66million; 70,000 on June 12th to celebrate the factthat it had carried 70,000 more passengers in May thanits low fare competitor; and 27,000 on June 16th forhaving a better level of punctuality for the 27thconsecutive week than easyJet. More recently, on April20th 2004, Ryanair celebrated its 80millionth passengerwith 800,000 free seats and by August 19th it reached90million and consequently gave away 900,000 seats at90 pence. In 5 years time the carrier plans to give away50% of its ights for free. Passengers perception istherefore to expect low fares from this no frills carrier.Only passengers on ights going only to the London
airports from Ireland were surveyed. The average one-way fare paid by Ryanair passengers was h65 and theaverage return fare was h159. Taxes constituted h19.5for IrelandUK trips, with an additional h21.70 for thereturn journey. If these taxes were deducted, then thefares would equate to approximately h45 one-way andapproximately h117 for return journeys. The Aer Lingusaverage one-way fare paid by those surveyed was h82and the average return fare was h183. The taxes in thiscase were higher as the carrier served different airportsin the London area. The average one-way tax wasapproximately h20, and the tax on the return journeywas an additional h28. Again, if these taxes weresubtracted then the fares would equate to approximatelyh62 one-way and h135 for return journeys.Table 8 shows the fare differences between the two
Malaysian carriers surveyed on a number of routes.Shortly after the government assumed 6.9 billion Ring-gits of Malaysia Airlines debt, the carrier cut fares by50% on 14,000 seats a week to compete more effectivelywith Air Asia in the domestic market. The informationshown in Table 8 takes account of these discountedfares.The low unit cost of Air Asia at $0.023 cents per
ASK3 enables the carrier to offer such low fares. AsMalaysia Airlines loses money on its domestic opera-tion, matching the low fares of Air Asia could beharmful to its nancial viability, however it needs itsdomestic network to feed into the Kuala Lumpur hub.A further question related to how important the fare
was in actually choosing a carrier. The results are shownin Fig. 3. As expected, fare constituted the principlereason for choosing a low cost carrier. Almost 65% ofAer Lingus passengers stated that fare had been the soleinuencing factor in their choice of airline, while only31.5% of Malaysia Airlines passengers did so. It isevident that a signicant number of passengers travel-ling on incumbent carriers are also inuenced by factorsother than the fare paid.An attempt was made to assess the cross-price
elasticity of demand between incumbents and lowcost carriers. Fig. 4 provides an indication of what3Air Asia has the lowest operating costs in the airline industry.
ARTICLE IN PRESS
Ryanair (n = 122)ul
Question posed to low-cost carrier passengers
Air Asia (n = 90)
ir TrTable 8
Fares proles of Air Asia and Malaysia Airlines surveyed passengers
Route Air Asia
KLKota Bahru 89.99 179.98
KLKota Kinabalu 249.99 499.98
KLKuching 99.99 179.98
KLLabuan 269.99 448.98
KLLangkawi 129.99 275.98
KLMiri 169.99 368.98
KLPenang 69.99 139.98
KL is Kuala Lumpur.aThe tax is already excluded from the fares. The average one-way tax i
16 Ringgits.bA Malaysian Ringgit is worth US$0.26 cents, NatWest Bank, Lond
J.F. OConnell, G. Williams / Journal of A268proportion of a low cost carriers passengers wouldswitch over to an incumbent if the full service providerreduced its fares respectively by 10%, 20% and 30%.The results show that if Aer Lingus and MalaysiaAirlines were to reduce their fares by 10%, then 6.1% onaverage of Ryanairs and Air Asias passengers wouldswitch over to them. A further reduction to 20% wouldpersuade 19.6% of Ryanairs passengers and 14.4% ofAir Asias passengers to switch over to the respectiveincumbent carrier.A signicant aim of the survey was to nd the fare
levels at which a large number of passengers travellingon a low cost carrier would be willing to switch over toan incumbent airline. If the incumbent airlines reducedtheir fares by 30%, then 45.9% of Ryanairs passengersand 39.4% of Air Asias passengers would be preparedto switch. There are a signicant proportion ofpassengers however who would not transfer to anyother carrier. The data show that 40.6% of Air Asiaspassengers and 28% of Ryanairs passengers wouldremain loyal. This is due to a combination of factors,such as brand development, fares, ight schedule,simplied website, package holidays, etc.
