Finding out of the “Budget Airlines”, Third World Country and Aviation Business ()
1. Introduction
The emergence of low-cost carriers (LCCs) has fundamentally transformed global air travel, making it more affordable and accessible to a broader segment of the population. Although Southwest Airlines—widely regarded as the pioneer of the low-cost model—began operations in the 1970s, the global proliferation of LCCs has gained significant momentum only over the past two decades. Since 2000, LCCs have evolved into a major force within the aviation industry, expanding across dense global economic networks and reshaping the air travel market. As of May 2012, approximately 128 airlines were operating under the LCC model, representing nearly 26% of all available seat capacity worldwide [1].
The growth of LCCs has been especially notable in emerging markets, such as Asia and Latin America, where they have contributed substantially to capacity expansion. However, certain regions—particularly Sub-Saharan Africa—still lag in adopting this model. Numerous studies have confirmed that LCCs not only lower airfares but also stimulate broader economic activity, especially in tourism-dependent nations and geographically isolated regions. The widespread availability of air travel has improved global connectivity, enhanced quality of life, and facilitated economic integration across industries and geographies (Hatcher et al., 2003) [2] [3].
Recent data underscores the growing demand for air transport. Between January and April 2022, there was a 30% increase in flight departures and a 65% increase in passenger numbers compared to the same period in 2021. Airline seat capacity rose by 32%, and projections by the International Civil Aviation Organization (ICAO) indicate an even faster recovery in the near term (ICAO, 2022) [4] [5].
In the context of Bangladesh, the demand for air travel has risen sharply due to increasingly congested and inefficient road and water transport networks, alongside the country’s expanding tourism and commercial sectors. For instance, in 2012-2013, Biman Bangladesh Airlines carried over 1.57 million passengers and 33,434 tons of cargo (MOCAT, 2013). This growth in demand has spurred interest among investors to enter the airline industry, though many lack a comprehensive understanding of the specific dynamics and strategic requirements of launching an LCC [6] [7].
Air transportation continues to be a crucial driver of both economic and social development. It facilitates business expansion, promotes specialization through economies of scale, and attracts foreign direct investment. Furthermore, aviation enhances workforce mobility and supports cultural exchange and leisure travel (Daley, 2009) [8] [9].
Deregulation has played a pivotal role in the rise of LCCs. The U.S. began deregulating its airline industry in the late 1970s, followed by Europe in the mid-1990s. In response to the competitive threat posed by LCCs, traditional legacy carriers have adopted various strategies, including forming global alliances and mimicking LCC practices on short-haul routes (Button, 2003) [10] [11].
While academic interest in LCCs has grown, the field remains fragmented and lacks a cohesive theoretical framework. Much of the existing literature approaches the subject from a business operations standpoint, with limited integration of broader management, policy, and economic perspectives.
2. Low-Cost Carrier (LCC) Analysis in Bangladesh
2.1. Problem Statement
1) Strategic Misalignment: Past airline failures in Bangladesh due to poor business strategies not matching air travel demand.
2) Cost vs. Revenue: Rising fuel costs outstrip revenue, threatening financial viability.
3) Knowledge Gap: Owners’ limited aviation expertise leads to poor decisions and underinvestment.
2.2. Research Questions
What are the advantages of LCCs in Bangladesh?
Which business model is most viable for LCCs in Bangladesh’s aviation market?
What are the barriers to LCC sustainability?
How does Bangladesh’s LCC potential compare to global LCCs?
2.3. Research Goals
Identify prerequisites for launching an LCC in Bangladesh. Analyze causes of airline losses and short lifespans. Assess feasibility and selection of LCC business models. Determine optimal aircraft for domestic and international LCC operations.
2.4. Significance
Economic Impact: LCCs enhance affordability, connectivity, tourism, and jobs in Bangladesh.
Policy Insights: Informs sustainable models for emerging economies.
Academic Value: Fills research gap on LCCs in developing regions like Bangladesh.
2.5. Scope
Focuses on LCC vs. FSC suitability for Bangladesh, covering aircraft selection, flight planning, and profitability for sustainable aviation development.
2.6. Airline Strategy
1) LCC Tactics: Dynamic pricing, hybrid models, route expansion, and internationalization.
2) Competition: FSCs adopt LCC strategies to compete.
