Low-Fare Airlines Conquer the World

Low-Fare Airlines Conquer the World

Whatever you choose to call these airlines, low-cost (LCCs), low-fare, no-frills, discount, budget, inter-regional, point-to-point or new generation, they have changed the face of commercial aviation worldwide. We will take a look at these carriers, what we will call low-fare, in countries outside the Americas, and more specifically, their relation to frequent flyer programs.

The Low-Fare Revolution
The granddaddy of all low-fare airlines is Southwest Airlines and you cannot discuss these airlines in any detail without first mentioning the little airline from Texas that changed the world. Almost everyone knows something of this Texas start-up with its hot-pants wearing stewardesses and excellent on-time flight record. Through the years, Southwest has won the hearts of many frequent flyers and added jet fuel to the dreams of entrepreneurs worldwide. Southwest started with regional flights in Texas in 1971, was profitable by 1973, introduced its first destination outside of Texas in 1979 — New Orleans — and introduced its frequent flyer program, Company Club, in June 1987 (the program is now called Rapid Rewards). And by August 2006, Southwest Airlines carried more customers than any other U.S. airline, topping the monthly list for combined domestic and international passengers, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics. Southwest showed the world that the legacy carriers could face competition from lowly little start-ups and lose.

The low-fare airline wave hit Europe starting in the 1980s. The leading low-fare airline in Europe, Ryanair, was founded in 1985, and another major low-fare carrier, easyJet, was founded in 1995. Many more have followed — nearing the 100 mark.

Low-fare airlines in Asia have ballooned in recent years. Bangkok Airways, Tiger Airways, AirAsia, Jestar Asia Airways, Oasis Airways, Lion Air, Skymark Airlines, Cebu Pacific Air and Nok Air to name a few. There are many more low-fare airlines throughout the world and new ones continue to spring up on a regular basis. If you have an interest in watching the comings and goings of these airlines, a good Web site to visit is skyscanner.net — a search engine technology company where you can search for cheap flights on the various low-fare airlines. There is also a comprehensive list of budget airlines throughout the world.

Not all low-fare airlines come from the brains of hungry newbie entrepreneurs. Some large airlines have branded their own low-fare airline in their quest to squash the low-fare competition. The Web site lowcostairlines.org has a list of what they call “fake or sponsored low cost airlines.” The list includes such airlines as CentralWings (LOT Polish), Citilink (Garuda), Freedom Air (Air New Zealand), Jetstar (Qantas), Nok Air (Thai Airways), Snowflake (SAS), Tiger Airways (Singapore Airlines) and more.

Because these airlines offer sometimes ridiculously low fares (as in “free” in some cases), it has made air travel possible for many who have never flown before. Low-fare airlines have also opened up small city markets to air travel throughout the world. We’re sure we weren’t the first to look at easyJet’s network to decide where to go for a weekend and some of those who visit these previously out-of-the-way destinations have decided to make them a second home, buying property and changing the world — for good or bad.

The low-fare carriers have also been targeted by those who say that by stimulating overall demand for air travel and providing more flight choices for passengers, these carriers will eventually cause surplus capacity and declining average yields for all airlines. Possibly, but the runway has been cleared and low-fare airlines are here to stay.

The Low-Fare Frequent Flyer Program
Not all low-fare airlines choose to offer frequent flyer programs (FFPs). In fact, many choose not to such as Ryanair and easyJet. It’s safe to say that many low-fare airlines cannot decide if frequent flyer programs are a money-making or money-spending enterprise. And money-spending is not what these airlines are all about. Some low-fare airlines walk a line somewhere in between foregoing a program and offering a full-fledged frequent flyer program by offering co-branded credit cards where card members can earn points toward free flights.

Ryanair offers the Ryanair.com credit card where you are welcomed with a bonus flight within Europe the first time you make a purchase with the card, and if you buy five flights with your credit card at Ryanair.com, you will receive an additional bonus roundtrip flight. Tied into the credit card is Ryanair Credits, an awards program offering discounts at selected retailers and through the Ryanair online shop. For every Ryanair Credit a member earns, one euro is credited back to their Ryanair.com credit card account the month after the transaction. The Ryanair.com credit card does not have an annual fee.

Other programs that offer affinity credit cards include AirAsia, Air Deccan and SpiceJet. AirAsia cardmembers can earn AirAsia Ringgitt, AirAsia$ or AirAsia Baht (depending on country: Malaysia, Singapore and Thailand) when shopping at partner merchants and then can use the credits they earn to buy flights.

India’s Air Deccan and SpiceJet offer a credit card where you can get points toward a free flight. Air Deccan offers a 3,000 rupee credit toward flights when you’ve purchased 30,000 rupees worth of Air Deccan flight tickets in a calendar year. Cardmembers earn double points for every 100 rupees they spend on Air Deccan flights and new cardmembers are entered into a sweepstakes to win 100 roundtrip Air Deccan flights.

