Two sides of the same coin: traditional vs. budget airlines

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During the past decade the rise in number of low cost carriers has generated significant interest from a number of businesses looking to reduce travel expenditure. However, as the distinction between legacy and budget carriers becomes increasingly minute, travel buyers have to look beyond simple pricing metrics to determine best value.

Meeting Half Way

A number of flagship airlines have already fallen victim to their lower price counterparts. In this context many have begun emulating their competitors and have unbundled a number of services. KLM and British Airways, for instance have begun charging passengers wanting to check in baggage. Other examples include charging for meals and to select seats. These initiatives significantly reduce legacy carriers’ cost disadvantage in relation to low-cost airlines.

On the other hand, a selection of budget airlines have adopted policies aimed at attracting business passengers. New initiatives include the introduction of flexible ticketing and complimentary seat reservations.

Hidden Costs and Difficult Comparisons

These changes mean legacy and budget airlines are offering increasingly similar services for comparable prices. In fact, a recent study has revealed that the cost gap between low cost and traditional airlines has fallen to under one third in the past six years. This is partially because traditional airlines have abandoned the previously “complimentary” services mentioned above.

Procurement managers working in the travel category have long struggled with the complexity of the airline industry’s pricing. Budget carriers may well offer the lowest available ticket prices, however, these are often inflated by transport costs to and from a secondary airport and ancillary fees.  These expenses make it challenging to integrate budget airlines into managed travel programs, alongside legacy airlines.

Opportunities amidst Complexity

The changing business model being adopted by many legacy airlines will offer a raft of opportunities to corporate travel buyers looking to ensure best value. However, there is little doubt that corporate buyers will continue to struggle with the unbundled cost model adopted by budget and now traditional airlines. Travel buyers can no longer focus on the cost of a ticket to secure the most cost effective option. Corporates need to emphasize airline services requirements and set up appropriate policies for managing ancillary costs.

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