How Low-Cost Carriers (LCCs) Are Slowly Taking Over The Airline Industry And What Full Service Network Carrier (FSNCs) Are Doing To Fight Back.
International airline industry has become an integral part of the global economy. In fact, nearly every part of the world has been reached with airline services. Remarkable and appreciable developments have taken effect in the airline industry since 1950s when jet airplanes were introduced. In the early stages of airline developments, mush control and regulations were imposed on their operations. Excess control of the airline operations made competition and profitability limited. Nevertheless, the deregulation of the airlines in the United States in 1978 opened a new face in the industry. So far, competitive behavior and profitability of the earliness has become eminent in the industry. Deregulation of the airline market has seen a number of changes. One of the most outstanding developments experienced in the airline industry following the deregulation is the proliferation of the Low-cost Carriers, LCCs. Low-Cost Carriers first originated in the United States and had slowly spread to other parts of the world. They are progressively dominating the airline industry due to their services that give them a competitive advantage over the FSNCs. LCCs are known to offer travel services that accommodate middle class travelers as well as students who take their studies abroad.
Aim of the Research
The proposed research seeks to determine how LCCs are slowly taking over the airline industry as well as focusing on the efforts made by FSNCs to adapt to the current market in order to gain more customers and be able to keep their current customers.
The hypothesis for the proposed research is that Low-Cost Carriers are slowly taking over the airline industry while their counterpart Full Service Network Carriers are busy looking for ways to help them fight back.
Main question of the research
What approaches are used the Low-Cost Carriers to take over the airline industry and what do the full service network carriers do to counter these advances by the LCCs?
In order to respond to the main question of the proposed research, the following sub-questions need to be answered by the research:
i. What are the features of the LCCs and FSNCs that give the LCCs due advantage over the FSNCs?
ii. What are the strategies used by the FSNCs to compete their LCCs counterparts?
iii. What are the marketing strategies used by the LCCs to take over the airline industry?
These three sub-questions are will be very significant in understating the main question of the proposed research. The first question will be answered by analyzing the features and business models used by the LCCs and FSNCs in order to identify the unique models that give LCCs due advantage over of the traditional full service network carriers. The second question of the research will help in providing a response to the second part of the research topic that seeks to analyze the steps taken by the Full Service Network Carriers to fight back the steady move by the Low-Cost Carries to take over the airline industry. The last question, on the other hand, requires a close analysis of the business models and marketing strategies that are used by the Low-Cost Carriers to slowly take over the domination of the airline industry.
The year 1978 is considered to be a milestone year in the airline business. The airline industry became revolutionized following the deregulation policy of the airlines that began in the United States and has slowly but steadily penetrated the other parts of the world. According to a report by the Transportation Research Board of the U.S, deregulation led to the establishment of low cost airline service providers that began to challenge the dominance of the Full Service Network Carriers. However, their success did not last for long. In fact, towards the end of 1980s, most of the newly established airlines stemming from the deregulation policy were unable to continue their services and were either faced out or absorbed by the full service network airlines. The costs of operating airline business are quite expensive. In order to remain competitive, an airline firm must be able to generate adequate revenues to cover the operating costs. For instance, the jet fuel cost is constantly rising making the airline operation costexpensive. In fact, the travel demand is highly dependent on the consumers’ confidence that relies heavily on the stock market performance. Despite the failure of the newly established airlines to compete the full service networks, a new set of airlines entered the industry towards the end of the twentieth century. The new airlines that entered the market that began to compete effectively against the FSNCs in the short haul market are known as Low Cost Carriers, LCCs (Doganis, 2002, p. 56).
Statistics report by the US Department of Transportation of 2007 indicates that the LCCs initiated strategies that gave them a competitive advantage against the FSNCs (Bureau of Transportation Statistics, 2006). In their marketing strategy, cost minimization has been effectively utilized. They do not provide frills such as meals or in-flight entertainment . Instead, LCCs offer very low travel fares on short haul point to point routes. In the United States, LCCs have taken the better part of the market segments. A recent report by the travel department indicates that LCCs have taken almost one-third of the market share of the domestic air travel market. As earlier stated, the success of the low cost airlines did not proceed for long due to the difficulty in generating adequate revenue to keep the operation cost. According to Meyer (1999), most of the LCCs that were established after the failure of the earliest ones followed the footsteps of the Southwest Airlines. A number of LCCs were established since then. Some of the most successful LCCs include Frontier Airlines in Denver, Value Jet of Atlanta JetBlue in the New York. The leading LCCs that were seen as the pace-setter, Southwest Airlines expanded its operation networks to Chicago, Salt Lake City and Florida.
In the light of the International Air Transport Association report of 2006, LCCs have been relentlessly put efforts to penetrate the market in the United States. By 2006, LCCs already had a market share of about 30%. The model upon which the LCCs are operated is based on the Southwest Airlines model developed in the 1970s. According to Lee et al. (2003, p. 5), LCCs operate on a model that make them very competitive compared to the traditional Full Service Network Carriers. For instance, LCCs offer simplified fare structure, high direct sales with low dependency on travel agents. In other words, LCCs provide simplified services that make it possible to offer travelers low fare charges while still gaining profits. The operations are based on simplicity with maximized productivity.