SpiceJet offers one point per eligible 100 rupees spent and five points for every 100 rupees spent on SpiceJet Airline tickets. The points can then be redeemed for SpiceJet Vouchers.

Other programs, such as Thailand’s One-Two-Go, offer free flights only as a promotion. When One-Two-Go introduced three new routes during 2006, as a celebration, customers who collected 10 boarding passes within a specified period of time could exchange them for a free one-way domestic ticket.

The Philippine airline, Cebu Pacific Air, offered a frequent flyer program but withdrew it in 2006 in favor of members earning points through a credit card.

This is how the airline broke the news to its members, and will give you a good idea of how many low-fare airlines view frequent flyer programs:

“As part of our transition to become a High Quality Low Cost Carrier, we are discontinuing Summit Club, our frequent flyer program.

We’re simplifying our services in order to focus on the more important elements of providing service that is affordable, reliable and on-time. The savings will then be passed on to you in the form of lower fares. So you can fly more for a lot less!”

Cebu Pacific Air then goes on to tell members of its MasterCard where they can earn points toward discount cards and free flights.

When low-fare airlines do decide to make the plunge to offer a frequent flyer program, you can expect certain characteristics: simple rules for accumulation of miles, points or credits with just a few bonus promotions; distinct miles or credit expiration rules, a heavy emphasis on online booking and customer support and few partnerships with limited ways to earn and spend miles.

All of the above characteristics are in place, in theory, to save the airline money. If the program is simple, there is less to stay abreast of — fewer questions to have to answer from members means a smaller staff — and with fewer bonus promotions there is less work overall. When miles expire on a regular, limited-time schedule, there is less need to keep the information in an expensive database. Online programs also offer easier upkeep — not as many people to hire and train to answer questions and deal with customers over the phone. And finally, fewer partners mean less work for the airline — fewer miles earned and fewer miles to redeem. As with most things in life, there are exceptions to these rules; every frequent flyer program of every low-fare airline might not exactly fit within these parameters.

Definition of Low-Fare
It seems like just about every airline wants to be seen as a low-fare airline these days — making it difficult to clearly define what a low-fare airline really is. And with the popularity of these airlines and programs increasing (Southwest Airlines won the Freddie Awards last year for Best Award, Best Award Redemption, Best Bonus Promotion, Best Web Site and Program of the Year), we can expect the lines to continue to blur.

Legacy carriers have sometimes responded to the success of low-fare carriers by spawning their own versions such as SAS’s low-cost model, Snowflake. Blue1, which operates between cities in Northern Europe and Finland is also owned by SAS.

Generally, and for a definition, low-fare airlines are built on point-to-point no-thrills service to city pairs for leisure and budget-minded business travelers. They are not trying to outdo the established carriers in every aspect — but can certainly rule the day and the fare structure in the markets they fly. Low-fare airlines can also face competition from high-speed rail companies — especially in Europe and Asia. For these airlines to succeed, they must maintain strong profit margins — no government is going to go out of its way to ensure that a low-fare airline stays in business — it’s up to them to make it work.

What exactly is “point-to-point?” The following verbiage was taken from the Air Deccan Web site. It aptly defines what “point-to-point” means when you’re talking about low-fare carriers:

“Air Deccan is strictly a ‘point to point’ airline and does not take any obligation or responsibility for transfer of passengers or their baggage to other flights, whether operated by Air Deccan or another carrier and does not assume any responsibility to ensure the connections for onward flights on Air Deccan services OR any other airline and is therefore not liable for any losses or expenses arising out of any failure to board a planned connection. On cancellation of its flight due to unforeseen circumstances, Air Deccan will not provide for accommodation, refreshments nor will it provide or arrange for alternate mode of travel.”

Another aspect of low-fare carriers is that you are essentially buying two one-way tickets instead of a roundtrip ticket when traveling roundtrip. This can work to your advantage when it comes to pricing if you do not have a Saturday night stay — the typical restriction most airlines enforce and that you must obey — if you want the lowest fare. Keep in mind that most low-fare carrier tickets must be purchased directly via their Web site or telephone reservation center- you cannot go to your local travel agent for tickets.

Big FFP vs. Low-Fare FFP
For the frequent flyer, the question you must ask yourself is this: Is it better for me to fly a big, well-established airline at possibly higher fares, or the low-fare competitor?

To determine the answer, you should answer the following questions:

1) Will the savings from flying a low-far airline surpass the benefits I would receive on a legacy airline? For example, if you save 2,000 euros a year by flying a low-fare carrier, will losing the benefits offered by a legacy carrier’s frequent flyer program be worth the savings? You could be losing upgrades and elite flight bonuses among other benefits.

