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Low Cost Airlines - Essay Example

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Low Cost Airlines Name: Course: Tutor: Date: Low Cost Airlines Introduction Irrespective of the decreasing trend facing the airline industry, low-cost airlines are realizing higher levels of success, which is evident from their increment of the number of passengers using their services, profit levels and turnover (Brander and Zhang, 1993)…
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Low Cost Airlines

For more than a decade now, the potential of the low-cost airline business has been evident from the huge capitalization of these airlines at stock market spheres (Brock, 2000). For example, at the start of the current decade, in 2002, Ryanair realized a market capitalization of 4.9 billion Euros, which was 45 percent more, when compared to the levels realized by British Airways (Rhoades, 2008). The increased uptake of low-cost airlines was evident from its revenue levels, which were approximated at 20 times compared to that of the traditional competitor (Dempsey and Goetz, 1992). The huge success of starter low-cost airlines in the industry has led to the emergence of new airlines in the same category and using the same business, trying to mirror their strategies. The success of these airlines can also be traced from the fact that they have stimulated a new class of demand, which offers evidence that they are not getting their customers from traditional airlines; low-cost airlines are attracting new demand and customers into the industry (Dresner, Lin and Windle, 1996). Due to the major impact of low-cost airlines, traditional airlines have acknowledged the threat of the growing competition; therefore, have reacted to the new business model, especially in the line of business travel (Meyer and Menzies, 2000). This paper will explore the success strategies of low-cost airlines; explore the factors behind their success, analyze their business model and prospect their growth. The deregulation of air transport Following the enactment of the Airline Deregulation Act of 1978, the control of airline business and services was, to some extent, moved from the political system to the market system (Dempsey and Goetz, 1992). Deregulation refers to the change of the control exercised over air travel from the Civil Aeronautics Board (CAB), which administrated the entry of airlines into the business, their exit and the pricing of airline services, to the partial control and administration of business systems and infrastructure. Deregulation also featured the abolishment of the CAB’s control of mergers, intercarrier agreements and customer affairs (Dempsey and Goetz, 1992). The complete shift of the control took place after the endorsement of the CAB sunset ACT of 1984, which gave way to the economic liberalization of the management of air travel, which was part of deregulation, which was started after the realization that the political control of the economy did not serve the best interests of the public (Dempsey and Goetz, 1992). The air freedoms that came after deregulation Following the deregulation of the management and the control of airline services, all airline operators were allowed the freedom to operate on any route that they chose to operate. The operators of air travel services were allowed the freedom to set the fares of their travel services like they deemed fit, which would be influenced by the forces of demand, and the supply of air travel services (Dempsey and Goetz, 1992). During the time before the deregulation, there were some carriers that were not allowed to operate out of specified states, but after deregulation, these carriers were allowed to fly and operate across the country, without any limitations. Following the deregulation of the air travel industry, the restrictions that had been set in the way of entry into the industry were abolished (Dempsey and Goet ... Read More
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