Recent trends in the industry indicate that FSNCs are slowly adopting the strategies of the LCCs to make them remain competitive amidst the domination of the LCCs. For instance, some Full Service Network Carriers are doing away with some services such as the provision of hot meals for flights. These strategies are slowly being adopted as means to enable the traditional full service networks to fight back the high level of competition posed to them by the LCCs. According to Song &Ted, (2003, p.56), FSNCs are slowly adopting the marketing strategies used by the LCCs. A number of FSNCs have tried to simplify their fares, implementing profit sharing plans for their employees as well as introducing their own low cost airlines to compete with the LCCs are slowly but steadily taking over the airline's market. In some researches, LCCs have also been found to adopt some features of the FSNCs for differentiation purposes. Some of the features of the FSNCs being adopted by the LCCs include; frequent flyer programs, hub and spoke network systems, in-flight entertainment and the introduction of multiple aircraft types.
United States Transport Department confirms that most FSNCs are borrowing from the LCCs models than the LCCs borrow from the FSNCs. In fact, most of the FSNCs are on the verge of downgrading their product and service lines in order to cut the cost of operations and remain profitable. Nevertheless, LCCs are enjoying low operational cost comparative to their FSNCs counterparts. Recent researches indicate that no distinct differences can be pointed out singly to differentiate the LCCs from the FSNCs as far as their product are concerned. However, LCCs take advantage over FSNCs due to the relatively low cost of operation that they still enjoy although their products seem to be getting more similar. According to Pearce (2006, P.67), the gap between the LCCs and FSNCs remains unclosed in spite of the efforts put in place by a full service network carriers.
The research design for the proposed research is a meta-analysis design. It focuses on a systematic analysis and evaluation of secondary materials sources to identify their contribution to the understanding of the research topic (Mark, 2013-14, p. 12). Meta-analysis design is intended to analyze differences in the results among studies in order to find the responses to the various questions of the proposed research. The choice of this design is guided by the fact that research area of interest requires a close examination of the business models and feature of the LCCs and FSNCs in order to determine the likelihood of the LCCs taking over the airline industry. Successful use of this design is embedded on the strict adherence of the criteria used in selecting materials for analysis (USC Library, 2014).
In the proposed study, validity of the design chosen will be enhanced in a number of ways:
- The objectives of the study will be clearly stated and described to provide a roadmap for selecting materials for analysis and to ensure relevance
- The sources chosen for analysis will be keenly examined and acknowledged to identify any bias in their findings
- There will be a high degree of heterogeneity in the sources to ensure that there is a wide range of information for analysis to provide responses for the questions for the proposed study. In other words the sufficiently large number of materials will be used to ensure that the sample size is large enough to provide dependable findings
Limitations of Meta-Analysis design
Despite its importance in identifying research sources for analysis to identify the business models used by the LCCs to be able to slowly take over the airline industry, heterogeneity of sources makes it difficult to justify the interpretation for making a valid synopsis (Wyk, 2013, p. 23). Besides, lack of information in this area of research can severely limit the type of analyses and conclusions ton be reached (Walker, 2008, p. 441).
Research Approach and Justification
The proposed research adopts secondary research approach rather than the primary approach. This choice is based on the fact that the topic for the proposed study relies heavily on the findings of earlier studies about business models and the trends in the airline industry. It is noteworthy that the primary approach cannot be useful in studying the research topic since the interest is to determine the models used by LCCs that enables them to take over the airline industry. Therefore, the proposed research will draw its findings from the analysis of secondary data. It will involve relating theory and practice in the airline industry as well as studying the trends in the airline industry based on the reports (Cresswell, 2007, p. 12).
Secondary research approach is suitable for the proposed study because it is cost effective and time saving. Secondary data are readily available and provide a wide range of information on business models, marketing strategies and trends in the airline industry. Most importantly, secondary data makes it possible to conduct even a historical survey to not only look at the current situation but rather inspect the trends that have been experienced in the industry (Cooper, 2009, p. 43). The proposed study requires information that is traced back in history to be able to analyze the pace of growth of the LCCs and FSNCs and how their emergence has changed the whole face of the airline industry. Therefore, secondary research approach is more relevant and suitable for the proposed research (Labaree, 2008, p. 65).
Selecting Materials for Meta-Analysis
As mentioned earlier in the discourse, the proposed study adopts the meta-analysis design accomplished through analysis of secondary information (Katzell, 1987, p. 424). It is thus important to select materials and sources that will be resourceful and useful as far as the study is concerned. In the proposed study, the choice of sources for analysis will be guided by the relevance of the materials and their ability to provide the necessary information for making valid conclusions. Evaluation of secondary materials will begin from the university library sources such as online database systems such as Business Source Premier and Mintel Oxygen alongside bibliographic database and internet web search (Paul, 2010, p. 122). These library sources will help lay the foundation for the research and equip the researcher with a broad understanding of the situation on the ground. Once initial assessment is done, the analysis will proceed to annual reports on the airline industry that give the performance and rankings of the LCCs against their FSNCs counterparts.
Afterwards, there will be a close examination of the sources in order to relate the theories and practice. The main aim of these analyzes is to help determine the pace of growth of the LCCs and their advances to take over the airline industry. Moreover, secondary sources, especially the annual reports of both LCCs and FSNCs to identify their modes of operation and strategies used by the FSNCs to fight back their LCCs counterparts.
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