2) If you choose the low-fare airline, will the awards you receive make it worth your loyalty? If you fly regularly between Berlin and Paris and your low-fare airline can only offer you yet another flight between Berlin and Paris, is that what you really want?

3) Consider what would happen to your miles if your travel patterns change. For example, does your low-fare airline offer other ways for you to add to your mileage balance if your job changes and you are no longer flying as much? Or award options other than flying if that’s what you would prefer?

4) As with any comparison of frequent flyer programs — which airline offers you the best mileage accumulation and even more importantly, award availability? The low-fare carrier might have an advantage here — with more seat availability for free award tickets and sometimes fewer capacity controls.

5) And sometimes, it all comes down to this: Which airline is more fun or comfortable or (add your own adjective here) to fly? Because, let’s face it, a good travel experience is worth a great deal these days.

FFP Comparisons
Below, we compare Bangkok Airways FlyerBonus and Thai Airways Royal Orchid Plus as well as Air Berlin Top Bonus and Lufthansa Miles & More. If you are a frequent flyer in Thailand or Germany, which program offers you the best deal? Read on. If you live in other parts of the world, you can use these examples to see how to make your own comparisons.

Bangkok Airways FlyerBonus vs. Thai Airways Royal Orchid Plus
Earning Ability:
Both airlines offer a good number of earning possibilities including car rentals and credit card usage. As you would expect, Thai has an edge here, especially considering they are members of the Star Alliance, but Bangkok Airways is not terribly lacking.

Award Choices:
This is where Thai has a huge edge over Bangkok. FlyerBonus flight awards will get you only as far as Hong Kong or other cities in China. Thai Royal Orchid Plus will give you the world.

However, if you are using FlyerBonus for business travel, and fly several times a year to the same city, and then want to use your points to get a free flight to that same city, FlyerBonus is not a bad option. For example, roundtrip domestic flights earn 20 points. To get a free roundtrip domestic flight, you would need to fly 10 roundtrip flights.

Compare this to Royal Orchid Plus, where a roundtrip award ticket within zone one is 25,000 miles. So, let’s say your destination is 1,000 air miles — you would earn 2,000 miles in coach (1,000 miles in discount coach) for each roundtrip flight. At that rate, you would need to take more than 12 roundtrip flights to get an award (and 25 roundtrip flights if you are flying discounted coach). FlyerBonus starts looking fairly good at this point, doesn’t it?

The other drawback with FlyerBonus, however, is that you cannot use your points to fly in a higher class of service. Those lovely flat seats in Thai Royal first class would have to stay in your dreams.

Elite-level Program:
Thai Royal Orchid Plus offers it’s first elite tier — Silver — at 10,000 qualifying miles and qualifying miles can be earned on Star Alliance airlines as well as Thai Airways. The highest tier is Gold, obtained at 80,000 qualifying miles. Among other benefits, the elite tiers offer threshold bonuses and Gold members are welcomed at all airport lounges displaying the Star Alliance Gold symbol.

Bangkok Airways FlyerBonus offers one elite level, Premier, at 200 qualifying points offering excess baggage allowance and discounts. Easy to obtain, and it even offers free lounge access at Suvarnabhumi Airport, but overall the airline cannot offer what Thai is able to offer its most frequent customers.

Mileage Expiration:
Miles expire if not used by the third year after accrual with both programs.

The Bottom Line:
If Bangkok Airways flies to cities you frequently fly to it might be the best choice if what you want is more flights to those same destinations. You will get your award flights faster than if you went with Thai Airways. But other than that, if you add in all factors, it looks like you would be better off with Thai Royal Orchid Plus.

Air Berlin Top Bonus vs. Lufthansa Miles & More
Earning Ability:
Members of Air Berlin Top Bonus can earn miles when flying three airlines while Miles & More members can earn miles when flying more than 40 airlines. Both programs offer earning ability with hotel stays, car rentals and credit cards while Miles & More offers earning ability with communications, cruises, an automobile club, banking, golfing, shopping and more.

Award Choices:
One-way flights with the Top Bonus program start at 7,500 miles, so a roundtrip between cities in Germany would be 15,000 miles. You would need to fly 15 roundtrip flights within Germany to earn enough miles for a free roundtrip flight (if you were accumulating miles by flying only). A roundtrip flight between Germany and the U.K. would be 25,000 miles and a roundtrip between Germany and Egypt would be 40,000 miles. Award tickets with Top Bonus do not incur add-on costs for airport charges or fuel tax — a free ticket really is free. And there are no restrictions; as long as a seat is available, you can book it using your miles.