Aer Lingus Ryanair Malaysia Airlines
Fig. 3. Was the carrier selected solely due to its fare?Malaysia Airlines Difference
One-way Return O/W Ret
158 316 75 75
437 874 75 75
262 524 162 191
437 874 62 94
205 410 58 48
422 844 148 129
158 316 125 125
roximately 16 Ringgits, with the return tax approximately an additional
ay 1st, 2004.
ansport Management 11 (2005) 259272Although low cost airlines are relatively new to Asia,they have already developed very strong low fare brandsthrough strong advertising and clever use of the media.The wide perception of people in Malaysia, whenacknowledging Air Asia, is that it represents low fares.Gilbert et al. (2001) argue that branding is becomingincreasingly important as a means of product andservice differentiation, and that the low cost airlines arebuilding brand recognition to compete in such acompetitive environment.Fig. 5 provides an indication of what proportion of an
incumbent carriers passengers would switch over to lowcost airlines if it raised its fares by respectively 10%,20% and 30%. This information provides an indicationof the amount of fare exibility that incumbent airlineshave and identies the point at which passengers wouldbegin to shift their custom to low cost carriers. Givenincumbents offer the benet of full service, includinginterlining, serving primary airports, business class,
10% 20% 30%
Not SwitchFare Reduction of Incumbent
Fig. 4. Fare sensitivity of low cost airline passengers.
4.4. Airline connections
Fig. 6 shows the percentage of connecting trafc forboth groups of carriers. A big feature of a full servicecarrier is the ability to interline trafc at its hub airport.As expected, there is a strong interline requirement forboth ag carriers that operate hub and spoke networks.Slightly over 42% of Aer Lingus passengers surveyedwere interlining, as compared to 36.7% of those ofMalaysia Airlines. This reects an incumbents abilityto leverage network benets and thus attract ahigh proportion of passengers who wish to connectseamlessly.
ARTICLE IN PRESSir Transport Management 11 (2005) 259272 269frequent yer mileage, etc., some passengers are clearlywilling to pay more for these features.The data show that fare increases of 10% and 20%
would persuade approximately 5% and 14.8% of theincumbents passengers to switch to low cost carriers,with the differences between the two carriers not beingstatistically signicant at the 10% condence level. If theincumbents however, raised their fares by 30%, then42.8% of Aer Linguss passengers and 48.7% ofMalaysia Airlines passengers would switch. Anothernoted observation is that at a 5% statistical condencelevel, an average of 34.3% of the incumbents passengerswould remain loyal, possibly due to the wide range ofproducts/facilities offered.It is clear that low cost carriers offer a strong
substitute to the full service airline product. Notsurprisingly, this has important implications for market-ing and advertisingbranding, customer loyalty andsatisfaction should be carefully considered by every
10% 20% 30%Per
Question posed to incumbent passengers
Not SwitchFare Increase of Incumbent
Aer Lingus (n=133)Malaysia Airlines (n=123)
Fig. 5. Fare sensitivity of incumbent airline passengers.
