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Charting the ups and downs of low-cost carriers
Keywords: Airlines, Management strategy
There was a time when the notion of commuting daily between Rome and London would have been considered far too timely - not to mention expensive! But today, for Italian financier Ettore Thermes, this is an everyday occurrence thanks to the advent of low cost airlines.
These cheap, no frills carriers have revolutionized the airline industry, making European and worldwide travel affordable for all and forcing the established brands to take a long hard look at their operations. There is no doubt that this low-cost model has been a resounding success. However, some airlines have experienced considerably more success than others.
Low-cost model
The first LCC to rival the major carriers was Southwest. Introduced in 1971 in the USA, this LCC implemented the original low-cost model comprising:
* low fares;
* high frequency flights;
* point to point service;
* no free meals or drinks on board;
* no seat assignment;
* short flights; and
* flights to secondary airports.
This approach is in line with Michael Porter's theory that there are three major strategies companies can adopt to gain competitive advantage:
1. Cost leadership - where an organization seeks to be the lowest cost producer by selling standard, mass products. This is where the original LCC model eminates.
2. Differentiation - where companies introduce a unique dimension that is considered to be important to the market. Some LCCs have moved onto this strategy.
3. Focus - this involves targeting a certain segment of the market and is rarely adopted by LCCs.
It was not until the 1990 that the European airlines started to catch up when easyjet and Ryanair entered the market. After this time there was a surge of competition as LCCs became commonplace. In Europe alone they have won 10 percent of the market share, and 25 percent of the domestic share has been gained in the USA.
Successes and failures
But while Southwest, easyjet and Rynair are good examples of successful LCCs, there are the experiences of carriers such as Debonair (which went bankrupt in 2000) and Buzz which was acquired by a more successful carrier in 2002. It is possible that these differences in fortunes are...