1. Market Overview

Cheap Airways (Low-Cost Airline, shortLCA) refers to airlines that use low fares as the main means of competition to provide passengers with basic air transportation services by reducing operating costs and increasing aircraft utilization. The rise and development of low-cost aviation not only provides more travel options for the majority of passengers, but also brings vitality and innovation to the air transport market.

According to data from the Champ Consulting Group,2022The global air transport industry lost nearly 70 percent inbillion dollars, and 2023YearThroughout the yearIt will be 47.Billions of dollars in profit. Compared with traditional airlines, low-cost airlines are expected to get rid of losses faster and achieve market recovery.2023The size of the global low-cost airline market will reach1.2Trillions of dollars, year-over-year growth18.6%; expected2028year, the market size will reach2.1trillions of dollars at a compound annual growth rate11.8%。

2. market supply

During the epidemic, low-cost airlines around the world actively took various measures to save themselves in order to reduce costs, increase revenue and attract customers. The main measures include:

Renegotiate with aircraft suppliers, airports, etc. to reduce aircraft purchase or rental prices, reduce taxes and airport service fees, etc. For example, Ryanair (Ryanair) with Boeing (Boeing) reached an agreement to purchase 75737 MAXaircraft and get a favorable price。

The introduction of preferential price policies and new routes has attracted more passengers with rigid and leisure needs. For example, Air Asia (AirAsia) introduced"Unlimited Flight Pass"（Unlimited Pass), allowing passengers to take their domestic flights an unlimited number of times for a certain period of time.; Wings of Europe (Eurowings) has added a number of new routes connecting Europe and Africa.

The use of digital, intelligent and other technical means to improve operational efficiency and service quality. For example, Southwest Airlines (Southwest Airlines) using artificial intelligence (Artificial Intelligence, shortAI) and machine learning (Machine Learning, shortML) technology to optimize its network planning, revenue management, customer relationship management, etc.

3. market demand

In the context of the easing of the epidemic, the global demand for low-cost airlines is expected to continue to grow. Key drivers include:

Increased demand for short-haul flights. Compared to traditional airlines, low-cost airlines focus on short-haul flights, which are more attractive to many travelers in the face of the combination of epidemic restrictions and policy uncertainty. According to data from the Champ Consulting Group,2022year-on-year growth in international passenger traffic for global budget airlines152.7%, returning to pre-epidemic levels.62.2%。2023For the full year, the proportion is expected to rise further, reaching75.1%. This means that the share of capacity on international routes by global low-cost airlines will increase from2022of the year22.4%Increase2023of the year24.9%, a record high.

Recreational tourism demand. With the advance of vaccination and the relaxation of travel restrictions, many travelers began to plan and book leisure travel, especially islands, beaches, nature and other destinations. Low-cost airlines meet this demand with their low fares and flexible services. According to data from the Champ Consulting Group, Eurowing is a German low-cost airline,2022In the summer of 2008, the company's bookings increased year-on-year.45%Reaching the highest level in history. Eurowing Airlines said the growth was mainly due to improved outbreak control in European countries and a recovery in tourism demand. Eurowing customers mainly choose Spain, Greece, Turkey and other places as their holiday destinations, and the bookings in these regions account for the total bookings.60%Above.

The demand for business travel is shifting. Affected by the outbreak, many business travelers turned to alternative methods such as online meetings, resulting in the loss of high-end customers from traditional airlines. Low-cost airlines, on the other hand, have attracted some business travelers by offering more choice and flexibility. According to data from the Champ Consulting Group,2022The percentage of business travel revenue for U.S. low-cost airlines reached18.2%Traditional airlines have dropped13.6%. Expected2023Throughout the year, this trend will continue, with budget airlines increasing their share of business travel revenue19.5%while traditional airlines dropped12.3%. This shows that low-cost airlines are improving their position in the US aviation market, while traditional airlines are facing greater challenges.

