Summary
- Full-service carriers focus on network profitability, while low-cost carriers prioritize route profitability.
- Full-service airlines operate multiple aircraft types, while low-cost carriers stick to one to minimize costs.
- Low-cost carriers rely heavily on ancillary revenue, while full-service airlines have multiple income sources.
From the consumers' perspective, the biggest and perhaps the most important difference between a full-service carrier and a low-cost carrier is the ticket cost. Legacy carriers charge a relatively higher cost than their low-cost counterparts. However, with lower costs, budget carriers minimize costs wherever possible. Whether it is charging for a boarding pass at the airport or squeezing more seats in the cabin, low-cost carriers think it through.
There are also less noticeable differences, and this article will explore those aspects. Those less apparent differences between full-service and low-cost carriers include the airline's strategic focus, fleet composition, operating bases, distribution channels, and revenue sources.
Differences in strategic focus
Full-service airlines like American Airlines or Lufthansa focus on network profitability, whereas low-cost carriers focus on route profitability. American Airlines operates from ten hubs, including Dallas/Fort Worth, Charlotte, Los Angeles, and Chicago. They'll often let a marginal route survive if it feeds passenger traffic through a hub and onto a highly profitable route that helps subsidize those less profitable routes.
Why would American Airlines do this? It's all about choice, service, and frequencies - key features of a full-survive airline. Does it work? Let's look back at what was a normal flying year (pre-pandemic). In the 2019 financial year, American Airlines had a net income of nearly $2.2 billion.
With low-cost airlines, routes live and die by their performance. Rather than focusing on hubs and connectivity, low-cost carriers focus on point-to-point connectivity and individual route profitability. Low-cost carriers generally loathe cross-subsidizing underperforming routes. For example, Frontier Airlines frequently drops (or "suspends") routes if they do not meet expectations. Conversely, low-cost carriers can experiment with new routes more than most full-service airlines.
Feet composition
- Southwest Airlines | low-cost carrier | operates only Boeing 737 family aircraft
- Ryanair | low-cost carrier | operates only Boeing 737 family aircraft
- Frontier Airlines | low-cost carrier | operates only Airbus A320 family aircraft
- easyJet | low-cost carrier | operates only Airbus A320 family aircraft
Low-cost carrier Southwest Airlines has over 800 planes, all of which are Boeing 737 variants. Denver-based low-cost carrier Frontier Airlines has over 130 aircraft, all of which are from the Airbus A320 family. Over in Europe, Ryanair has around 300 planes, all of which are 737s, like Southwest.
- Full-service airlines operate several types of aircraft
- Typically offer at least three cabin classes
- Services like airport check-in, seat selection (mostly restricted), and some baggage allowance are included.
In contrast, full-service British Airways and its subsidiaries have at least nine aircraft types in their extensive fleet. United Airlines has six different plane families across its 900+ aircraft fleet and expects to receive 800 new planes in the future. Singapore Airlines only has 160 odd planes in its fleet but runs at least six different aircraft families (A350, A380, B737, B747, B777, and B787).
Running only one type of aircraft is cheaper. You only need maintenance facilities and employee training for a specific plane model. Across the whole organization, everything can be nicely standardized. This is critical to keeping fares down.
However, that limits the type of route a low-cost carrier can fly on because, generally, a route needs to be serviced by a suitable and capable aircraft. Full-service carriers can easily match the right-sized planes to different routes and swap planes in and out depending on demand. This means that the airline can offer passengers more destinations and choices. Of course, it also costs more for the airline and, therefore, the passenger.
Low-cost carriers focus on secondary airports
- Legacy carriers generally operate to and from large airports
- Low-cost carriers generally pick secondary airports to minimize airport fees
While not a hard and fast rule, low-cost carriers often skip big, expensive airports for secondary airports, frequently located further from the city centers of destinations they fly to. Southwest Airlines, for example, favors Love Field in Dallas over the shinier Dallas Fort Worth Airport.
Outside Melbourne, Jetstar flies to the otherwise lonely Avalon Airport. Ryanair skips Paris' Charles de Gaulle Airport for the lesser-known Beauvais Airport, 80 kilometers from the city. Low-cost carriers favor secondary airports. Landing and ground fees cost less than the leading city airports at these facilities.
However, big-city airports are part of the convenience package full-service airlines market. They are usually (but not always) closer to city centers and have better transport links. The infrastructure is typically good at the airport, and terminal facilities are usually swish. There's also a certain marketing cachet flying into leading airports that fits comfortably with the premium image many full-service airlines like to promote.
Nonetheless, using the latest award-winning passenger terminal costs money, and this is passed on to airlines and, ultimately, the passengers. Airports served are a crucial point of difference between full-service and low-cost carriers and one more reason why flying a full-service carrier costs more.
Distribution channels
Another key difference between low-cost and full-service carriers is how you buy a ticket. Many travelers buy airline tickets online unless you're after a complex itinerary. However, if you are buying a ticket on a full-service airline, particularly in a premium cabin, you might search for a brick-and-mortar travel agent.
They've often got access to discounts and lurks that are not shown on websites. Plus, if you are ponying up a significant amount of money, there's some comfort in dealing with a person rather than sending your MasterCard details off into the online void.
While full-service airlines have a range of distribution channels (reflected in ticket prices), low-cost carriers usually sell their tickets only on their website. That gives them total control over fare pricing and cuts the costs of selling a ticket. This is reflected in the lower fare.
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Revenue sources
Ancillary revenues in the airline industry, as reported by Paylode
- 2019: $109.5 billion
- 2022: $102.8 billion
- 2023: $117.9 billion
Low-cost airlines rely heavily on ancillary revenue to make money. Fares are often so cheap they are loss-leaders or cost-neutral. Nonetheless, the boundaries between low-cost and full-service carriers are getting lost in this area.
Low-cost airlines have the most significant revenue shares coming from ancillary products. For instance, Ryanair's ancillary revenues represent over 36% of all revenue. Meanwhile, American Airlines' percentage of ancillary products is just over 15%. The nearly $118 billion in ancillary revenues last year represents a lot of checked-in bags, sandwiches, and upfront seats sold.
Full-service airlines charge a flat ticket price, and theoretically, everything is included, although that's fraying a bit around the edges at some legacy carriers. Full-service airlines generally have multiple revenue sources, including cargo businesses, frequent flier programs, and often interests in subsidiary airlines.
It's a portfolio approach to revenue generation designed to protect the airline should one aspect of its operations underperform over time. This year, cargo and frequent flier programs continue to generate income for full-service airlines, while ticket sales are not doing so well.
The bottom line
While there are noticeable differences between full-service and low-cost airlines, there are also less apparent differences. While full-service airlines have many bells and whistles, these cost more to offer, which is reflected in the final ticket price. Many low-cost carriers, especially those veering into ULCC territory, would charge you to use the loo if possible. Still, this economical approach is reflected in the final (low) ticket price.
Many full-service carriers have tried their hand at low-cost offerings over the years. Some have succeeded, while others quickly disappeared and were even taken on by existing low-cost carriers. Ultimately, it's up to the person buying the fare. Like most things, you get what you pay for and must adjust your expectations accordingly.
What do you think? What else differentiates full-service and low-cost carriers? Is cost or service more important to you when flying? Let us know what you think in the comments section.