In the last three decades low-cost carriers (hence forward referred to as LCCs) have
captivated travellers by making the world smaller through cheap short-haul flights.
Travellers in the United States have benefited from this concept since the 1970s;
whereas, the development in Europe has been much more recent. Lately, LCCs have
been quite a hot topic especially since the terrorist attacks on September 11, 2001.
Many LCCs have amazed investors with their financial performance, as they
successfully earned profits in a time when most conventional carriers reported major
losses. In Europe, LCCs have entered the market in order to gain market share and to
take part in the success of the business. In Germany, the LCC market has taken off with
the emergence of two new carriers in the end of 2002.
To best understand the low-cost concept, the evolution of LCCs in the United States and
in Europe is examined in the second chapter. Furthermore, the background of the most
successful LCC Southwest, still being the role model for other LCCs, is presented. In
the third chapter the competition theory of Michael Porter is discussed in order to be
able to analyse the competitive strategies followed by the LCCs in the chapter four.
The fifth chapter gives a brief outline on the most striving marketing strategies among
LCCs. Marketing strategies are examined in the fifth chapter. The performance of LCCs
is analysed in the sixth chapter, and a comparison to the performance of conventional
carriers is conducted. An outlook for the future can be found in chapter seven.
Table of Contents
1. INTRODUCTION
2. EVOLUTION OF THE LOW-COST CARRIERS
2.1. Southwest - the “role model” for all low-cost carriers
2.2. Other LCCs in the United States
2.3. Evolution of LCCs in Europe
3. COMPETITION THEORY BY PORTER
3.1. Cost Leadership
3.2. Differentiation
3.3. Focus
4. APPLICATION OF PORTER’S THEORY ON THE LOW-COST CARRIER BUSINESS
4.1. Cost Leadership
4.2. Differentiation
4.3. Focus
5. MARKETING STRATEGIES
6. PERFORMANCE OF MAJOR LOW-COST CARRIERS
6.1. Growth and volumes in terms of sales and passengers
6.2. Profitability in terms of operating and net margin
6.3. Shareholder value measured with stock price performance
6.4. Performance of low-cost carriers versus full-service carriers
6.5. Future outlook of the aviation sector
7. CONCLUSION
Objectives and Research Themes
This work examines the evolution and success of Low-Cost Carriers (LCCs) by analyzing their business models, competitive strategies, and financial performance. The primary objective is to investigate how LCCs apply Michael Porter's competition theory to sustain a cost-leadership position while competing with both conventional airlines and other budget carriers in the United States and Europe.
- The historical evolution and business models of successful LCCs like Southwest Airlines.
- Application of Porter’s generic strategies (Cost Leadership, Differentiation, Focus) to the airline industry.
- Evaluation of marketing strategies utilized by budget airlines to gain market share.
- Comparative performance analysis focusing on passenger volumes, profitability, and shareholder value.
Excerpt from the Book
2.1. Southwest - the “role model” for all low-cost carriers
The Air Southwest Company was founded in 1967 by Rollin W. King and Herbert D. Kelleher, and incorporated as Southwest Airlines in Texas. It commenced operations with three Boeing 737 aircraft on June 18, 1971 with flights connecting three interstate destinations - Houston, Dallas and San Antonio. After adding five more destinations to their system map in 1976 and the company’s initial public offering in 1977, they began service to New Orleans in 1979, the first city outside of Texas being served by Southwest. The steady growth of the airline was also enhanced by the deregulation process in the U.S. airline industry in the late 1970s. The Airline Deregulation Act of 1978 eased the entry of new companies into the market, and gave them the freedom to set their own fares and fly whatever domestic routes they chose.
Today, Southwest Airlines is the fourth largest major airline in the Unites States, and provides primarily short-haul, high frequency, point-to-point and low-fare service, carrying more than 64 million passengers to 58 different cities in 30 states. The company’s fleet as of October 17, 2002, consists of 370 Boeing 737 jets. According to Southwest, they are the only airline making steady profits in the last 29 years of operation. Of the nine major U.S. airlines, only Southwest has posted a profit during the fourth quarter and full year of 2001, which was approximately $511 million.
Summary of Chapters
1. INTRODUCTION: Outlines the rise of low-cost carriers in the global aviation industry and provides an overview of the document's structure.
2. EVOLUTION OF THE LOW-COST CARRIERS: Details the historical development of LCCs, specifically focusing on Southwest Airlines as the industry blueprint and its replication in the European market.
3. COMPETITION THEORY BY PORTER: Defines Michael Porter’s generic competitive strategies, including cost leadership, differentiation, and focus, as a framework for corporate strategy.
4. APPLICATION OF PORTER’S THEORY ON THE LOW-COST CARRIER BUSINESS: Analyzes how budget airlines specifically implement cost leadership and differentiation strategies to thrive in the transport market.
5. MARKETING STRATEGIES: Discusses the transition from branding efforts to aggressive price-led advertising campaigns designed to capture first-time leisure travelers.
6. PERFORMANCE OF MAJOR LOW-COST CARRIERS: Provides a comprehensive financial analysis comparing growth, profitability, and shareholder value of LCCs against conventional full-service carriers.
7. CONCLUSION: Synthesizes the findings, confirming the success of the low-cost model and noting the challenges ahead in an increasingly saturated market.
Keywords
Low-Cost Carriers, LCC, Aviation Industry, Southwest Airlines, Porter’s Generic Strategies, Cost Leadership, Differentiation, Market Niche, Deregulation, Profitability, Shareholder Value, Marketing Strategy, Competitive Advantage, Passenger Volume, Full-Service Carriers.
Frequently Asked Questions
What is the fundamental focus of this research paper?
The paper explores the rise and economic performance of Low-Cost Carriers (LCCs), analyzing why they succeed where traditional carriers struggle.
What are the central themes of the work?
The themes include industry evolution, the application of Michael Porter’s strategic theory, marketing tactics, and comparative financial performance analysis.
What is the primary objective of this study?
The goal is to determine how LCCs utilize specific strategies to achieve and maintain profitability within the highly competitive global aviation sector.
Which scientific method is applied?
The study utilizes a descriptive and analytical approach, applying Porter's competition theory framework to empirical financial data from various major airlines.
What content is covered in the main section?
The main sections cover the history of LCCs in the US and Europe, strategic theory, marketing practices, and quantitative performance metrics like margins and stock volatility.
Which keywords best characterize the work?
Key terms include Low-Cost Carriers, Cost Leadership, Porter’s Strategies, Aviation Competition, and Financial Performance.
How does the author view the future of the German LCC market?
The author suggests there is significant potential for growth in Germany with the entry of new players, though reaching the level of the British market will take time.
Why does the author consider Southwest Airlines the "role model"?
Southwest is identified as the blueprint because it pioneered the high-frequency, point-to-point, no-frills model that has consistently generated profits for nearly three decades.
- Quote paper
- Vanessa Blaha (Author), 2003, Low Cost Carriers - Evolution, Strategies and Performance, Munich, GRIN Verlag, https://www.grin.com/document/15350
