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Abstract
Research based on Porter's typology of strategic groups (Cappel, Tucci & Wyld, 1996) indicated that the most successful U.S. based airlines at that time belonged to the strategic group that employed a strategy combining elements of low-cost and differentiation. Later, as deregulation of the industry was introduced in Europe, the authors found that superior financial performance was achieved by European airlines that employed a singular low-cost approach. After the events of September 11, 2001 it appears that the most successful U.S airlines in terms of financial performance are those adopting a low-cost approach. The theoretical question to be examined is whether recent events creating disequilibrium within the industry have resulted in temporary or permanent changes in the relationship between financial performance and generic strategy choice.
Key words: Airlines Strategy
Through 1979, the government regulated prices charged by commercial airlines operating in the United States. Price regulation diverted carrier rivalry into cost increasing service competition. Immediately following deregulation, competition among major airlines shifted from differentiation strategies to cost leadership strategies. For the past twenty-two years, competitive practices within this industry have been characterized by "price wars," interrupted briefly by short periods of price stability. A study conducted by Cappel et al. (1996), based on Porter's (1980) generic strategy framework, theoretically evaluated three propositions to extend existing strategy research to the airline industry. Unique forces affecting the relationship between strategy and performance within the airline industry were examined within this study. Based on the industry environment at that time, the authors found that both in terms of financial performance and operating performance, airlines employing a combination strategy based on both cost leadership and differentiation were attaining a competitive advantage relative to airlines adopting a singular approach. The current research examines the industry structure post deregulation in the EC and the 9-11 tragedy, in an effort to determine whether the current relationship between the selection of a low-cost strategy and superior financial performance will continue.
Generally, competitive positioning commonly involves a singular approach emphasizing a cost leadership or differentiation strategy. However, some competitors may adopt an approach which combines cost leadership and differentiation. This study examines the potential for competitive advantages offered by each of these three approaches.
Elements of Generic Airline Strategies
Cost Leadership
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