Competitive Strategy for Low Cost Airlines
Proceedings of the 13th Asia Pacific Management Conference, Melbourne, Australia, 2007, 431-436
Competitive Strategy for Low Cost Airlines
Hongwei Jiang
RMIT University, Australia
Abstract The aim of this paper is to identify challenge faced to Low-Cost Carriers (LCCs) or Low-Cost Airlines and provide new insights into the development and competitive strategy for LCCs. LCCs are still a relatively new phenomenon in Australia since Virgin Blue and Jetstar came to the market. There are over 30 LCCs have been launched since 2002 worldwide. In fact, LCCs have been very successful in the USA and Europe since 1990s. For example, in 1994 less than 3 million passengers flew on LCCs. In 1999, five years later, this figure had risen to about 17.5 million. Five years further on, in 2004, 100 million or so European passengers use LCCs. For example, Ryanair’s passenger-Kilometres grew on average about 45 percent per annum from 1998 to 2003. The emergence and growth of no frills, low-cost carriers have radically altered the nature of competition within the industry. Those major low-cost carriers have exploited different operation methods to lower their cost and provide lower average fares. However, not all LCCs are profitable, only the market-leading operators are able to produce a consistent level returns above their cost of capital. With the disappearance of two major LCCs: Go (subsidiary of British Airways) and Buss (subsidiary of KLM Airlines) and others in the US (80%-85%) and Europe (60%) (Taneja, 2003), many issues have been identified for the failure of LCCs. The question at this point is what the future of LCCs and what competitive strategy could help LCCs to survive? Porter’s Competitive Strategy Model and case studies will be used in this paper. The expected outcomes of this paper are to evaluate cost and market share issues for LCCs and find long-term sustainable strategies and solutions for LCCs.
Keywords: Low-Cost carriers; LCCs; Low-Cost airlines; Competitive
Competitive Strategy for Low Cost Airlines
Hongwei Jiang
RMIT University, Australia
Abstract The aim of this paper is to identify challenge faced to Low-Cost Carriers (LCCs) or Low-Cost Airlines and provide new insights into the development and competitive strategy for LCCs. LCCs are still a relatively new phenomenon in Australia since Virgin Blue and Jetstar came to the market. There are over 30 LCCs have been launched since 2002 worldwide. In fact, LCCs have been very successful in the USA and Europe since 1990s. For example, in 1994 less than 3 million passengers flew on LCCs. In 1999, five years later, this figure had risen to about 17.5 million. Five years further on, in 2004, 100 million or so European passengers use LCCs. For example, Ryanair’s passenger-Kilometres grew on average about 45 percent per annum from 1998 to 2003. The emergence and growth of no frills, low-cost carriers have radically altered the nature of competition within the industry. Those major low-cost carriers have exploited different operation methods to lower their cost and provide lower average fares. However, not all LCCs are profitable, only the market-leading operators are able to produce a consistent level returns above their cost of capital. With the disappearance of two major LCCs: Go (subsidiary of British Airways) and Buss (subsidiary of KLM Airlines) and others in the US (80%-85%) and Europe (60%) (Taneja, 2003), many issues have been identified for the failure of LCCs. The question at this point is what the future of LCCs and what competitive strategy could help LCCs to survive? Porter’s Competitive Strategy Model and case studies will be used in this paper. The expected outcomes of this paper are to evaluate cost and market share issues for LCCs and find long-term sustainable strategies and solutions for LCCs.
Keywords: Low-Cost carriers; LCCs; Low-Cost airlines; Competitive