J.F. OConnell, G. Williams / Journal of Aairline. Interestingly, the results of the survey show thatcross-price elasticity is not constant. This dees theusual assumption made in various econometric modelsof constant cross-price elasticity and shows the im-portance of absolute fare levels in determining customerchoice.Finally, to complete the discussion, income effects
should be considered. Although the survey has not beendesigned to quantify explicitly any income effect, it isevident that consumer income does play an importantrole, as less wealthy consumers are more price-consciousand hence more susceptible to a switch between airlinesas a result of changes in fares. Having said this, dynamiceffects are highly important; air travel does not have theglamour of the past any more and the low cost carriershave managed to develop brands of their own. There-fore, when airport location and total travelling time aresimilar, low cost carriers may also become the preferredchoice of more wealthy customers.Low cost airlines operate mostly on a point-to-pointbasis only. These carriers emphasise that they will not beresponsible if passengers fail to make their connections,even if the onward journey is with the same carrier. Therisk of failing to make a connection involves thetraveller purchasing another ticket. Data from thesurveys indicate that passengers are willing to acceptthat risk. A total of 17.2% of Ryanairs passengersquestioned were transferring to other carriers at LondonStansted. Ryanairs creation of trafc bases acrossEurope has provided the opportunity for passengers tointerline using a point-to-point network. Air Asiastransfer trafc was only 5.8%, which is not surprising asit was only formed in December 2001.Fig. 7 identies the principle airlines to which the
interlining passengers surveyed were transferring. It isapparent that the incumbent carriers have a signicantproportion of their trafc transferring to alliance orcode-sharing partners. Aer Lingus had 55.3% of itsconnecting passengers questioned transferring to theOneworld alliance, of which the majority were transfer-ring to British Airways. By contrast, 72% of Ryanairspassengers surveyed who were making connectionscontinued their journeys from Stansted on otherRyanair ights, while around 20% connected witheasyJet services. Ryanair operates 130 daily depar-tures out of London Stansted and accounts for 52%of the airports capacity, thus providing numerous
Aer Lingus Ryanair Malaysia Airlines Air Asia
50%Fig. 6. Percentage of connecting trafc.
particular airline. A study undertaken by Proussaloglouand Koppleman (1995) on the demand for air carrierservices concluded that carrier selection was based on acombination of factors that included the airlines marketpresence, schedule convenience, low fares, on timeperformance, reliability and the availability of frequentier programs. Fig. 8 provides conrmation of theirresults, with the evidence from this survey thatpassengers choose a full service carrier for a variety ofreasons, including: service reliability, service quality,ight schedules, fares, connections, frequent yerprograms, comfort, safety and company policy. Passen-gers questioned chose an incumbent carrier to benetfrom the wide range of services available and thehigh reliability associated with this type of airline.Service reliability was one of the top reasons forchoosing an incumbent airline. Over 20% of Aer Linguspassengers and 18.7% of Malaysia Airlines passengersquestioned selected this as their principle reason forcarrier choice.Fig. 9 shows that the low cost airlines passengers
questioned had a very different principle reason forcarrier selection. The majority replied that fare was byfar the most important factor in choosing to y on a lowcost airline, with ight schedules coming a distantsecond. Turner (2003) also showed that passengers
ARTICLE IN PRESSir Transport Management 11 (2005) 2592720%
Airline Connections for Aer Lingus and Ryanair
Aer Lingus Ryanair
Code Sharing Partners
Airline Connections for Malaysia Airlines and Air Asia
Malaysia Airlines Air Asia
Fig. 7. Percentage of trafc transferring to other carriers.
J.F. OConnell, G. Williams / Journal of A270permutations of connections and ample opportunity forpassengers to transfer to other destinations.Malaysia Airlines is not part of an alliance, but 68.5%
of its connecting passengers surveyed were transferringto other code-share ights. Only 6.6% of MalaysiaAirlines passengers questioned connected with Air Asiaat Kuala Lumpur. Very few of Air Asia passengerssurveyed were transferring: four were connecting to aMalaysia Airlines long haul service, while the remainingthree were transferring to Air Asia ights. As the marketbegins to mature and Air Asia develops additional hubs,there will be a greater opportunity for passengers totransfer to other ights. The perception is evident in theAsian market that passengers can use a combination ofcarrier types to reach their destinations, and thatinterlining via a low cost carrier network is certainly aworkable option.
4.5. Principal reasons for carrier selection
A total of 43.8% of the two incumbents passengersquestioned stated that they had looked at other carriersofferings prior to booking their ights. By contrast,65.2% of the low cost carriers passengers surveyedstated that they had not considered other carriersservices prior to booking their ights.An important element of this research was to establish
the principle reason why each passenger had selected atravelling on a low cost carrier selected fare as theirprinciple reason for carrier choice, while passengers
Aer Lingus (n=132)
Malaysia Airlines (n=128)
Fig. 8. Question posed to passengers to determine their most
important reasons for choosing an incumbent airline over a low costcarrier.
