Since the world’s first airline company has been established (German Airship Transport Corporation in 1909), especially the new style of low-cost airlines increased the competition on the market for commercial flights. Towards the end of the century low-cost airlines offered first no-frills products at a low price. The concept originated in the U.S., before it spread to Europe in the early 1990’s and subsequently to the rest of the world (Chan 2000). One main reason for the accelerated increase of low-cost flights can be seen in the EU enlargement, where open skies arrangements were extended. As a result low-cost routes were established by existing and new operators. The main characteristic of this new strategic orientation was the lower operating cost structure than this of the traditional market participants. The traditional airline industry had to face an essential change in the market, with an increase of competition and new business models.
Focusing on Europe, there were only a few low-cost airlines before the year of 2000. However, today about 60 low-cost carriers moved mainstream in Europe with a total market share of 24%, whereas in Germany 23 low-cost airlines operate (Berster 2007)...
...To evaluate the specific strategy of Germanwings it is necessary to set limits to the field of study. After introducing the company itself, the strategic position will be evaluated by focusing on Germany. Thus, Germanwings will be compared to the operators acting in this country. Therefore, it is useful to introduce a strategic mapping and the analysis of price practices focusing on Germanwings. Furthermore, important individual measures of the company will be explained which soften the impact of the above mentioned external influencing factors (PEST-analysis). Finally, some up-to-date measures of the company will conclude its strategic orientation.
Table of Contents
INTRODUCTION – AN OVERVIEW OF THE MARKET FOR LOW-COST CARRIERS
GERMANWINGS – AN ANALYSIS OF THE GERMAN LOW-COST CARRIER
CONCLUSION
Objectives and Topics
This assignment examines the economic landscape of the low-cost carrier (LCC) industry, specifically focusing on the strategic positioning, business model, and operational measures of the German airline Germanwings within the competitive European aviation market.
- Evolution and characteristics of the low-cost airline sector.
- Macroeconomic influences on the industry via PEST analysis.
- Strategic comparison between low-cost and full-service carriers.
- Competitive analysis and market positioning of Germanwings.
- Evaluation of pricing strategies and customer loyalty initiatives.
Excerpt from the Book
Introduction – An overview of the market for low-cost carriers
Since the world’s first airline company has been established (German Airship Transport Corporation in 1909), especially the new style of low-cost airlines increased the competition on the market for commercial flights. Towards the end of the century low-cost airlines offered first no-frills products at a low price. The concept originated in the U.S., before it spread to Europe in the early 1990’s and subsequently to the rest of the world (Chan 2000). One main reason for the accelerated increase of low-cost flights can be seen in the EU enlargement, where open skies arrangements were extended. As a result low-cost routes were established by existing and new operators. The main characteristic of this new strategic orientation was the lower operating cost structure than this of the traditional market participants. The traditional airline industry had to face an essential change in the market, with an increase of competition and new business models.
Focusing on Europe, there were only a few low-cost airlines before the year of 2000. However, today about 60 low-cost carriers moved mainstream in Europe with a total market share of 24%, whereas in Germany 23 low-cost airlines operate (Berster 2007).
Low-cost carrier (LCC), low-cost airline, no-frills carrier or discounter carrier are all different names for the same occurrence: An airline that generally offers low fares in exchange for eliminating many traditional passengers services. Thus, the low-cost sector can be clearly distinguished from the traditional full-service sector, which is primary based upon the quality of the service (Calder 2003). Other models within the aviation industry are cargo flights, general aviation, regional carriers and charter airlines, which will not be focused in the following elaboration.
Summary of Chapters
INTRODUCTION – AN OVERVIEW OF THE MARKET FOR LOW-COST CARRIERS: This chapter traces the historical development of the LCC sector and defines its core business model in contrast to traditional full-service carriers, while identifying major macro-environmental factors.
GERMANWINGS – AN ANALYSIS OF THE GERMAN LOW-COST CARRIER: This section evaluates the specific strategic position of Germanwings within the German market, examining its pricing, distribution, and measures taken to compete with major players like Air Berlin.
CONCLUSION: The final chapter summarizes the competitive outlook for the LCC market and affirms the strategic viability of Germanwings' premium low-cost approach through potential growth and consolidation.
Keywords
Low-cost carrier, Germanwings, PEST analysis, business strategy, airline industry, pricing strategy, competition, market share, EU enlargement, premium low-cost, customer loyalty, aviation economics, strategic mapping, oligopoly, mergers and acquisitions.
Frequently Asked Questions
What is the primary focus of this assignment?
The assignment provides an economic analysis of the low-cost carrier industry, using Germanwings as a specific case study to understand how such airlines compete within the German aviation market.
What are the central themes of the work?
The core themes include industry evolution, business model differentiation between low-cost and full-service carriers, macroeconomic impacts (PEST), and strategic firm-level positioning.
What is the primary research goal?
The goal is to evaluate the strategic measures Germanwings employs to maintain a unique market position and combat external competitive and macroeconomic pressures.
Which scientific method is used?
The paper utilizes a PEST analysis (Political, Economic, Social, Technological) to assess external market influences and a strategic mapping approach to visualize market share and pricing comparisons among major competitors.
What is covered in the main section?
The main section details the business model of Germanwings, its competitive landscape in the German oligopoly, and its specific strategic initiatives, such as public pricing strategies and loyalty programs.
Which keywords characterize this work?
Key terms include low-cost carrier, strategic mapping, market share, business model, premium low-cost, and competitive strategy.
How does Germanwings differentiate itself from other low-cost carriers?
Germanwings positions itself as a "premium" low-cost carrier by offering additional services, such as frequent-flyer programs and more convenient flight times to main airports, while still adhering to the core low-cost cost-minimization model.
What role does the "PEST-analysis" play in the evaluation?
The PEST analysis is used to identify and categorize external factors—like fuel prices, terrorism, and technological shifts—that the company must address to ensure long-term sustainability.
How is Germanwings' pricing strategy explained?
The company maintains a transparent pricing policy, including a €19 entry price point, which it uses to build trust and increase demand, while managing margins through ancillary revenue sources and partnerships.
What is the outlook for Germanwings according to the author?
The author concludes that Germanwings is well-positioned for future success, particularly due to its planned integration with TUIfly/HLX, which helps it compete more effectively against the market leader, Air Berlin.
- Quote paper
- Volker Küpper (Author), 2007, Low-cost carrier industry: A focus on Germanwings strategy, Munich, GRIN Verlag, https://www.grin.com/document/90380
