Why Do Low-Cost Airlines Chose Not to Join Global Alliances?

Low-cost airlines, often denoted as Low-Cost Carriers (LCCs), operate on a unique business model that emphasizes minimizing operational costs and maximizing efficiency. This model contrasts significantly with traditional airlines that are members of global alliances. This article explores the reasons why LCCs opt out of joining global airline alliances, covering business model differences, cost implications, revenue sharing, market focus, and the value of independence.

Business Model Differences

One of the primary factors driving LCCs to remain independent is the inherent differences in their business models. LCCs focus on offering no-frills, budget-friendly services to appeal to price-sensitive travelers. This operational model is far removed from the comprehensive services and amenities offered by traditional airlines, many of which are members of global alliances. Joining such an alliance often requires LCCs to shift their business practices to conform to the standards and expectations set by the alliance. This transition can be challenging and may not align with their core values and target market.

Cost Implications

Membership in global airline alliances comes with a price. Allied airlines often incur substantial fees and must comply with operational standards that can be restrictive and costly. For LCCs, which strive to keep operational costs minimal, these additional expenses are often perceived as counterproductive. The financial burden of maintaining alliance membership can undermine the very cost-saving strategies that LCCs implement to stay competitive in a fiercely price-sensitive market.

Revenue Sharing and Flexibility

Revenue sharing is another significant factor in the decision-making process for LCCs. Global airline alliances typically involve revenue-sharing agreements, where members share a portion of their profits with other alliance partners. However, this model may not align with the financial objectives of LCCs, which prefer to maintain full control over their revenue streams. LCCs aim to maximize their profits by retaining all revenue generated from their operations, free from the financial obligations and limitations imposed by revenue-sharing agreements.

Market Focus and Strategic Flexibility

LCCs often operate on a point-to-point route network, while traditional carriers typically use a hub-and-spoke system. The benefits of global airline alliances, such as code-sharing and connecting flights, may be less relevant to LCCs' strategic objectives. The point-to-point model allows LCCs to offer direct flights between destinations, which is particularly attractive to budget-conscious travelers. Additionally, LCCs value their operational independence and flexibility. Joining an alliance can impose restrictions on route planning, pricing, and partnerships, which may not align with their agile business approach.

Target Customer Base

Low-cost airlines target a specific customer base, primarily price-sensitive travelers who prioritize affordability over convenience and amenities. While many of the perks associated with global airline alliances, such as frequent flyer miles or lounge access, are attractive to more premium customers, they may not appeal to the core customers of LCCs. Therefore, LCCs prefer to maintain a focus on their core market and avoid the dilution of their brand that could come from aligning with traditional carrier perks.

LCC Alliances: A Counter-Example

Interestingly, some LCCs have formed their own alliances, such as Value Alliance. This alliance includes prominent LCCs like Cebu Pacific and CebGo from the Philippines, Jeju Air from South Korea, Nok and NokScoot from Thailand, Scoot from Singapore, TigerAir Australia, and Vanilla Air from Japan. These LCCs have found value in forming strategic partnerships that align with their core business principles while offering mutual benefits and flexibility.

Although these LCC alliances represent a different approach to collaboration, they demonstrate that there is value in partnerships, just not necessarily with traditional airline alliances. LCCs can benefit from strategic collaborations that enhance their network, provide added value to their customers, and maintain their cost and operational independence.

In conclusion, while the reasons for LCCs not joining global airline alliances are multifaceted, the focus on cost management, operational independence, and targeting specific market segments remain key factors. However, LCCs are not completely averse to partnerships, as evidenced by their own regional alliances which provide them with the flexibility and benefits they need. As the aviation industry continues to evolve, it will be interesting to see how LCCs navigate these dynamics and adapt their strategies in the future.