The entry of low-cost carriers (LCCs) in the early 1990ies revolutionized the European airline industry. Before the LCCs entered the European short-haul market, incumbent full service carriers (FSCs) were able to operate relatively unhindered. Supported by many deregulations, LCCs set their focus on a cost base as low as possible, so they were able to offer fares tremendously lower than incumbent players. Even though they took some market share from the FSCs, the main success was based on the ability to reach new customer segments. Passengers, previously travelling by car or long-distance busses, took advantage of newly affordable airline fares and were willing to incur limited comfort.
Now, around 20 years after the first entry of European LCCs, the short-haul market is not expected to continue growing significantly. Hence, if the LCCs want to continue their expansion, they need a ‘new market’, and it seems just like a question of time until they add long-haul routes to their route network. Nevertheless, the long- and short-haul market are comparable just to a limited amount. As we will see in the following analyses and discussions, several specific characteristics require fundamental changes in the current LCC business model, which is optimized for short-haul operations.
The focus point of this thesis is the development of an auspicious entry mode, based on theoretical economic frameworks. In comparison to the short-haul market, competitive interactions between incumbent FSCs and entering LCCs are expected to be much more intense on long-haul routes. This is based on the fact that LCCs will not be able to sustain their high cost advantages also on long-haul routes. For long-haul flights it is also not possible to reduce provided comfort and additional services in such a way the LCCs currently do on their short-haul operations. Hence, on long-haul routes, entering LCCs and incumbent FSCs will be active much more in the same market than they currently do, which implies a much higher degree of competition. This provides several points of contact for game theoretical considerations, as we will see in the following chapters.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Characteristics of LCCs
- Route network and additional services
- Distribution channels & pricing
- Operational aspects
- Strategic positioning
- Characteristics of the long-haul market
- General structure and incumbent players
- Requirements
- 'Feeding' and 'de-feeding'
- International code-share alliances
- Entry Barriers
- Theoretical background
- Entry barriers to the long-haul market
- Entering the long-haul market
- The transferability of the low-cost model from short-haul to long-haul
- Transferable characteristics of the business model
- Required adjustments
- Conclusion: The low-cost long-haul business model
- Judo economics as an auspicious framework for entry
- Overall Framework
- Capacity limitations: Theoretical background and transferability to this topic
- Quantitative model for the 'movement step' of the Judo strategy
- Practical implications for the entry
- Overcoming barriers of entry
- The Judo entry
- The transferability of the low-cost model from short-haul to long-haul
- Empirical evidence: Norwegian Airlines
- Conclusion
- List of references
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This thesis analyzes the potential entry of low-cost carriers (LCCs) into the long-haul market, focusing on the development of a successful entry strategy. The research investigates the transferability of the LCC business model from short-haul to long-haul operations, taking into account the specific challenges and opportunities of the long-haul market. The goal is to identify a suitable entry mode based on theoretical economic frameworks and to assess its practical implications. The thesis also analyzes the actual long-haul entry of Norwegian Airlines, the first European LCC to enter the long-haul market, and compares their strategy to the proposed entry mode.
- Transferability of the LCC business model from short-haul to long-haul
- Developing a successful entry strategy for LCCs in the long-haul market
- Analysis of the long-haul market characteristics and entry barriers
- Application of economic theory and game theoretical considerations to the entry strategy
- Empirical analysis of Norwegian Airlines' long-haul entry strategy
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the topic of LCCs entering the long-haul market and highlights the key differences between the short-haul and long-haul markets. It also outlines the thesis's focus on developing a suitable entry mode based on theoretical economic frameworks and analyzing Norwegian Airlines' entry strategy.
- Characteristics of LCCs: This chapter explores the operational characteristics of LCCs, including their route network, distribution channels, pricing strategies, and operational aspects. The chapter analyzes the key cost advantages LCCs enjoy and their strategic positioning compared to full service carriers (FSCs).
- Characteristics of the long-haul market: This chapter examines the specific characteristics of the long-haul market, focusing on its structure, key players, and entry barriers. It discusses the challenges and opportunities for LCCs entering the long-haul market, emphasizing the need for a different business model compared to short-haul operations.
- Entering the long-haul market: This chapter delves into the feasibility of transferring the LCC business model to long-haul operations, analyzing the required adjustments and outlining a potential entry mode based on economic theory. It explores Judo economics as a suitable framework for LCC entry and discusses its theoretical and practical implications.
- Empirical evidence: Norwegian Airlines: This chapter presents an analysis of the long-haul entry strategy of Norwegian Airlines, the first European LCC to enter the long-haul market. It evaluates their approach and compares it to the theoretical framework developed in previous chapters.
Schlüsselwörter (Keywords)
This thesis examines the entry of low-cost carriers (LCCs) into the long-haul market, focusing on the transferability of the LCC business model, the development of a suitable entry strategy, and the analysis of Norwegian Airlines' actual entry. Key terms and concepts include: cost advantages, route network, distribution channels, pricing strategies, operational aspects, strategic positioning, entry barriers, Judo economics, competitive interactions, and empirical evidence. The thesis utilizes economic theory and game theoretical considerations to analyze the potential for LCCs to successfully enter the long-haul market.
- Quote paper
- Jakob Stemmler (Author), 2013, The Entry of Low-Cost Airlines into the Market for Long-Haul Flights, Munich, GRIN Verlag, https://www.grin.com/document/300435