3) Gap: Limited research on regulatory impacts and strategy selection for sustainability.
2.7. Business Model
1) Hybrid Shift: Bangladesh LCCs (e.g., US-Bangla) blend low-cost and full-service features.
2) Key Elements: Point-to-point operations, fare unbundling, fleet efficiency.
3) Gap: Lack of global benchmarking tools for LCC models.
2.8. Economics
1) Global Context: LCCs hold 25%+ market share; industry revenue at $946B (2017), but margins <3%.
2) Bangladesh: Growth driven by middle class and remittances, but high costs persist.
3) Gap: Limited data on LCC economic impacts and cost evolution in Bangladesh.
2.9. Market Structure
1) Factors: Competition, pricing, and infrastructure shape Bangladesh’s LCC market.
2) Influences: Population, income, and transport alternatives drive demand.
3) Gap: Understudied regulatory and connecting passenger impacts.
2.10. Operations
1) LCC Focus: Efficient scheduling, point-to-point routes, tourism-driven growth.
2) Challenges: Airport congestion, high fuel costs.
3) Gap: Limited research on operational sustainability in Bangladesh.
2.11. Performance
1) Efficiency: LCCs outperform FSCs in cost and operations.
2) Bangladesh Issues: Losses from fuel costs, poor decisions.
3) Gap: Need for regional efficiency studies.
2.12. Sales & Marketing
1) Strategies: Internet marketing, ancillary revenues, loyalty programs.
2) Bangladesh: US-Bangla targets price-sensitive customers; weak e-marketing.
3) Gap: Limited research on e-marketing and CRM in LCCs.
2.13. Service Quality
1) Key Factors: Safety, customer service, and recovery drive loyalty; passengers accept lower LCC service but value enhancements.
2) Bangladesh: Service quality as a differentiator, but safety and infrastructure lag.
3) Gap: Firm-level service quality research for sustainability.
2.14. Airport-Airline Relationship
1) Dynamics: Congestion and outdated facilities (e.g., Hazrat Shahjalal Airport) hinder LCCs.
2) Gap: Need for studies on connectivity, sustainability, and policy impacts.
3. Methods of Research and Data Types
Earlier research reports, newspaper articles, online records, and government reports were reviewed in order to start this investigation. There has been use of a mixed-method research approach that combines qualitative and quantitative techniques.
Quantitative data displays the data in numerical form, accompanied by the relevant tables and charts. The descriptive presentation, on the other hand, has included qualitative data examples. Along with cross-sectional data from primary sources, secondary sources have also provided information.
3.1. The Low-Cost Carrier Business Model
Different definitions for low-cost carriers (LCCs) exist today (Dietlin 2004; Kumar 2005; Domains 2006; Hunter 2006; Holloway 2008). Although marginally different, most researchers define LCCs as carriers which, through a variety of operational processes, have achieved a cost advantage over full-service carriers (FSCs). Though, these definitions often do not take the effect of transmitting cost benefits to customers in the form of lower fares. It is therefore important to emphasis that a low-cost carrier will be defined as a carrier which translates these cost savings into lower, more affordable fares for the travelling public. The main characteristics of LCCs in terms of service offering, network structure, marketing, and fleet and labor utilization, which have enabled them to achieve this cost advantage and consequently offer lower fares to customers [12].
3.2. Key Elements of the LCC Business Model
The Low-Cost Carrier (LCC) business model focuses on minimizing operational costs by offering a no-frills service, with the core offering centered around basic transportation. Key features include:
1) Atomization of Services: Breaking down the flight service into discrete components to reduce costs and create additional revenue opportunities.
2) Elimination of Frills: LCCs typically remove free food, assigned seating, and free baggage allowances, which helps lower costs.
3) Ancillary Revenue: Charging for extras like food, beverages, seat selection, and baggage to generate additional income.
4) Simplified Aircraft and Operations: LCCs use simpler aircraft configurations and higher aircraft utilization, reducing operational costs.
5) Point-to-Point Networks: Instead of hub-and-spoke systems, LCCs operate direct point-to-point routes, cutting down on costs and increasing efficiency.
Overall, LCCs achieve low fares by focusing on essential services and charging for add-ons, maximizing efficiency through high utilization and simplified operations.
