Future of Low-Cost Airlines

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Assessment Item 4: Seminar Paper
Outline two possible ‘likely futures’ for the low-cost airline industry.

The low-cost model in the airline industry, pioneered by Southwest Airlines, continues to bring profitability, success and challenges to airlines in markets across the world. Low-cost airlines continue to put pressure on the traditional ‘legacy’ airlines to compete while engaged in an intense rivalry with direct low-cost competitors. This paper argues that the low-cost airline industry is likely to (i) look to long haul operations as a source of growth and (ii) experience significant convergence and consolidation within the industry.

Until recently, low-cost airlines have predominantly been short haul operations. This is due in part to the regulatory context of long haul services and core components of low-cost operations not being compatible with long haul fights (Flint, 2003). Full cross border mergers are still restricted by national regulations in many instances. However, the dominant airlines have been increasingly successful in lobbying for the relaxation of such restrictions (AAPA, 2011). Low cost carriers will continue to make adaptations to their operations to accommodate the more complex requirements of long haul flights and consumer demands (meals, in-flight entertainment and more leg room). Southwest airlines have already purchased larger 737’s capable of longer haul flights and intends to introduce wi-fi in all aircraft by 2012. This is a clear signal of the airlines intent to grow into new longer-haul markets. Jetblue has already experienced success though their entrance into Mexican and Caribbean markets. This trend of international expansion looks set to continue as low cost airlines look outside already crowded domestic markets for growth.

The low-cost model has increasingly impinged on the profits of traditional airlines, forcing them to review their own strategy. Airlines have looked to form strategic alliances, mergers and...
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