Rise of Low-Cost Carriers: Market Share Analysis - Essay Sample

Abstract

The rapid growth of low-cost carriers has developed a direct and adjacent competition on market share with scheduled airlines. Currently, competition among airline carriers has increased significantly. This research provides an overview of the market change as a result of the competition of low-cost carriers and scheduled airlines. The growth of low-cost carriers is due to the need for a dense network of connections that link up large cities with relatively affordable prices. The study tries to answer key questions; how have low-cost carriers impacted domestic and international market share? How has the economy been affected by the competition? What principles do passengers use to choose an airline model? What are the impacts on the airport's performance and policymaking? Low-cost carriers are gaining an increased market share with time. Study indicates that LCCs have significantly impacted the USA and European markets, and they are also playing an essential role in developing countries.

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Introduction

Aviation is essential in global business development because it is the only sector that provides a comprehensive transportation network (Acar & Karabulak, 2015). Air transports services offer significant economic and social benefits to the economy. It benefits a state by providing jobs and increasing tax revenues. Aviation provides a fast means of transport for goods and people worldwide. Aviation plays an essential role in promoting economic growth due to its extensive transportation network (Park, 2006). According to Acar & Karabulak (2015), economic impacts can be divided into direct, indirect, and induced effects. The results of economically impacts carried out by local industries make up the direct economic impacts. Indirect economic implications are as a result of off-site activities that attribute to aviation activities. Induced effects refer to impacts caused by increased income and employment due to direct and indirect economic impacts of aviation.

In the last decade, the airline industry has experienced rapid change (O'Connell & Williams, 2005). New kinds of the airline have been introduced in different in the markets, for example, Low-cost carriers (LCC) and hybrid carrier increasing the choices of customers. This aspect has led to a rapid change that has occurred in the airline industry. Since 1977, the size of the global Civil Aviation network has been doubling every 15 years and is expected to double again by the year 2030 (Acar & Karabulak, 2015). By 2030, airline passengers are expected to grow from three billion to six billion, and the number of departures is predicted to grow from 31 million to 60 million (ICAO, 2013).

The study investigates how firms acquire a competitive advantage in strategic management under equal operational control. The strategy of the firm illustrates the market activities involved as well as their resources and capabilities. This study reveals the impacts caused by competition between Low-cost carriers (LCC) and Full-Service Network Carriers (FSNC). The study also looks at the effects impacted airlines entry decision and how they differ between LCC and FSNC (Pitfield, 1993). The existence of cooperation or alliances limits the competitive behaviour of LCC and FSNC. The competition between airline models focuses on gaining market share rather than in price competition.

Statement of the Problem

The increase in popularity of low-cost carriers has led to the decrease of market share of other airlines.

Literature Review

ICAO (2013) defines low-cost carriers as a relatively low-cost structure compared with other airlines and offers low rates and fares. Liberalized markets have greatly been influenced by the impact of low-cost carriers in the competitive markets, including the domestic passenger markets. They have significantly reduced the market share of full-service network carriers. They have influenced some full-service carriers to establish their low-cost carriers, while some have formed alliances, and others have closed down.

History of Low Low-Cost Carriers

The formation of Southwest Airlines in 1971 was a significant influence on the emergence of low-cost carriers (Widmann, 2015). In 1978, they began to spread the service to the rest of the US according to deregulation of air transport. The emergence of low-cost carriers in Europe was due to the imitation of Southwest mode of operation by Ryanair and effects due to liberalizing of Europe aviation market as a Third Package in the year 1993 (Acar & Karabulak, 2015). The low-cost carriers emerged as a business model. The establishment of LCC in changed aviation in Europe. The market share of LCC was low at the relatively low at the beginning as it did not attract the attention of FSNC. Currently, FSNC has lost a significant market share due to the low market share of low-cost carriers. The charter airlines incurred a massive loss due to the rise of LCC in the market than the FSNC.

