Low Cost Strategies a Failed Business Model?
LOW COST AIRLINES: A FAILED BUSINESS MODEL? Kenneth Button University Professor Director of the Center for Transportation, Policy, Operations, and Logistics, and Director of the Aerospace Policy Research Center School of Public Policy George Mason University (MS 3C6) Fairfax, VA 22030, USA. E-mail: kbutton@gmu.edu
“You fucking academic eggheads! You don 't know shit. You can 't deregulate this industry. You 're going to wreck it. You don 't know a goddamn thing!” Robert L. Crandall, CEO American Airlines, addressing a Senate lawyer in 1977
“If the Wright brothers were alive today Wilbur would have to fire Orville to reduce costs” Herb Kelleher, Former President of Southwest Airlines, 1994
INTRODUCTION The low cost airline model (often called the “no frills” model in Europe – we tend to stick with the American vernacular) has been the subject of intense interest and study. The “Southwest effect”, basically the drop in fares that occurs when a low-fare airline begins serving an airport that had previously had no low-fare carriers, has become part of the vocabulary of air transportation. This paper looks at just how successful the low cost model is taken in it broadest context. In particular, while there have clearly been airlines pursuing the low cost approach that have largely endured and prospered, the question is whether that is because of the underlying business model, or a function of good management exercised, perhaps combined with an element of Napoleonic luck on the part of the individuals running these companies. The importance of low cost carriers as major suppliers of air services in short-haul markets is exemplified in by Ryanair being the larger movers of air travelers within Europe, and Southwest having the same position in the United States. Low-cost airlines are also becoming significant factors in airport planning. Their requirements differ from those of 'legacy ' carriers. They have thus been driving the development of secondary
“You fucking academic eggheads! You don 't know shit. You can 't deregulate this industry. You 're going to wreck it. You don 't know a goddamn thing!” Robert L. Crandall, CEO American Airlines, addressing a Senate lawyer in 1977
“If the Wright brothers were alive today Wilbur would have to fire Orville to reduce costs” Herb Kelleher, Former President of Southwest Airlines, 1994
INTRODUCTION The low cost airline model (often called the “no frills” model in Europe – we tend to stick with the American vernacular) has been the subject of intense interest and study. The “Southwest effect”, basically the drop in fares that occurs when a low-fare airline begins serving an airport that had previously had no low-fare carriers, has become part of the vocabulary of air transportation. This paper looks at just how successful the low cost model is taken in it broadest context. In particular, while there have clearly been airlines pursuing the low cost approach that have largely endured and prospered, the question is whether that is because of the underlying business model, or a function of good management exercised, perhaps combined with an element of Napoleonic luck on the part of the individuals running these companies. The importance of low cost carriers as major suppliers of air services in short-haul markets is exemplified in by Ryanair being the larger movers of air travelers within Europe, and Southwest having the same position in the United States. Low-cost airlines are also becoming significant factors in airport planning. Their requirements differ from those of 'legacy ' carriers. They have thus been driving the development of secondary
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