Airline Industry Ripe for New Low-Cost Carriers

Now may be the most opportune time for new low-cost carriers (LCC) to enter the market, says GlobalData, a leading data and analytics company. There are low barriers to entry to the market and financial concerns still rank high among travelers,

Following a recent surge of airlines announcing their intent to launch, the LCC business model is being primed for success. With travelers seeking domestic trips and travel closer to home across 2021 and beyond, the low-cost model will likely be the most successful in the short-term.

A GlobalData poll showed nearly half (43 percent) of global respondents willing to travel domestically over the next 12 months, and 27 percent are willing to travel within the same continent – the bread and butter for many LCCs short-haul operations.

Gus Gardner, Associate Travel and Tourism Analyst at GlobalData, comments: “With consumer sentiment improving, airline startups could be well-positioned to capture this rising demand. Low ticket prices will be vital for stimulating demand.”

Travelers will be seeking cheap tickets now more than ever as the COVID-19 pandemic has placed a considerable strain on their finances. In GlobalData’s latest consumer survey, 87 percent of global respondents said they are ‘extremely’, ‘quite’, or ‘slightly’ concerned about their current personal financial situation.

Gardner continues: “Characterized by the offering of competitively low fares, LCCs will likely be the business model leading market recovery post-COVID-19. Low prices will bode well with cash-strapped travelers looking for the cheapest way to escape. Loyalty with established players could be called into question as price becomes a more significant factor compared to pre-pandemic. If new entrants can offer low fares, cannibalize existing airlines’ traffic, and win market share, they could emerge in a strong position to succeed in the long-term.”

Entering the airline industry has historically been difficult, and many have failed to establish a foothold. However, that has changed due to the impact of the pandemic, and many opportunities are now present.

“With an abundance of attractively priced second-hand aircraft, as well as airport slots and skilled labor (pilots and cabin crew) available following the shrinking of many airlines, previous hurdles to begin operating are now suppressed,” said Gardner. Startups are likely to hold the industry’s low-cost bases, he added, resulting in lower fares and the ability to win market share from their competitors. All those factors may combine for to create success stories for new airlines in the current climate.

“New start-ups should, however, remain cautiously optimistic regarding operations. Operational agility and seeking out lucrative market opportunities will be vital. With low barriers to entry currently present and passengers seeking low fare travel options, now could be the best time to launch an LCC,” Gardner added.