Deregulation and liberalization have promoted more competition among the airlines leading to a dramatic decrease in ticket prices mainly in routes that low-cost carriers operate. For instance, In the last 30 years, the price of tickets has decreased by half. In addition, according to Park (2006), LCC offers 40-50 percent low prices than full-service network carriers in Asia. Based on (Widmann, 2015) research, Lufthansa and Swiss were pushed to reduce their prices in particular routes due to the deployment of LCC in the same route. Low-cost carriers have also caused the closure of some airlines due to low market share, for example, PanAm which disappeared from the USA.

Based on (Widman, 2015) LCC do not operate according to 'hub-and-spoke-principle' associated with high cost and coordination. The flights offer 'point-to-point' links connected directly to short and medium distance flights. The low-cost carriers operate in regional airports hence have a flexible and a cost-efficient network. The flights offer 'no-frills' to maintain lower flight fares for their customers. The passengers also have to pay for services offered on board the flights such as food and drinks, luggage, and seat reservation.

Full-Service carriers (Scheduled airlines)These flights execute within regular periods for public use. Full-service network carriers operate on national and international route. They are subjected to tariff duty, transportation duty, and flight plan duty or scheduled traffic. The scheduled flights have the following characteristics; they are commercial; they are public; they are subjected to line boding and are regular (Widmann, 2015).

Methodology

The methodology applied in this research addresses and fulfils the aims and objectives of this research. The impacts of low-cost carriers will be observed and explained and evaluated. The research approach in this study will be induction, defined by Bernard, H.R. (2011) which involves the searching of patterns from observation and development of explanation trends.

Data Analysis

The quantitative data type will be used to provide measurable aspects. Special techniques that quantify and represent numerical such as graphs and charts will be used. This allows the transformation of raw data into meaningful information that will be used to examine the relationship between LCC and FSNC.

Qualitative analysis will be used to express the findings using words rather than numbers. Qualitative research will be used to express the outcomes and impacts caused by LCC to the market share and the economy.

Data Collection

Data sources can be grouped into primary and secondary data. However, this research will employ the use of secondary data because of time constraints. Based on Gates and McDaniel (1999), Secondary data denotes gathered information that is relevant to the study. Secondary data will be used to provide data for the research. The data used will rely on its validity, quality of discussion, and reliability of the source. The sources to be used include; online articles, journals, publication, and scholarly articles. For instance;

Marcel Widmann publication gives a well-outlined case study on the topic. The research is titled "Competitive Position Analysis of Airlines: Traditional Airlines and Low-Cost Carriers - Market Development, Trends and Outlooks based on the European Market." Written in 2015. Widmann's research provides the relationship between LCC and FCNC and the impacts of the introduction of LCC. Written data analysis of the effects of LCC on the market share is also provided based on implications of LCC in Spain and Germany. This source provides detailed information on the subject of study and can be used to obtain data.

In addition, Acar A. Zaffer (2015) research titled 'Competition between Full-Service Network Carriers and Low-Cost Carriers in Turkish Airline Market' gives clear insight on the subject. He outlines the impacts of the competition in a detailed journal.

These sources provide detailed information on the subject of study and are relevant for the study. They also save time and cost.

Research Validity

Saunders et al., (2014), suggests the triangulation method to validate secondary data obtained. Triangulation refers to the use of many sources of data and method of collection to uphold the validity of data. The sources used in this study should be equal to or more than eight.

Research Outcomes

This research shows the impacts caused by the introduction of low-cost carriers on the market and how other airlines have been affected.

Figure 1 below shows the growth of low-cost carriers worldwide per region from 2000-2006. The charts show that LCCs have greatly been employed in the USA and Europe. According to Widmann (2015), a European company named Mercer Management Consulting Company carried out market research on the impacts of LCCs and found out by the year 2010, the market share of LCCs had grown to 25 percent as shown in Figure 2. This prediction turned out to be true and the value exceeded the expectation. Research also indicated that the market share of LCCs would continue to increase as the market share of traditional airlines and charter airlines will decrease with time.

The increased market share of low-cost carriers is mainly based on price advantages. The low-cost airlines also profit because passengers have...