The price of a plane ticket is based of aspects like the distance of the flight itself, the time one buys their ticket and the destination and origin. The presence of the so called low cost carriers and their good performance in the industry has left their competitors devising ways and means of coping with this competition. In the European Union, the low cost sector continues to expand while their counterparts and facing difficulties, with some withdrawing from the routes and others reduce the number of their staff (Case studies, 2003). Under such circumstances, the question that begs is what is the impact of this sector to the industry as well as the cost to its competitors?
The difference between the low cost and high cost carriers is mainly in the charges that are incurred which are classified into operational, service and overhead savings; this is according to Case Studies (2003). The low cost airlines mainly focus on short routes and in order for them to spend as little as possible per passenger, they have many seats and ensure that they are all filled and fly as many times as possible. They also use secondary airports which are usually uncontested, charge lesser fee for their services and have less delay. Low cost carriers also have an advantage in the distribution of services as they tend to sell directly to the customers by use of internet and call centers. In this case, they do not incur fees that could be charged if they had used travel agents to sell such services like tickets.
A research by Case studies (2003) shows that increased number of flights by the low cost carriers in the E.U for instance has left other providers being stagnant or lowering in their service provision. They hence find themselves less dominant in their home market which eventually seems to be overtaken by the low cost carriers. However, this does not mean that customers have lost in terms of services and routes being offered. On the other hand, the short haul markets that were being served by the incumbents have reduced in number not necessarily because they have been forced to do so by the low cost carriers but simply because they have to serve those in the long haul market. However this could also mean that the current competition in small markets has forced the incumbents to reduce their capacity in those areas.
With the rise of the low sector in the aviation industry, consumers have had a great advantage in terms of more competition, a variety of fares to choose from, increased destinations and more frequencies in the number of flights (Ito and Lee, 2003). Though there has been little evidence that major carriers have been adversely by this entrant, there are indications that the competition being experienced in some routes might force them to respond by reducing aircraft size than withdrawing completely from such routes. The increased flight might also have an impact on the aviation policy makers especially in alleviating the environmental effects. The secondary airports mostly proffered by these low-cost airlines are often jammed with traffic growth and this means that a lot of money has to be spent in maintaining the infrastructure. Since low cost carriers also have varying conditions of carriage as compared to the incumbents policy makers have a task of ensuring that passenger rights are upheld under all circumstances, that standards are maintained especially in the crowded skies and ensuring that a level of competition is maintained (Case studies, 2003).
The Southwest is an example of a low-cost airline in the United States. According to Wang (2005), it has been a fast growing airline in the area and due to its high level of customer service and timely arrivals, it has been preferred by many people to the extent of kicking out some of the competitors from the market. In 2004, Delta Airlines which is a major carrier and a competitor of Southwest posted a loss of $ 5.5 billion and its CEO Jerry Grinstein agreed that for it to succeed, they had no option but to adopt the strategy that was being utilized by low cost carriers like Southwest and Jet Blue. With the rising fuel prices, carriers have also been forced to file for bankruptcy. In contrast, Southwest has continued to earn interest even more than other competitor combined, this has forced the competitors to lower their price which in turn might entail losses in revenue that they may not be able to cope with. To curb this, carriers like the US Airways have reduced the number of flights to the Southwest markets. This means that the effect of South west continues to dominate the industry and influence prices as well as the market and competitors (Wang, 2005).
Reference List
Case Studies (2003). The Impact of Low Cost Carriers in Europe. Available from http://www.icao.int/icao/en/atb/ecp/CaseStudies/Europe_LowCost_En.pdf
Ito, H & Lee, D. (2003). Market Density and Low Cost Carrier Entries in the
US Airline Industry: Implications for Future Growth. Available from http://www.darinlee.net/pdfs/lcc_density.pdf
Wang, C. (2005). The Effect of a Low Cost Carrier in the Airline Industry. Broadcast Pdf Documents. Available from http://pdfcast.org/pdf/the-effect-of-a-low-cost-carrier-in-the airline-industry
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