Transferring the Successful Business Model of Short-Haul Low-Cost Airlines to the Long-Haul Market – Why Does It Not Work?
Transferring the successful business model of short-haul low-cost airlines to the long-haul market – why does it not work?
Universidad del Pacifico
Globalization, Multinational Corporations & Foreign Direct Investment
Research Paper
3.12.2012
1
1. Introduction
In terms of financial achievements the airline industry has not performed well over the past decades. It has even been stated as ‘an example of how not to run business in the 21st Century, when looking at hard numerical facts’ (Button & Ison , 2008). However, there have been exceptionally flourishing cases, especially in the low -cost short-haul airline industry. Companies such as Ryanair in Europe or Southwest Airlines in the USA have gained considerable profits throughout the past decade. Even during the aftermath of the September 11, 2001, terrorist attacks, incurring severe losses in the airline industry, they have remained profitable (Button &
Ison, 2008, Flouris & Walker 2005). As opposed to full -service carriers, most low-cost carriers’
(LCC) business models consist of one especially important feature, namely its price. Rigorously simplifying the consumer product and focusing on the core of air transportation enables LCCs to charge significantly lower fares and thus to compete with convent ional airlines. Low-cost shorthaul airlines have been gaining considerable market shares and now dominate many markets
(Button & Ison, 2008). The successes of these low-cost carriers however are only present in the segment of short-haul distances and have yet to be achieved in the segment of long-haul flights.
Several attempts to enter the low-cost long-haul airline segment have been made in the past but eventually all trials revealed to be unprofitable. Naturally the following question here is: Why? Is the low-cost ‘no-frills’ airline model economically not viable for long-haul flight routes? This paper compares the cost and other advantages of LCCs and evaluates how far they
Universidad del Pacifico
Globalization, Multinational Corporations & Foreign Direct Investment
Research Paper
3.12.2012
1
1. Introduction
In terms of financial achievements the airline industry has not performed well over the past decades. It has even been stated as ‘an example of how not to run business in the 21st Century, when looking at hard numerical facts’ (Button & Ison , 2008). However, there have been exceptionally flourishing cases, especially in the low -cost short-haul airline industry. Companies such as Ryanair in Europe or Southwest Airlines in the USA have gained considerable profits throughout the past decade. Even during the aftermath of the September 11, 2001, terrorist attacks, incurring severe losses in the airline industry, they have remained profitable (Button &
Ison, 2008, Flouris & Walker 2005). As opposed to full -service carriers, most low-cost carriers’
(LCC) business models consist of one especially important feature, namely its price. Rigorously simplifying the consumer product and focusing on the core of air transportation enables LCCs to charge significantly lower fares and thus to compete with convent ional airlines. Low-cost shorthaul airlines have been gaining considerable market shares and now dominate many markets
(Button & Ison, 2008). The successes of these low-cost carriers however are only present in the segment of short-haul distances and have yet to be achieved in the segment of long-haul flights.
Several attempts to enter the low-cost long-haul airline segment have been made in the past but eventually all trials revealed to be unprofitable. Naturally the following question here is: Why? Is the low-cost ‘no-frills’ airline model economically not viable for long-haul flight routes? This paper compares the cost and other advantages of LCCs and evaluates how far they
References: Button, K., & Ison, S. (2008). The economics of low-cost airlines: introduction. Research in Transportation Economics, 21, 1-4 Binggeli and Pompeo (2002) Flouris, T., & Walker, J Koenigsberg, O., Muller, E., & Vilcassim, N. J. (2008). easyJet® pricing strategy: should lowfare airlines offer last-minute deals? Quantitative Marketing and Economics, 6, 279-29. DOI: 10.1007/s11129-007-9036-2 Lubbe, B. (2000). The Changing Role of the Travel Intermediary. South African Journal of Economic and Management Sciences, 3, 273-289 Morrel, P. (2008). Can long-haul low-cost airlines be successful? Research in Transportation Economics, 24, 61-67 Pels, E., Njegovan, N., & Behrens, C. (2009). Low -cost airlines and airport competition.