Across a wide range of industries traditional market leaders are threatened by low price competitors. These low price firms are steadily eroding the profit margins and market share of their more established rivals. A vivid example from aviation is the Low Cost Carriers. Beginning in the North America and spreading to Europe, the airline passenger market has witnessed a growing intensity in price-based competition. This intensified competition has been facilitated by policy deregulation initiatives until the emergence of the phenomenon Low Cost Airlines. European Low Cost Airlines have changed people’s leisure and travel habits, opening up direct services between city pairs that were not available before.
The present thesis aims at analysing the European Low Cost Carriers (LCCs) business model from the perspective of its rapid expansion on the air travel market. In conjunction with the liberalisation of commercial aviation the LCCs’ impacts on the European community have been identified in line with the sustainable transport concept recognized as a common goal in the two European Commission’s strategic documents: Lisbon Agenda and European Sustainable Development Strategy.
The European low cost model is examined in terms; its business model and strategic positioning; the LCCs’ positive and negative impacts after its rapid growth; the sector dynamics and its long term sustainability. This LCC multi-dimensional view imposes the main questions of the current work in search for broad analysis of the LCCs trend: “What are the essential characteristics of the LCCs business model?”;” How it affects the EU community?”; and “What driving forces stand behind the LCCs model?”.
The thesis sets itself the following sub-objectives and attempts to answer their corresponding questions:
- Overview of the European civil aviation industry prior deregulation (until 1988): How the industry was regulated and by whom?
- Tracing the European air travel industry’s liberalisation: What kind of regulatory changes have been introduced in European civil aviation after 1988?
- Consequences of the deregulation processes on the air travel market: What were the outcomes of the air transport industry’s liberalisation and prerequisites for LCCs emergence?
- Introduction of the first European LCCs: How the European LCCs emerged?
- Analysis of the LCCs competitive and cost advantages: What are the LCCs’ cost advantages and their determinants?
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Table of Contents
1. Introduction
2. Deregulation of the European Aviation Market and its Impact on the Emergence of Low Cost Airlines
2.1. Outlook of the European Aviation Industry until 1988: Three Pillars of Economic Regulation
2.1.1. Bilateral Air Service Agreements
2.1.2. Inter-Airline Pooling Agreements
2.1.3. International Air Transport Association
2.2. Commercial Aviation Industry Liberalisation
2.3. Outcomes of the Single Aviation Market
2.4. The emergence of European Low Cost Airlines
3. LCC Business Model and Characteristics
3.1. Definition of the Low Cost Aviation Model
3.2. Overview of the LCC Market
3.3. Business Model and Strategic Positioning of LCC
3.4. LCCs Cost Advantages and Their Determinants
3.4.1. Aircraft Size and Seat Density
3.4.2. Fleet Commonality
3.4.3. Sector Distance
3.4.4. Aircraft Utilization
3.4.5. Usage of Secondary Airports
3.4.6. High Labour Productivity Rates
3.4.7. Types of Routes Served by LCC
3.4.8. Distribution Costs
3.4.9. Passenger Service Costs
3.5. LCC Market segmentation
3.5.1. Business Travel Market
3.5.2. Leisure Travel Market
3.6. Differences between Full Service Carriers and Low Cost Carriers
3.6.1. Operational Differences
3.6.2. Service Structure Differences
4. Impacts of the LCCs Operations
4.1. Benefits of LCCs Operations
4.1.1. Benefits for Consumers
4.1.2. Benefits to Airports
4.1.3. Benefits to the European Community
4.2. Negative Impacts of Aviation industry on EU Community
4.2.1. Effects on the Environment
4.2.2. Limitations of the Low Cost Product
5. Long-Term Sustainability of the European Low Cost Model
5.1. Resisting Economic Downturns
5.2. Low Cost Industry’s Dynamics and Challenges
5.2.1. Overcapacity
5.2.2. Decline in yield in the Average Fare
5.2.3. Controlling Costs
5.2.4. Basic Model
5.3. Competitive Strategies for LCC
5.3.1. Adopting a Strategic Position
5.3.2. Leveraging Capabilities
6. Conclusion
Objectives and Research Themes
This thesis examines the European Low Cost Carriers (LCCs) business model, focusing on its rapid expansion, strategic positioning, and long-term sustainability within the liberalized European aviation market, while analyzing its economic and social impacts on the EU community. The central research questions address the essential characteristics of the LCC business model, its driving forces, and its effects on the European community.
- Evolution of the European aviation industry through deregulation.
- Core operational and business characteristics of the Low Cost model.
- Economic benefits for consumers, airports, and the European Community.
