How legacy carriers can innovate better

Low cost carriers are not going anywhere

The competitor landscape for traditional full service carriers (FSCs) is changing. Also known as ‘legacy’ carriers due to their strong hold on the industry, FSCs have historically dismissed low-cost carriers (LCCs) as distant and indirect competition. But, it’s clear that LCCs are now a well-established part of the industry which is catching up fast. They are poised to take over 50% of market share in Europe and Asia Pacific (excluding China) by 2050.

Here, we’ll unpack three ways that LCCs are driving this rapid shift, and why FSCs should be implementing the same strategies.

Report by Credit Suisse, Feb 2021

Digital innovation

LCCs have the edge when it comes to innovation. Technology like subscriptions, automation and post-booking revenue management are taking the lead. Now more than ever, third-party technology is turning every digital touchpoint into the chance to sell.

Many legacy airlines have stilted and outdated in-house tech. This has a knock-on effect on customer satisfaction and loyalty. As we see it now, they aren’t meeting the high expectations of travelers as a result. For example, passengers want to make quick changes to their flight on their smartphone without making a call. And they don’t want to spend valuable time booking individual flights each time they travel. It’s no longer just about the single plane ticket, or adding on ancillaries, but the full buying experience for customers.

Showing a chatbot mobile on left and a graph on the right

Chatbots and subscriptions are some forward-looking digital solutions which many LCCs are implementing. The key to their success is that they put the customer at the centre of the buying experience and reap the benefits from customer satisfaction.

Of course, there are instant benefits to adding better technology to your tech-stack. This could be improved productivity for your team or a new revenue stream. But the benefit of innovating now is that you are making a long-term investment in the future of your airline.

Loyalty 2.0

LCCs are shifting their business models to develop new kinds of customer loyalty. By doing this, they are directly competing with legacy carriers born long before them. The traditional ‘frequent flyer’ programs of the past are exactly that, past! Air miles and points are no longer driving new customers to be loyal, nor are they attracting or retaining customers.

For many who are flying right now, the price difference between a journey on a basic carrier vs premium just isn’t worth it, especially on short-haul flights. Customers are also looking at what they truly get from being loyal to a FSC, and some are no longer seeing the previous benefits pre-COVID.

Picture of packed airplane on left and someone given champagne on right

One innovative model we’ve seen LCCs adopt is the flight subscription. A subscription ensures passengers fly on their next flight with one airline, for the duration of their subscription. It also guarantees they are not flying a legacy carrier competitor. By starting the customer lifecycle with a subscription, you can upsell and build a relationship. In turn, this safeguards revenue from financial disasters such as pandemics. Iñaki Uriz, CEO of Caravelo says,

“The default behavior for a subscription is retention whereas with a singular ticket sale, the behavior is churn. In an industry that struggles to maintain loyal customers, a passenger will always be shopping around for a better deal, unless that deal is effectively locked-in.”

Embrace change

LCCs have been taking risks from day one, and those risks are paying off. Innovation can be seen as a risk, but it has paved the way for LCCs to take the lead over their legacy competitors. The first mover advantage is what many LCCs have, and FSCs will pay the price for years to come.

FSCs can face this discomfort by working with disruptive partners in the industry. Airline technology partners understand the struggles of integrating new technology into older systems. They are set up to deal with this challenge and how to circumvent the problems.

Plane flying over some buildings

FSCs can still start to grasp back some of those passengers who have started the switch to LCCs. It’s not too late. It’s perhaps also the time to fully accept LCCs as what they are, real competition. These competitors are taking over valuable market share and will only continue to do so unless FSCs take a leap of faith and embrace change.

How we see it

Challenge is a catalyst for innovation. It rapidly accelerates trends and disrupts industries. Of course we recognise that both FSCs and LCCs have major differences, from the distances they fly to costs they pay up front. And we don’t doubt that many airlines are very hard at work right now. But we aren’t sure they are investing in the right areas which are beneficial for the long term.

Knowing what you know today, what would you as an FSC do differently to combat the growth of LCCs? There may be things that took too long to change. Like unbundling or fully developing ancillary revenue. We know you can’t go back in time. But considering the defining moment we are living in, it’s undeniable that there is a true chance to shine. LCCs are now strategizing their moves for the next decade. What will you regret in ten years time?