LCCs out to attract business travellers. Part 2: Looking behind the online fare

11 January, 2017

In Part 2 of Blue Swan Daily’s three part series on the increasing use of Low Cost Carriers by the business and corporate market, we look at we examine the commercial and practical feasibility of LCCs as an alternative to full service legacy carriers for corporate travellers and their travel managers.

While ‘best fare of the day’ policies encourage travellers to book the cheapest flights, for travel managers to use LCCs, their clients’ corporate travel policies need to expressly include the low cost alternative before they can be used. The LCC options also need to be included in the self-booking tools, many of which are configured to “switch off” non-preferred suppliers.

To assist the booking process, many LCCs, particularly in Asia Pacific, are also increasingly providing Global Distribution System (GDS) access to their inventory meaning that that travel managers are now able to check the availability of LCC fares at the same time as full service airlines making access easier and often making it possible for LCC and full service fares to be included in the same passenger booking profile.

However, widespread adoption of LCCs by corporates also requires a thorough understanding of the total cost of travel, especially since these airlines have developed complex pricing strategies which include ancillary charges for checked luggage, meals and seat selection.

To compare the total cost of the flight effectively, travel managers and their clients need to have visibility into the full range of additional fees. These can be significant, especially for last minute checkins.

LCC ancillary charges: comparison of Jetstar, Virgin Australia and Tigerair Australia domestic
Checked Baggage
Jetstar From AUD50.00/NZ70.00 (15Kgs) purchased at the airport
Virgin (Saver) From AUD35.00 (23Kg) purchased online

From AUD70.00 (23Kg) purchased at the airport

Tigerair From AUD75 (15Kg) purchased at the airport
Seat Selection
Jetstar From AUD5-AUD24
Virgin (extra legroom) From AUD20- AUD70
Tiger From AUD5- AUD41.40
Source: Airline websites

Sydney Australia December 7, 2015, Airbus A320 VH-VNB wearing Tiger Airlines colour scheme, arriving on a partly cloudy day at Kingsford Smith airport .

Besides charges for checked baggage and seat selection, LCCs also have additional meal and refreshment charges.

There are intangibles too that are valued by business travellers. They consider the convenience of lounge access, especially when flights are delayed or cancelled. Typically, LCCs do not have, or provide access to, airport lounges. In Australia, Jetstar, however, does provide eligible Qantas Frequent Flyers and Qantas Club members access to the Qantas lounges, where they are in the same terminal. Virgin Australia, however, does not provide lounge access to Velocity members when they fly Tigerair.

Another important pricing consideration is change fees, especially for travellers dependent on their clients’ or colleagues’ schedules during their business trips. While legacy carriers often provide significant change flexibility with their higher-priced fares, increasingly many budget fares are issued on a use-it-or-lose-it basis. It’s an irresistible revenue earner for airlines. So, a late arrival at the airport may mean fare forfeiture and the need to buy another ticket. Even where a “change” is possible prior to the travel date, it will be accompanied by a change fee (which can be substantial, even though there is no administrative cost to the airline) and very often a requirement to pay the difference to a higher price, where the original fare is no longer advertised.

Recognising this need for flexibility, LCCs such as Jetstar have added some change options to business-friendly fare classes, but these come at a cost on top of the original ‘cheap’ fare.

Travel managers will also have to overcome the powerful lure of frequent flyer miles, which tempt travellers to use legacy airlines that reward their loyalty. Some LCCs, such as Tigerair, do not allow travellers to accrue frequent flyer miles toward Virgin Australia’s Velocity loyalty programmes although on Jetstar Australia, those travelling on Starter Plus, Starter Max or Business Max fare bundles do earn Qantas frequent flyer points. Nevertheless, travellers with a loyalty programme focus may try to avoid using LCCs in favour of carriers that reward them at the same level as full service carriers do. In this sense, Jetstar has a clear advantage over Tigerair given they do allow points accrual on certain fares.

On balance however, it’s unrealistic to expect LCCs to provide an identical product to their full service counterparts in order to meet the expectations of corporate customers. That said, there appears to be a clear trend amongst some LCCs to adapt and evolve their offering to become increasingly ‘corporate friendly’. The stakes are high enough to make compromises to the LCC model worthwhile. But LCCs always run the risk of becoming low fare while losing their low cost identity.

In our third and final article in this series, we will look at long haul vs short haul. Is the feasibility of the LCC alternative for the corporate travel market limited only to short haul? Or can LCC’s effectively compete with full service carriers on the medium and long haul markets as well.

For Parts 1 and 3 of these series please see below:

Part 1: How Qantas, Virgin and Air New Zealand have evolved

Part 3: International and Long haul low cost