Miles & More has a vast array of flight and upgrade awards including Star Alliance awards. Upgrade awards for a Lufthansa or Swiss flight within Europe start at 10,000 miles and non-flight awards start at 7,500 miles.
Lufthansa domestic roundtrip flight awards are 25,000 in coach, 35,000 in business and 50,000 in first class. Within Europe, a coach ticket is 30,000 miles and a business class ticket is 45,000 miles. A ticket between Germany and the U.S. is 60,000 miles in coach, 90,000 in business and 140,000 miles in first class. Special value last-minute flight awards are available through the Fly Smart Flight awards. For example, a flight within Europe can be redeemed for 15,000 miles in coach or 25,000 miles in business class while flights between Germany and the U.S. would be 50,000 miles. These last-minute awards offer the same redemption level as Top Bonus’ lowest roundtrip award flight at 15,000 — but instead of only flying within Germany as Top Bonus offers, a Miles & More member could also claim a flight award to other European destinations.

Elite-level Program:
Both programs offer an elite level. The Top Bonus Silver level is reached after earning 20,000 miles in a twelve-month period or by paying 50 euros. The top level is Gold earned at 40,000 miles in a twelve-month period. It’s a nice touch that Gold members get a 25 percent flight bonus, but overall, Air Berlin’s elite program can’t compare to Miles & More’s more established elite program complete with lounge access. Members of Miles & More who earn 35,000 status miles within a calendar year are offered Frequent Travellers status; 130,000 status miles in a calendar year earns Senator status and 600,000 HON Circle miles within two consecutive calendar years earns that member HON Circle status. All elite status memberships are valid for two years.

Mileage Expiration:
Top Bonus miles are valid for three years from the date they were accrued, expiring at the end of the quarter. Miles & More miles expire after three years with inactivity, but miles do not expire as long as a member has qualified for elite status or has an active Lufthansa Miles & More credit card account.

The Bottom Line:
Air Berlin could very well be the way to go if you fly often within Germany — with the airline’s low fares and 15 roundtrip flights to an award ticket with no restrictions or add-on fees — it can be a true bargain. But if you want to fly internationally, you should stick with Miles & More — or better yet, fly within Germany on Air Berlin or its partners and everywhere else with Lufthansa and its partners.

The Ryanairsation of Airlines
Are low-fare airlines changing the frequent flyer world? What we like to call the “Ryanairsation” of airlines is spreading to the legacy carriers (or perhaps just plain old being nickeled and dimed is a better description). There are two examples we will discuss: Air Canada and United Airlines.

Air Canada introduced a program whereby customers can choose dollars over perks. For example, a customer can save $3 per one-way flight in Tango class (Air Canada’s cheapest fare class) when you choose not to collect Aeroplan points; not checking in luggage will save $5 and buying lunch in advance saves $7. There are other a la carte options such as paying for seat selection and agreeing not to make ticket changes or cancellations.

While the initial reaction from the Super Elite members of the Aeroplan program were as expected, negative, the interest of those who are not as attached to the Aeroplan program was overwhelmingly positive.

United Airlines’ CEO Glen Tilton recently alluded to selling daily passes to the Mileage Plus Premier elite level program and other comments indicate that the program may be looking at similar policies for its Ted brand of United Airlines that partner Air Canada has adopted for their Tango fares. And United, among other airlines, last year added more fees for Mileage Plus members redeeming award tickets. For award travel booked six days or less prior to departure, the fee is $75; for travel ticketed 7-13 days prior, $50 and there is no fee for travel ticketed 14 days or more. You are also charged a $15 fee if booking your award travel through the phone instead of online — even if the award you want isn’t available for online redemption. When you add these fees to paying taxes and airport fees, your “free” award ticket isn’t so free anymore. United is not the only major airline doing this, we chose them for an example.

The larger airlines have been fighting for survival while some low-fare carriers seem to be flying toward untold riches. It only makes sense that the legacy airlines are looking closely at how the low-cost airlines are managing and are considering an a la carte shopping list of perks of their own. Each perk has a price and it will be interesting to see where FFPs eventually land in that pricing structure.

We recently ran a poll sponsored by InsideFlyer and the results were eye-opening for us. Of the 5,000+ frequent flyers asked, 47.5 percent said that they might opt to pay less for a flight without the miles depending on how much less.

There are several problems that could emerge from these types of experiements or permanent changes to frequent flyer programs. One, is that by offering a fare that is without frequent flyer miles, the various governement revenue agencies around the world might revisit any interest they might have in taxation of the miles members have earned.

The difference, of course, is that now that it can be proven that you are paying for earning miles in these programs, the miles could very well have a value worth taxing. Before, it was easy to conclude that since members were not paying anything for participation in these programs for benefits and awards, there could be no reasonable representation of value.

Also, it gives fuel to the argument by frequent flyer program members who could say that they are PAYING for the benefits and awards and are thus ENTITLED to better and more responsive service.

We feel strongly that legacy airlines would be doing themselves a huge disservice by messing with what arguably is, and has been, a very good franchise to date.

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