Travel, especially international travel, was once confined to the wealthy but as airfares have decreased and accommodation options have become broader and more affordable, travel companies such as LCCs (low-cost carriers) and Airbnb have been able to target a wider range of customers.
LCCs are creating more travellers
Most airlines that offer cheap tickets serve certain routes and regional airports. This enables airlines to reduce overheads such as airport tax, which allows them to offer more competitive pricing, undercutting the FSC’s (full-service carriers). Purchasing these flights could save the consumer as much as 80% according to TheBudgetDiet, especially when booked in advance.
In recent decades, commercial air transport growth has been closely linked to different parameters such as higher incomes and lower average costs per flight. In 2011, LCCs made up around 25% of all airline seats sold, however, GlobalData’s projections see this rising to almost 30% by 2022. It is well known that there is reciprocity between airlines and globalisation: both traditional and low-cost airlines foster global economic development and at the same time, this phenomenon can explain the growth of airlines.
There is a strong correlation between intra-European tourism and low-cost airlines, which require many destinations to guarantee a high flow of tourism. Lower flight costs are beneficial for tourism, as it means consumers that ordinarily would not be able to afford to travel now have the ability to. However, in recent years it is not just LCC’s that have benefitted the tourism market. New developments in the accommodation sector have disrupted the industry and provided travellers with the opportunity to combine low-cost flights with high quality, inexpensive accommodation options.
Innovations within the accommodation sector have changed the landscape
According to GlobalData’s low-cost evolution thematic research, advancements in technology have seen a rise in the popularity of the sharing economy. The sector has changed the way travellers book trips and the business model and has significantly disrupted the hotel industry, much like low-cost airlines did within the airline sector. Airbnb has revolutionised the interaction between buyers and sellers. The asset-light business models these firms have adopted result in lower prices being offered to the market, effectively undercutting many hotel room rates.
As the use of smartphones continues to rise, the popularity of operators based in the sharing economy are likely to do so too and could threaten the traditional low-cost business model of budget hotels. This is a positive move for the tourism industry as a whole. However, it is necessary for more traditional business models to modernise their approach.
There is now an opportunity from economic hardship
The 2009 global financial crisis took the world by surprise and the financial pressures on consumers hit the travel and tourism industry hard. However, it did further low-cost evolution as more consumers looked towards budget travel options than before. Today’s travellers have become much more price-focused. In a Q3 2021 GlobalData global consumer survey, 58% of respondents said affordability was the most important factor when deciding where to go on holiday. As such, low-cost travel firms and the sharing economy will continue to thrive in this environment and are likely to continue to do so as economic conditions fluctuate in the pandemic.