3.3. Shorter Stage Lengths
Low-Cost Carriers (LCCs) often focus on short-to-medium haul routes (less than 1500 miles or 6 hours), which traditionally have higher per-mile costs due to ground handling, fuel, and fixed fees. Despite this, LCCs can remain competitive due to lower operational costs, such as reduced distribution and ground handling. This gives them an advantage over network carriers on shorter routes. However, long-haul flights may not generate enough traffic for LCCs to maintain a point-to-point network, leading some to adapt their “no-frills” model. Air Asia X is an example of an LCC that successfully modified its approach to attract passengers on long-haul flights [13].
4. Fleet Standard and Commonality
Fleet commonality in low-cost carriers (LCCs) offers significant benefits, including cost reductions through simplified training, maintenance, and spare parts inventory, as well as economies of scale from bulk purchases. It also enables efficient crew scheduling and flexibility in operating both short and long-haul flights. The most commonly used aircraft by LCCs are the Boeing 737 and Airbus A320, which provide good range and capacity flexibility.
However, fleet commonality has some drawbacks. It limits the airline’s ability to quickly adapt to market changes, and reliance on a single aircraft manufacturer can create vulnerabilities. While most LCCs maintain a standardized fleet, some exceptions exist, such as SpiceJet and JetBlue, which use a mixed fleet to accommodate specific needs like shorter routes or varying passenger capacities.
Overall, fleet standardization helps LCCs reduce operational costs and increase efficiency but may limit flexibility and adaptability in certain situations.
4.1. Aircraft Configuration
Low-Cost Carriers (LCCs) typically use a high-density, all-economy cabin configuration with narrow seat pitches of 28-29 inches, which maximizes the number of passengers per flight and reduces costs. However, some LCCs, such as Virgin Australia, Southwest, and WestJet, offer slightly more spacious seat pitches (31-34 inches). Additionally, while many LCCs follow a one-class model, others, like Jazeera Airways and Vueling, offer a business or premium economy class to cater to passengers seeking more comfort. This shows that LCCs adapt their configurations to meet both cost-efficiency and market demand [14].
4.2. Marketing Pricing
Traditional airlines use a complex fare structure with different pricing levels and restrictions to cater to various customer segments based on their price sensitivity and willingness to pay. Higher fares offer more premium services and fewer restrictions, while lower fares come with more limitations.
In contrast, low-cost carriers (LCCs) have simplified their pricing, offering fewer fare levels and restrictions, with prices primarily influenced by booking time. LCCs eliminate many of the fare "fences" used by traditional carriers, allowing for a more straightforward pricing model and better sell-through of seats. This shift has been driven by increased competition, reduced corporate travel spending, and greater fare transparency online.
4.3. Distribution
The shift from traditional travel-agent systems to online booking and direct distribution channels by airlines began in the 1990s. Airlines, especially low-cost carriers like Southwest Airlines, led the way in developing websites for online reservations to reduce costs, which previously included commission fees of up to 13% of passenger revenue. This moves significantly lowered operational costs, as booking through an airline’s own system costs around $1, compared to $5 to $12 per booking via a global distribution system (GDS). The development of electronic ticketing and direct distribution channels was a major cost-saving advancement in the airline industry.
Figure 1 shows that the percentage of online distribution of a sample of LCCs is generally between 75 and 99 percent, thereby reducing their costs significantly. However, the progress of this procedure is exceptionally subject to the Revel of Internet entrance in a specific region. Middle Eastern LCCs, for example, Air Arabia or Jazeera Airways have a lot of lower online distribution (around 30%), as generally Internet penetration is much lower (around 35 percent of population in comparison to around 601 percent in Europe).ln certain states, for example, Saudi Arabia, Internet connections just arrived in 1999, and have encountered a slow process of adoption since then (Alterman 2000) [15].
Figure 1. Comparative fleet/operational capacity of selected low-cost airlines.
LCCs, particularly Ryanair, Vueling, Norwegian, and easyJet, have significantly higher ASK rates per employee than network carriers like Air France or Lufthansa, according to a more current comparison of work efficiency in Europe conducted by the Center for Asia Pacific Aviation (see Figure 2) (CAPA 2013a). It has also been argued in certain studies that LCCs pay far lower wages. For instance, Harvey (2007) points out that pilot salary at low-cost carriers (LCCs) are typically 27% lower than those of their full-service airline counterparts. Some also acknowledge that this is due to the fact that some LCCs, such as Ryanair, do not have unions, which leads them to contemplate lower compensation and longer hours. However, there doesn’t seem to be any consensus on this point of view.
