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
- 2.1. Outlook of the European Aviation Industry until 1988: Three Pillars of Economic Regulation
- 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
- 4.1. Benefits of LCCs Operations
- 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
Objectives and Key Themes
This thesis analyzes the business model of European low-cost carriers (LCCs), examining the impact of their expansion and the challenges they face. It aims to provide a comprehensive understanding of the LCC phenomenon within the context of European aviation deregulation.
- The impact of European aviation market deregulation on the rise of LCCs.
- The characteristics and strategic positioning of the LCC business model.
- The cost advantages of LCCs and their determinants.
- The impact of LCC operations on consumers, airports, and the European community.
- The long-term sustainability of the European LCC model and the challenges it faces.
Chapter Summaries
1. Introduction: This chapter likely provides a general introduction to the topic of low-cost carriers in the European aviation market, outlining the scope and objectives of the thesis. It sets the stage for the subsequent chapters by providing background information and highlighting the key research questions that will be addressed.
2. Deregulation of the European Aviation Market and its Impact on the Emergence of Low Cost Airlines: This chapter explores the historical context of European aviation, focusing on the deregulation process and its impact on the development of low-cost airlines. It likely analyzes the pre-deregulation environment, highlighting restrictive policies like bilateral agreements and the role of organizations like IATA. The chapter then details the liberalization phases, examining how these changes created opportunities for new entrants like LCCs to compete with established carriers, ultimately shaping the landscape of European air travel.
3. LCC Business Model and Characteristics: This chapter delves into the core operational and strategic aspects of the LCC business model. It likely defines what constitutes a low-cost airline, differentiating it from full-service carriers. A key focus is the cost structure of LCCs, analyzing factors such as aircraft type, route selection (point-to-point vs. hub-and-spoke), ancillary revenue generation, and operational efficiency. The chapter also likely explores market segmentation strategies employed by LCCs to target specific customer groups, such as business and leisure travelers.
4. Impacts of the LCCs Operations: This chapter assesses the wide-ranging effects of LCC operations. It likely examines the positive impacts, such as increased accessibility to air travel for consumers, economic benefits to airports through increased passenger numbers, and contributions to the European community. The chapter will then likely explore potential negative consequences, for example, environmental concerns related to increased air traffic and potential limitations of the low-cost product itself in terms of service quality and customer experience.
5. Long-Term Sustainability of the European Low Cost Model: This chapter analyzes the long-term viability of the LCC business model in Europe. It likely discusses the resilience of LCCs to economic downturns, examining how they adapt to fluctuating fuel prices and overall economic conditions. A significant part of the chapter likely focuses on the key challenges faced by LCCs, such as overcapacity in certain markets, pressure on average fares, and the ongoing need to control operational costs. The chapter also likely explores competitive strategies employed by LCCs to maintain their market position and ensure future success.
Keywords
Low-cost carriers, European aviation market, deregulation, business model, cost advantages, market segmentation, sustainability, competitive strategies, economic impact, environmental impact.
Frequently Asked Questions: European Low-Cost Carrier Business Model
What is the main topic of this text?
This text provides a comprehensive analysis of the European low-cost carrier (LCC) business model. It examines the impact of European aviation market deregulation on the rise of LCCs, their characteristics, cost advantages, market impact, and long-term sustainability.
What are the key themes explored in this text?
The key themes include: the deregulation of the European aviation market and its impact on LCC emergence; the LCC business model and its characteristics (including cost advantages and market segmentation); the impacts of LCC operations on consumers, airports, and the European community (both positive and negative); and the long-term sustainability of the European LCC model and the challenges it faces.
What is the structure of the text?
The text is structured into five chapters: 1. Introduction, 2. Deregulation and LCC Emergence, 3. LCC Business Model and Characteristics, 4. Impacts of LCC Operations, and 5. Long-Term Sustainability of the European LCC Model. Each chapter is summarized, providing an overview of its contents.
What historical context is provided regarding the European aviation market?
The text explores the historical context of European aviation, focusing on the deregulation process and its impact on the development of low-cost airlines. It examines the pre-deregulation environment, including bilateral agreements and the role of the International Air Transport Association (IATA), and details the liberalization phases that enabled the rise of LCCs.
How does the text define and describe the LCC business model?
The text defines the LCC business model and differentiates it from full-service carriers. It analyzes the cost structure, including factors such as aircraft type, route selection, ancillary revenue, and operational efficiency. Market segmentation strategies employed by LCCs to target specific customer groups (business and leisure travelers) are also discussed.
What are the cost advantages of LCCs, according to the text?
The text identifies several cost advantages of LCCs, including: aircraft size and seat density; fleet commonality; sector distance; aircraft utilization; usage of secondary airports; high labor productivity rates; route selection; distribution costs; and passenger service costs.
What are the impacts of LCC operations, both positive and negative?
The text examines both positive and negative impacts of LCC operations. Positive impacts include increased accessibility to air travel for consumers, economic benefits to airports, and contributions to the European community. Negative impacts include environmental concerns related to increased air traffic and potential limitations of the low-cost product in terms of service quality and customer experience.
What challenges does the long-term sustainability of the European LCC model face?
The text discusses several challenges to the long-term sustainability of the European LCC model, including: resisting economic downturns; managing overcapacity in certain markets; pressure on average fares; controlling costs; and maintaining a competitive edge in a dynamic market.
What competitive strategies are discussed for LCCs?
The text explores competitive strategies employed by LCCs to maintain their market position and ensure future success, including adopting a strategic position and leveraging capabilities.
What keywords are associated with this text?
Keywords include: low-cost carriers, European aviation market, deregulation, business model, cost advantages, market segmentation, sustainability, competitive strategies, economic impact, and environmental impact.
- Quote paper
- Veronika Minkova (Author), 2009, Low Cost Carriers - Business Model, Impacts of its Expansion and Challenges, Munich, GRIN Verlag, https://www.grin.com/document/180846
