Background

In this case our syndicate will explain about strategy comparison between traditional
carriers and Low Cost Carriers. While most commonly known airlines in 2006 were
traditional carriers, Low cost carriers was rising up in early 2000's in almost every
part of the world. Inspired by Southwest Airlines' impressive success, as indicated by
the fact that Southwest was the only major U.S airline in 2005 that remained
profitable since the "911 Tragedy", many attempted to replicate this firm's business
model either in the U.S.A or in other parts of the world. By 2006, examples of low
cost carrier could be found in all major region of the world: Southwest and JetBlue in
North America; Ryanair and Easyjet in Europe; Kingfisher and Air Deccan in India;
Tiger Airways , Jetstar Asia, and Valueair in Singapore; Airasia in Malaysia; Jetstar
and Virgin Blue in Australia.
Traditional carriers usually provide a full complement of options and throughout the
entire passenger experience, from the point when booking is made to the end of return
flight. Whereas Low cost carriers commonly refers to airlines that offer low ticket
prices and limited services. To clarify the difference between Traditional Carriers and
LCC, can pay attention to the table below:
Traditional Carriers Strategy
Product
Complex fares and a Yield Management
system
Frequent Flyer Programs (essential to
maintain customer loyalty)
Great number of cooperation partners in
the form of other airlines which
complement the network (alliances) or
service providers (e.g. ground handling),
complex technological dependencies on
suppliers such as aircraft manufactures
and IT developers.
Differentiated product with added value

Low Cost Carriers Strategy

Product
Low rates in high percentage of seats,
with simple structures
No Frequent Flyer Programs
No cooperation, only
products and services.

purchase

of

Simple Product (No free catering, no seat

reservations)
Service
Service
Use of primary airports(focusing on Use of secondary airport with excess
business and first class segment clients capacity (lower taxes, fee, and charges
who need direct flights to population and less traffic, not all airports implement

centers)
Participates in alliances

Comprehensive network of connections

to the highest possible number of
countries and continents for the highest
possible number of customer groups and
flight classes. Expensive, fragmented and
complex service (Classes of tariffs and
differentiated service catering)
Freight Services
Operations
Various types of aircraft in the fleet (due
to the different segment with which they
work and different routes that they
operate. Many of these airlines buy
various types and sizes of aircraft from
the same company, Boeing or Airbus)
Use of several types of aircraft, operation
to busier airports and code share with
other airlines in the same alliance.
Priority in customer services (these are
viewed as an essential part of the service
offered by the company and its brand
image)
Strategy
Business travelers, first class

this policy, depending on the airport

policy in the respective cities.
Doesn't participate in alliances ( code
share and transfer of luggage the
punctuality of flights and the rate of use
of aircraft increases handling cost)
Selective offer of highly frequented
routes with "Point-to point" flight,
generally sectors of less than 2 hours to
maximize aircraft utilization; only one
transport class for wide range of leisure
and business traffic.
No freight services.
Operations
Standard Fleet
(lower training and
maintenance costs)

Maximization of the use of aircraft

(faster turnaround time in airports with
less traffic)
Reduction
of
customer
services
(Subcontracting of companies, as is the
case of the handling of aircraft)

Strategy
Focus on leisure passengers and those
visiting friends and relatives (VFR)
Cost is only one of the elements within Tries to eliminate its costs to maximum
the complex service/ product mix.
extent possible.
High personnel costs
Reduced personnel costs with a minimum
legal crew
Distribution
Distribution
Travel agents are viewed as an important Online booking to eradicate travel agent
retailer even though many airlines have commission supplements for payment by

their own internet site where clients can

make their reservations
Massive marketing expense (advertising,
frequent flyers programs, travel agent
commissions.

credit card

Minimal marketing expenses ( Word-ofmouth on comparative advertising,

airports support). Sophisticated websites
with
extensive
information
on
destinations
Brand information in complex brand Selective presence through classic brand
systems, expensive loyalty programs.
awareness advertising in the relevant
geographical markets particularly also
through IT
At the time in 2006, LCC airlines generally only open on the short haul international
flights and domestic flights, this is what distinguishes Oasis Hong Kong Airlines
with other LCC flight. Oasis Hong Kong Airlines known as the first long-haul Low
Cost Carrier Airline in Asia. Oasis Hong Kong Airlines was founded by Stephen
Miller the ex CEO Dragonair.

He is using the

principal

investment

form

property developer, Raymond Lee and Pricilla. Oasis is positioning itself as

the only long-haul, low-fare airline operating out of Hong Kong. The Lees become
the majority of seed funding, and Allan Wong, the chairman and CEO of
Advance Purchase Fare

VTech Holding, and Richard K.Lee, founder of Trinity Textiles, as the additional
player to additional investment in Oasis.
Value Fare

Oasis offered two classes of service, which are economy and business-class
passengers. It only sold one-way tickets which on the Hong Kong London route
which sell for low as HK$1.000 (US$128) for an economy class seat, and HK$6.600
(US$ 846) for a business class seat, excluding axes and surcharges. The Oasis
also had relatively simple, easily understood fare structure, which the customer
expected customers would find appealing.

Operating long-haul flight would allow the airline to have high average aircraft
utilization and efficiency. Oasis could achieve average aircraft utilization in excess
of 15 hours per day, and would give a low operating unit cost on a per available seat
kilometer basis.
Oasis has two airplanes, Boeing 747-400, which can carry 81 business-class seats
and 278 economy-class seats. All passengers in economy class would be offered
standard complimentary hot meal. For business-class passengers, Oasis would offer
standard upgraded meals with complimentary drink. Oasis adopted the traditional
carriers model and relied on brick-and-mortar travel agents to sell ticket. Passengers
would also be able to buy tickets directly on the companys website or through a call
center.
The Challenge
The Airline's five year plan called for aggressive growth of fleet size, amounting to
25 aircraft. The challenge was finding the right aircraft at the right aircraft at the
right price. At first, OASIS wanted to buy the Boeing 747-400 aircraft which is well
known as having the level of fuel efficiency is quite high, but the trend is shifting
makes this plane is used as a cargo aircraft. Meanwhile, some airlines including
Singapore Airlines, had originally to replace their 747-400s with Airbus A380 Super
Jumbo starting in 2006, but it takes long time enough delay around 22 month. There
was

always the option of purchasing brand-new aircraft, but because of long

production lead times and production slot availability, it would take 36 to 48 months

before any new aircraft delivery. Oasis needed to increase capacity and add new
services sooner than later.

The Problem
However, the biggest question was whether Oasis's target customers would readily
embrace these service from a newcomer. On its inaugural route from Hong Kong to
London, Oasis's service would be judged and compared to such reputable carriers as
British Airways, Virgin Atlantic, Cathay Pacific, and Qantas.