Figure 2. Online distribution as percentage of total distribution, ZO11.1-12.
4.4. Low-Cost Carriers
Note: ATK (in thousands per employee).
Figure 3. Labor productivity comparison, 2011-12.
Low-cost carriers (LCCs) are often perceived as cheaper than legacy carriers, but their cost advantage depends on various factors. The key metric for evaluating airline costs is Cost per Available Seat Mile (CASM), which accounts for both direct operating costs (fuel, labor) and indirect costs (sales, services). While LCCs typically have lower costs due to simplified service models, they often charge additional fees for services that legacy carriers may include in ticket prices, which can make the total cost comparable in Figure 3. LCCs benefit from operational efficiencies, such as homogeneous fleets and secondary airports, which reduce costs. They also tend to have lower labor costs due to less unionized workforces. However, the true cost advantage of LCCs varies depending on regional factors like labor laws, taxes, and infrastructure costs. Therefore, comparing LCCs and legacy carriers on a global scale can be difficult due to these regional differences.
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Figure 4. Comparison of US, casm, network, carriers, and lccs, 2005-11.
Figure 4 shows a comparison of CASM of U.S. full-service carriers and low-cost carrier between the years 2005 and 2011. As highlighted in the graph, LCCs have been operating with considerably lower unit costs in the past, with costs up, to 40 percent lower than network carriers. It also demonstrates that this cost difference has been shrinking since 2005. In 2011, LCC unit costs were around 30% lower than those of legacy carrier, which have adjusted their operating practices by presenting cost-decrease measures (for example, baggage al1d food charges and reducing distribution through travel agents). However, one of the main causes behind. This cost combination lies in the shrinking gap in fuel expenses. For U.S. carriers, the difference in fuel costs has been almost entirely eradicated. Network carriers are modernizing their fleets to improve fuel efficiency, reducing costs and narrowing the competitive gap with low-cost carriers (LCCs). However, many LCCs have had to adjust their strategies to attract higher-paying passengers after losing some of their previous advantages. This trend of convergence between network carriers and LCCs has been less prominent in Europe, where ultra-low-cost carriers like Ryanair and Air Asia continue to maintain significant cost advantages in areas like labor and operations.
4.5. Employees Per Available Seat Mile (ASM) or Per Departure
Laborers per available seat mile is a proportion of work efficiency at a carrier that depicts the number of employees at the airline per seat mile flown. Employee-related costs, including salary and benefits, are by a wide margin the greatest expense factor for any carrier and record for over 33% of all expenses. The ability of a carrier to deal with this cost is consequently of most extreme significance. When comparing low-cost and legacy carriers in Figure 5, it is clear that the low-cost carriers have consistently maintained a lower number of employees per ASM, and this has been an important reason for their profitability.
Figure 5. Employees per ASM: low-cost vs legacy carriers (1994-2004).
Figure 6. Pilot usage by low-cost and legacy carriers (2001).
Figure 6 is an example of the way in which low-cost airlines have maintained a lower number of employees per ASM relative to legacy carriers. This graph shows that pilots with low cost airline fly a significantly higher number of hours than pilots at full-service airlines.
4.6. Factors Favoring Legacy Carriers
Over the decade from 1994 to 2004, legacy carriers have had higher revenue per RPM, load factor and average length of flight stage compared to low-cost carriers.
4.7. Revenue Per Revenue Passenger Mile (RPM)
While the first three variables are related to operating expenses, the fourth important factor to identify is the revenue per RPM, which serves as an indicator of revenue efficiency. The income per RPM portrays the typical value that a carrier can charge for each mile flown by a traveler in Figure 7. shows that legacy carriers have consistently been able to charge a higher price than low-cost carriers, for a higher revenue per RPM.
Figure 7. A comparison of revenue per RPM between low-cost and legacy carriers.
