Cargo gains no price advantage from low cost carriers

Full cost carriers are fighting back against the major threat of low cost carriers by adjusting capacity and offering value-formoney deals. While full cost carriers are under severe threat from their low cost opposition, this is however only for passengers. According to Professor Jackie Walters, head of the Department of Transport and Supply Chain Management at the University of Johannesburg, the very real threat posed by low cost carriers can be seen in the market share and growth they have taken from the full cost carriers when it comes to passengers. In a recent study it was found that low cost carrier market share had increased dramatically in recent years from 15% in 2003 to 40% in May last year. Speaking at the Transport Forum in Woodmead, Prof Walters said many believed this market share would increase to a high of 60% but that in all probability was too high. “My prediction is that it will stabilise around 48%. In recent times the full cost carriers have lost out on growth opportunities in the face of the stiff competition from their lower cost counterparts,” said Prof Walters. According to Alwyn Rautenbach, managing director of Airlink Cargo, it is fair game when it comes to cargo and freight. “The belly in a low cost or full cost carrier is used for exactly the same reasons and at the same prices when it comes to cargo – there is no threat between the two and it is all fair competition. The one does not offer a lower rate than the other.” According to Rautenbach there is no advantage or disadvantage in using a full cost or low cost carrier for cargo. Kulula's entry into the market in 2001 heralded a new era for the South African domestic airline industry, which has continued to grow year on year. With the addition of 1Time in 2004 and Mango in 2007, it had become clear that on the Golden Triangle (Johannesburg, Durban, Cape Town) the low cost carriers had significantly stimulated the market. “We found that the full cost carriers could not capitalise on the passenger growth normally associated with a strongly growing economy, and substitution took place between the full and low cost carriers.” According to Prof Walters full cost carriers were already in dangerous waters ahead of the economic downturn, the effects of which became apparent in September 2008. “Airlines have to find ways of keeping their costs down and their seats full if they want to survive the economic crisis. More so the carriers charging more for a seat. In an effort to counter the threat posed by low cost carriers we have seen competitive pricing from the full cost carriers that is sometimes a better offer than the low cost carrier,” Prof Walters told FTW. With their average load factors currently at least 12% higher than the full cost carriers, low cost carriers are here to stay.