Low-Cost Airlines May Have An Edge In A Price-Sensitive, Regionally Focused Travel Market

Low-cost carriers (LCCs) are likely to have an advantage in a price-sensitive and regionally focused air travel market, analysts told CNBC. However, one observer cautioned that the benefit can only be enjoyed when demand recovers.

The coronavirus pandemic decimated the global tourism market when border restrictions were put in place, and airlines were no exception. The International Air Transport Association (IATA) said there is pent-up demand for travel, but consumer confidence is weak because, besides fears over the virus, there are “concerns over job security and rising unemployment.”

In such a market, LCCs have an edge over full-service carriers (FSC), analysts said.

“That, I think is very much the feeling at the moment … Going into next year as well, it’s going to be a price-sensitive market, low-cost carriers do come off a lower base,” said Peter Harbison, chairman emeritus at CAPA Centre for Aviation.

He told CNBC’s “Street Signs Asia” last week that full-service carriers worked when airlines could generate higher revenues so the profit margin was still “sufficiently great.”

“The problem we have now is, if an airline is high cost, we’re not going to see the sort of business travel revenue, corporate travel revenue we’ve expected in the past. So the top line starts to become a bit lower,” he said.