1. Load Factor
The fifth fundamental variable influencing benefits of the load factor, a proportion of resource utilization. An airline’s load factor is the proportion of the number of occupied seats to the total number of seats flown. The load factor indicates how full planes are in flight, but it does not capture how much time they actually spend flying every day. Analysis medicates that the load factor is a much more significant factor in determining the impact on airline profits, as opposed to block hour utilization, which simply indicates the number of hours per day that planes actually fly. As is evident from Figure 8, low-cost carriers have consistently performed better than legacy carriers in terms of the number of block hours they get per day from each plane. From statistical analysis, however, indicates that this is not a significant driver of performance and does not help the Low-cost carrier profits to the extent we might have expected.
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Figure 8. Passenger traffic growth in Bangladesh (2009-2019).
2. Flight Stage
The final significant factor is the length of flight stage. Flight stage is the average distance of flight per leg of travel. Longer flight stages lessen the overhead impact of takeoffs and landings, particularly in congested airports. Longer flight stages also reduce exposure to cascading network disruptions caused by flight delays. Our analysis shows that die flight stage is not significant when considering the operating income per ASM, but it is significant when considering the operating income per departure.
Figure 9. Comparison of flight stage across low cost and legacy carriers.
As Figure 9 indicates, legacy carriers have significantly longer flight stages as compared to low-cost carriers. This difference primarily arises from the fact that legacy carriers also, fly an international network along with their national rou1tes. Our analysis hence demonstrates that global routes can be a significant resource for full-service airlines, particularly assuming they can keep up with reasonable load factors.
5. Historical Data Analysis of DAC Airport
Passenger Movement (‘000’ number) of Shahjalal International Airport (DAC) Figure 10 Passenger Movement (‘000’ number) at HSIA.
Figure 10. Pilot usage by low-cost and legacy carriers (2001).
Figure 11. Revenue per RPM: low-cost vs legacy carriers (1994-2004).
Analyzing from the above data of Passenger, Cargo, Air traffic movement at HSIA it can be said that the trend and graphs are very encouraging showing upward Growth Movement. Average growth on passengers and air traffic movement is 8% and Cargo is 11%. The airport is anticipated to witness passenger traffic of approximately 12 million by August 2022 and up to 22 million by 2035 in Figure 10 and Figure 11.
Historical Data Analysis of CGP Airport
Passenger Movement (‘000’ number) at Shah Amanat International Airport CGP, Figure 12 Passenger Movement (‘000’ number) at SAIA(CGP).
Figure 12. Passenger traffic growth in Bangladesh (2009-2019).
In recent years, the economy of Bangladesh has experienced an annual average growth of more than 6 percent. Thus, the number of passengers in Hazrat Shahjalal International Airport, which is one of the main, entry points to the country, has increased at an average rate of 8 percent per year. In 2018, the total number of passengers was 8.89 million. Based on the annual departure and arrival statistics, the total number of aircraft movement is 99194. Thus, the HSIA is an infrastructure that has a significant role in enhancing the social economy of the country. The volume of cargo is also increasing at an average rate of 11 percent per year. In 2018, the HSIA was handling aboU1t 364255 tons of cargo in Figure 13.
Figure 13. Key market metrics for Bangladesh LCCs.
6. Future Growth of HSIA (Trend Analysis)
The projections (Trend Analysis) of the data for year 2035 shows that the passengers’ movement for HSIA is expected to rise CAGR 6.87% however TICA report shows CAGR is 6.82%. Similarly, the estimated Cargo movement for year 2035 would be CAGR 4.84% and JICA study shows it 7.41% Respectively. For the Cargo Aircraft movement, the projections for 2035 are 5216 and General Aviation and Military Aircraft movement will be] increased accordingly. The projections of Aircraft, Passenger and Cargo for the year 2035 are shown in Figure 14.
Figure 14. Employees per ASM: low-cost vs legacy carriers (1994-2004).
7. Conclusion
Entering the low-cost carrier (LCC) market is challenging due to varying global conditions. In Bangladesh, while the aviation sector is growing due to increased international business and tourism, high operational costs make it difficult for airlines to thrive. Issues such as expensive fuel, a 15% VAT on multiple airport services, poor ground handling, and complex fund repatriation processes create major hurdles. National carrier Biman benefits from special facilities like bonded warehouses and a hangar, while private airlines suffer delays due to import restrictions on spare parts and limited maintenance infrastructure. Although Bangladesh’s aviation market holds great potential, especially with forecasted annual growth of 8.4% until 2038, significant reforms are needed to support LCC development.