ARTICLE IN PRESS
Fare Flight Schedule
Reliability Connections Miscellanous
Air Asia (n=115)60%
J.F. OConnell, G. Williams / Journal of Atravelling on an incumbent carrier indicated ighttimings. Ryanair has given away 20% of its ights forfree in 2003, leading passengers to expect very cheaptickets from the carrier. A total of 5.2% of Air Asiaspassengers identied the ability to book via the Internetas their most important reason for choice of carrier,with a further 4.3% citing the holiday package offeredby the airline on their website.The evidence presented in Figs. 8 and 9 conrms the
principle differences in passengers perceptions betweenincumbent and low cost airlines. Passengers are selectinglow cost carriers primarily because of their low fares,while passengers selecting full service airlines opt forthem in part because of the additional product servicesthey provide.
5. Concluding comments
Two contrasting markets have been examined in thispaper; the rst, a mature Europe, where liberal skieshave allowed low cost carriers to establish trafc hubsacross international boundaries, and the second, an
Fare Flight Schedule
Fig. 9. Question posed to passengers to determine their most
important reasons for choosing a low cost carrier over an incumbent
airline.Asian economy, where strict bilaterals act to constrainsuch network developments.The survey has revealed that while there are
differences between passengers travelling on a low costcarrier and those on a full service airline, there appearsto be no difference in the attitude and perception ofpassengers from two very different continents. It wouldseem that the success of Air Asia in Malaysia, which wasbased on the Ryanair model and which in turn wasmodelled on Southwest in the US, can be successfullyreplicated in any part of the world as passengersopinions and expectations appear consistent.There is a strong bias towards young people taking
low cost carriers and it will be interesting to observe ifthese travellers migrate towards incumbents when theyhave more disposable income in the future. It is clearthat passengers travelling on low cost carriers placegreat importance on price and appear to arrange theiritineraries using the least expensive airfares. Sixty-vepercent of those passengers travelling on a low costcarrier surveyed did not look at any other carrier whenbooking their travel. It would appear therefore that thebrand reputation of low fare airlines has becomeembedded into the minds of consumers.In contrast, passengers using full service airlines are
concerned about price but will tolerate a higher fare togain an advantage through the additional airlineproducts offered by full service carriers. Historically,incumbents have been incapable of matching the fares ofno-frills airlines because they were burdened withinefcient operating practices. Low cost carriers arenow dominating the leisure markets and are encroachingon business segments. There is signicant business trafcfor Ryanair especially from the self-employed andemployees of small-medium sized enterprises; howeverlarge corporations still favour the incumbents, stronglyindicating that corporate deals appear to work.Travellers are willing to connect through secondary
airports and to accept no frills in exchange for low fares.Incumbents are retaining their complex and wide rangeof airline products as a counteractive strategy for higherfares. However, this research clearly indicates that thisworks only for a specic number of travellers. The wayforward for incumbents is to reinvent themselves byadopting those elements of the low cost model that arepertinent to their requirements. The data ascertainedfrom the survey provides evidence that if incumbentscould reduce their fares by 30%, it would stimulate asignicant number of passengers (over 40%) to switchfrom low cost carriers. It is clear that cross-priceelasticities are far from constant, with small percentagechanges in fare producing little effect while pricechanges above 20% result in large shifts in demand.It is apparent that passengers travelling on incum-
bents place strong emphasis on reliability, quality, ight
ansport Management 11 (2005) 259272 271schedules, connections, frequent yer programmes and
comfort, while travellers taking low cost carriers focusalmost exclusively on fare. The surveys overall indicatethat the ideal scenario for passengers, would be to havea combination of low fares (at no-frills airline levels) andsome of the full service products offered by theincumbent airlines. It would seem therefore thatpassengers would like to see the two airline modelsbecome ever closer.
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ARTICLE IN PRESSJ.F. OConnell, G. Williams / Journal of Air Transport Management 11 (2005) 259272272
Passengers perceptions of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia AirlinesIntroductionBackground of the airlines surveyedRyanair and Aer LingusAir Asia and Malaysia Airlines
MethodologySurvey findingsJourney purposeBooking methodsFaresAirline connectionsPrincipal reasons for carrier selection