Wednesday, January 03, 2007
The LCC model crosses the ocean
Happy New Year! It appears as if the shower of interesting aviation news hasn't let up for the holidays.
Virgin America must once again reapply for its application to fly. The DOT has not allowed Virgin America to solo stating concerns over its ownership structure. The airline does not meet the requirement that 75% of its voting interest be owned or controlled by US citizens. Other US carriers are unanimous in their opposition to the carrier's upstart, however many industry experts believe that the airline will eventually be given the green light.
Sir Richard Branson's Virgin Group's aviation exploits are not dominated by the US market alone. Industry rumors believe that Virgin Atlantic may find time to cooperate with Air Asia of Malaysia, and possibly even easyJet. The LCC business model may finally get its turn to shine as a long-haul product. Air Asia is said to be interested in offering flights from Asia to the UK. If the model is able to survive the initial upstart-hiccups it may be a viable model. However, don't expect British Airways or Lufthansa to worry too much. A long-haul LCC model either needs sufficient local traffic on either end, or a supportive feed network. The model is not inherently designed to offer connecting traffic an opportunity to feed onto the long-haul routes, however the LCC leaders have proven themselves to be quite innovative and may just find a solution to the problem. The Virgin Group appears to be slowly building quite an aviation empire. With Virgin Express and Virgin Atlantic in Europe, and Virgin Nigeria, and Virgin Blue, and potentially Virgin America. It appears as if South Americans may soon have a Virgin among them.
The LCC business model is attractive to a market segment that is very large, however some executives can't help but yearn for higher revenue passengers. While watching their aircraft being boarded they look to the dinosaur, legacy carrier across the ramp and see the first class passengers walking down the jetway. Many LCC leaders want to see those passengers walking onto their aircraft, not only for vacation but for business travel as well. This is where they start to tweak the model, sometimes successfully and sometimes not. The same holds true for executives at full-service carriers. It appears as if each strategic group is looking across the fence and adopting those business model elements that they think work best.
The challenge is that a business model is like your neighbor's well-made cake. You can't copy some of your neighbor's ingredients and get the same cake as them. Sometimes it may be better than theirs, but sometimes it may turn out worse.