- Environmental concerns and limitations of the Low Cost product regarding passenger rights.
- Strategies for long-term sustainability and resilience against economic downturns.
Excerpt from the Book
3.4.4. Aircraft Utilization
Porter (1995, cited at Barrett 2006) argues that a firm normally develops a cost advantage by controlling cost drivers better than the competitors. He identified 10 cost drivers related to value-chain activities: one of them is capacity utilization. Low Cost Airlines operate at a utilization level that is higher than network carriers. LCCs ensure more flights a day per aircraft due to their rapid gate turnaround time. Dobruszkes (2006, p.250) explains LCCs’ utilization levels using the notion economies of density: ”LCCs achieve density economies by maximising flying time for each aeroplane, thus implying very reduced times between arrival and departure (turnaround). For the air transport sector, economies of density are essential and much more effective in reducing unit costs than economies of scale.” The average LCC takes about 25 minutes to disembark passengers, unload and loan baggage, refuel and clean the aircraft and embark new passengers. This is estimated to be as much as half time it takes a traditional airline to carry out the same activities. In the next figure Dobruszkes (2006) exemplifies the way to organize frequencies and routes per aircraft in order to generate economies of density. As certain routes do not require high frequencies, realising savings of density can mean multiplying the routes while decreasing their frequencies.
Summary of Chapters
1. Introduction: Provides an overview of the thesis objectives, including the analysis of the European LCC business model, its rapid growth, and the regulatory environment that facilitated its emergence.
2. Deregulation of the European Aviation Market and its Impact on the Emergence of Low Cost Airlines: Analyzes the transition of the European aviation industry from a highly regulated system to a competitive single market through various policy packages.
3. LCC Business Model and Characteristics: Details the operational and strategic features of the Low Cost model, comparing it with Full Service Carriers, and examines cost advantages such as fleet commonality, secondary airport usage, and labor productivity.
4. Impacts of the LCCs Operations: Evaluates both the positive benefits for consumers and airports, as well as the negative impacts regarding environmental sustainability and passenger rights limitations.
5. Long-Term Sustainability of the European Low Cost Model: Discusses the resilience of LCCs during economic downturns and identifies key industry challenges like overcapacity and the need for competitive strategic differentiation.
6. Conclusion: Summarizes the transformation of the European aviation industry and reaffirms that LCCs must continue to refine their strategies to remain sustainable in a volatile market environment.
Keywords
Low Cost Carriers, LCC, European Aviation, Deregulation, Business Model, Cost Advantage, Point-to-Point, Air Transport, Sustainable Development, Secondary Airports, Airline Strategy, Market Segmentation, Passenger Rights, Labor Productivity, Yield Management.
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis focuses on analyzing the European Low Cost Carriers' (LCCs) business model, specifically investigating its rapid expansion, the driving forces behind its success, and its impacts on the European aviation market and the wider EU community.
What are the key themes explored in this work?
The central themes include the historical deregulation of the European aviation market, the operational characteristics of the LCC business model, its economic and environmental impacts, and strategies for ensuring its long-term sustainability.
What is the primary research objective?
The research aims to identify the essential characteristics of the LCC model, determine how it affects the EU community, and uncover the driving forces that allow this business model to thrive.
Which scientific methods are employed?
The research utilizes a retrospective analysis of the aviation industry's regulatory history combined with an examination of performance indicators, comparative studies between Low Cost Carriers and Full Service Carriers, and case study evaluations of regional impacts.
What does the main body of the work cover?
The main body covers the transition to a deregulated single aviation market, a detailed breakdown of the LCC operational business design (such as cost-cutting levers), and an assessment of both the positive benefits and negative impacts of LCC operations.
How can the work be characterized by its keywords?
The work is characterized by terms reflecting the shift in European aviation policy, the operational efficiency of LCCs, and the broader debate surrounding their economic, social, and environmental sustainability.
How did the Third Package of liberalisation reforms influence the market?
The Third Package, effective from 1997, removed most remaining regulatory constraints on intra-EU air transport, allowing open access to virtually all routes and fostering the conditions necessary for the rapid emergence and expansion of Low Cost Airlines.
Why do LCCs prefer to use secondary airports?
Secondary airports offer significant cost advantages through lower aeronautical charges and reduced tax costs, and their less congested nature allows for faster aircraft turnaround times, contributing to higher operational efficiency.
- Citation du texte
- Veronika Minkova (Auteur), 2009, Low Cost Carriers - Business Model, Impacts of its Expansion and Challenges, Munich, GRIN Verlag, https://www.grin.com/document/180846
