What do you think of plans by AF and LH to set up low cost subsidiaries?

5 replies

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,060

What do you think of plans by AF and LH to set up low cost subsidiaries?

I thought when BA sold off Go, it's low cost off shoot, the writing was on the wall for mainline carrier's foray into the low cost business. Why cannibalise when you should be focusing efforts on reducing existing cost etc.

Is this management making short detrimental decisions or does the existing culture of these organisations so non-business friendly that management is forced to subvert from without?

Gian

VA Platinum

Member since 26 Mar 2014

Total posts 88

Do they think that because they lose so many leisure customers in Europe to LCC's, that the only way to compete with those carriers is to have a subsidiary with the same or similar business model? With different management, and strategy whose job it is to directly compete in that space, while focusing the full service airline on just that - full service?

Great in theory I know, doesn't always work in reality. Like you said TRB, they seem to canibalise the parent carrier more than anything else.

moa999

Qantas - Qantas Frequent Flyer

Member since 02 Jul 2011

Total posts 835

The continual growth of the Euro LCCs (like Ryan, easyJet and Norwegian and the low-cost hybrid LCCs like Turkish) is putting pressure on the full service carriers.

But its not just Qantas/Jetstar that has been more successful than BA/Go... You've also got Iberia/Vueling, Air Canada/rouge, Singapore/Scoot/Tiger.

Without Jetstar, Qantas mainline would look no different, we might just have AirAsia Australia or RyanAir Australia instead. The problem is not the cannabalisation, the problem is the legacy costs and work practices don't allow you to profitably provide the fares that passengers are willing to pay.

KG

Qantas - Qantas Frequent Flyer

Member since 10 May 2011

Total posts 249

It has nothing to do with canabilising the business. The problem esp AF faces is the ridiculous secundary benefits their mainline cabin crew has. It is getting too costly to run especially domestic flights in France as well as intra European flights. Any attempt to resturcture is met by resistance, as we know, you can leave it to the French to go on strike any time they feel upset about something! By setting up Transavia Europe, they will have this airline take over the loss making flights by offering a product that is in between the mainline carrier and low cost carrier (low cost plus). The model of Transavia has been very succesfull in The Netherlands and France already, so I totally understand the will to spread to multiple European countries. It is in a way a good sign as AF/KLM finally has some cash to invest in the ailrine after years of cutting. KL is rumnoured to buy 20 787's for their fleet for instance. In short to answer your question, I support the move of mainline carriers to set up low cost siblings in some markets, in the end I belive that the savings achived will eventually benefit the mainline carrier as it will make more cash available to invest.

Viscount

Member since 12 Mar 2014

Total posts 24

The answer is all of the above. 

Totally agree with KG "ridiculous secundary benefits". Just talk to the crews on Asian and Australian carriers and you will find the "ridiculous" with the Aust. carriers. Jetstar works to the detriment of Qantas. 

 

Gian's "great in theory............"  Yeah, I agree it should work in theory but???

 

moa999's "the problem is the legacy costs................." You can't run a LCC with the work ethics of a full service one. 

 

Rounding up, management, management, management. My god these guys have the product, financing, the market, ground crews and on and on. If it's not management what is it?

Robert was trying to give away some FFpoints to charity and he is still waiting on a call back from Qantas. I use this as an example because service starts with the phone and supposely ends in business . NOBODY cares and it runs through the whole company, not just Qantas the same applies to most large companies you contact wether it be gas,elec, telcos. The lot of them will quickly sell you something but try contacting them with a curly one after they have 'got you' So. Yes, you could run a successful LCC with proper management with NO adverse effect on the main carrier. 

Jono

Qantas - Qantas Frequent Flyer

Member since 25 Jan 2013

Total posts 108

There could be another whole website on the discussion around the power shift from businesses to consumers and how corporate Australia can adjust. I work in budget accommodation and not a day goes past where we don't hear of some backpacker somewhere, making a scene of biblical proportions, cause the free internet he got with his $29 per night dorm bed isn't high speed and flawlessly reliable.

I agree with most points here regarding legacy costs and unrealistic staff expectations. I once heard the editor of Airliners.net tell a story of how the Qantas pilots actually have the surving of vegitables on certain stopovers listed in their contracts.

Whilst I do look at a lot of oligopolies in corporate Australia and thing, 'you make horse drawn carriages and the first Model T just rolled into town,' surely this chnage can be used to the benefit of some companies. Just not sure how yet. Perhaps by fostering a greater team spirit around their staff?

Hi Guest, join in the discussion on What do you think of plans by AF and LH to set up low cost subsidiaries?

Attach Files