4. market challenges

Although the low-cost airline market has good development prospects, it also faces some challenges, including:

Fuel prices are rising. Fuel is one of the largest cost expenses of low-cost airlines. Affected by factors such as international oil price fluctuations and exchange rate changes, the increase in fuel prices will directly affect the profit level of low-cost airlines. According to the Champ Consulting Group, due to the global economic recovery and progress in epidemic prevention and control,2023Global oil consumption is expected to increase year-on-year for the full year1.7%, reach102.2billion barrels/day. At the same time, global oil supply has beenOPEC The gap between supply and demand has widened due to the impact of the production reduction agreement, the decline in U.S. shale oil production, and the conflict between Russia and Ukraine. These factors have led to high volatility in international oil prices,2023YearBrentThe average annual price of crude oil futures is expected to be99.04USD/Barrel, more2022Annual increase30%。

Tightening of environmental regulation. In order to cope with climate change and reduce carbon emissions, governments and international organizations have issued a series of environmental regulations and tax policies, which put forward higher requirements for the air transport industry. For example, the EU plans2023The implementation of the carbon boundary adjustment mechanism in (Carbon Border Adjustment Mechanism, shortCBAM), a carbon tax on high-carbon products entering the EU market; the UK government plans to impose a carbon tax on2023VAT on canceled domestic flights in (Value Added Tax, shortVAT) relief.

High-speed rail competition intensifies. As a fast, convenient, environmentally friendly and economical mode of transportation, high-speed rail has formed fierce competition with low-cost airlines in some areas. For example, in China, the high-speed rail network covers most cities in the country, and continues to improve the speed of operation and service quality; in Europe, high-speed rail connects many countries and cities, providing more cross-border travel options.

5. market opportunities

In the face of market challenges, there are also some opportunities in the low-cost aviation market, including:

The potential of emerging markets is huge. In Asia, Africa, Latin America and other regions, the low-cost aviation market is still in the development stage, with broad space and demand. According to data from the Champ Consulting Group, the proportion of low-cost airlines in these regions to the number of low-cost airlines in the world is46%, while the proportion of the global low-cost aviation market size is only28%. With economic growth, increasing population, expanding middle class, and increasing tourism awareness in these regions, the low-cost aviation market in these regions is expected to usher in rapid growth.

The application of new technologies enhances competitiveness. With the advancement and innovation of science and technology, low-cost airlines can use new technologies to reduce costs, increase efficiency, increase revenue, and improve service. For example, the use of electric aircraft (Electric Aircraft) or hydrogen fuel cell aircraft (Hydrogen Fuel Cell Aircraft) and other new aircraft, can reduce fuel consumption and carbon emissions, reduce environmental costs (Blockchain) technology, can achieve more secure, transparent and efficient ticketing, payment, insurance and other businesses; use big data (Big Data) and cloud computing (Cloud Computing) technology that enables more accurate market analysis, customer profiling, pricing strategies, and other decision support.

Explore new models to expand the market. In addition to the traditional basic service models such as low fares, no catering, and no entertainment, low-cost airlines can also explore and try new operating models and service models according to different customer needs and market environments. For example, the implementation of mixed mode (Hybrid Model), that is, while maintaining low fares, provide some additional paid services, such as baggage check-in, seat selection, catering services, etc., to increase customer satisfaction and revenue sources; implement the alliance model (Alliance Model), that is, to establish cooperative relations with other airlines or travel agencies to provide more route choices and package discounts to expand market coverage and customer base.

6. market strategy

In response to the current situation and trends in the low-cost airline market, Champ Consulting believes that low-cost airlines should adopt the following strategies to respond to market challenges and seize market opportunities:

Maintain cost advantages and improve operational efficiency. Low-cost airlines should continue to optimize their cost structure and reduce unit operating costs by purchasing more energy-efficient and environmentally friendly aircraft, increasing aircraft utilization, and reducing labor costs. At the same time, low-cost airlines should also use digital, intelligent and other technical means to improve their operational efficiency and service quality, and enhance customer experience and loyalty.

Expand new markets and increase revenue streams. Low-cost airlines should formulate appropriate market entry and expansion strategies according to the market characteristics and customer needs of different regions and countries, open up new routes and destinations, and increase market share and brand awareness. At the same time, low-cost airlines should also provide more value-added services and products by implementing hybrid models or alliance models to increase revenue sources and profit margins.

Focus on environmental responsibility and enhance social image. Low-cost airlines should actively respond to and comply with the environmental regulations and policies of governments and international organizations, and take effective measures to reduce the impact of their operations on the environment, reduce carbon emissions and energy consumption. At the same time, low-cost airlines should also improve customers' environmental awareness and participation through publicity and education, and enhance their social image and reputation.