Low-cost airline market: challenges and prospects

13-04-23

According to the latest estimates, the low-cost carrier market will grow by $248.65 billion between 2022 and 2027. However, growth momentum will slow to a CAGR of 15.15% during the forecast period.

The market is segmented by service (passenger service and cargo service), type (narrow body and wide body) and geography (APAC, North America, Europe, Middle East & Africa, and South America). 

Market growth in the passenger service segment will be significant during the forecast period. The growth of the segment is primarily driven by the increasing number of air passengers worldwide. For instance, in 2022, the global passenger traffic was 5 billion.

This was an increase of 4% over the previous year's value. This number is expected to double over the next 15 years due to the rapid growth of air travel in APAC. In addition, the growing interest of suppliers in using fuel-efficient aircraft to control operating costs has led aircraft OEMs to constantly improve their product offerings. This is expected to further drive segment growth during the forecast period.

The global low-cost carrier market is fragmented with the presence of many suppliers. Leading providers are focusing on ensuring effective services by providing additional services such as entertainment and refreshments to increase their market share.

The chances of new providers entering the market are expected to be low during the forecast period due to the presence of stringent regulatory and safety standards and the need for substantial investments. Geographic expansions may play an important role in the development of suppliers' product portfolios and the expansion of suppliers' market presence.

The growing preference for smart airports is identified as the main trend in the market. Smart airports ensure a seamless exchange of information between airport operators, airlines and passengers. Smart airports can increase efficiency and profitability for aviation stakeholders during volatile economic conditions. It involves the integration of all systems into a single digital network. This enables real-time information sharing and deep collaborations across silos, which improves operational efficiency.

In addition, the efficiency of airport infrastructure allows airline operators and airport authorities to access a converged network architecture, reducing airline response times and ensuring a better passenger experience. This trend will positively influence market growth during the forecast period.

Rising operating expenses are identified as the main challenge affecting market growth. US sanctions on Iranian oil exports and production has led to an increase in fuel prices. In addition, rising labour costs have increased the overall operating expenses (OPEX) of LCCs. In 2021, labour costs constituted approximately one third of airlines' overall operating costs.

This has been increasing significantly after remaining stable for many years and has contributed to upward pressure on cost units and affected LCCs' profit margins. In addition, increasing competition has forced providers to invest significantly in technological solutions to expand their digital presence and market penetration. All these factors are expected to have a negative impact on market growth.