Expansion of Low-Cost Carriers in Full-Service Carriers Saturated Market

Airline Industry: Expansion of Low-Cost Carriers in Full-Service Carriers Saturated Market
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Airline Industry: Expansion of Low-Cost Carriers in Full-Service Carriers Saturated Market
In 1978, more than four decades ago, the United States deregulated the airline industry resulting in an increasing number of carriers dominating the airspaces that follow the low-cost strategy. Before this time, the Civil Aeronautics Board determined how much airlines could charge and their operated routes. However, 1978 saw the end of non-price competition strategies in attracting customers among other marketing strategies such as higher quality meals for frequent travels. By 1997, rapid growth and market success were witnessed among many airlines, which the U.S. Department of Transport (DOT) called a "low-cost airline service revolution (Wolla, 2018)." Today, this low-cost airline (LCC) service revolution continued to expand in markets, resulting in a substantial rise in competition with network carriers. Following the publication of the "Low-cost airline service revolution" report by the DOT in 1997, it was evident that an increasing number of passengers were benefiting from the LCC through reduced fares. However, it was predicted that such a watershed development in domestic aviation could have profound impacts on competition, efficiency, and consumer and industry structure.
While the introduction of LCC has improved the accessibility of destinations, offered attractive transportation means to low-income travelers, and stimulated suppressed demand, Pratt and Schuckert (2018) have observed that these effects have limited net economic contributions to the host economy with a robust transport market such as the United States. However, from economic analysis and literature published in recent years, low-cost carriers significantly impact both emerging and developed markets in host economies. They have become major threats to legacy full-service carriers due to the different business models employed by the two types of airlines. This report examines the ease of expansion of low-cost carriers in full-service carriers saturated markets.
Literature Review
Investigating the impact of LCC on domestic tourism and economic growth of New Zealand, Tsui (2017) has found that LCC services, regional tourism indicators, cost of land transport, and gross domestic product (GDP) per capita had significant impacts on the country's domestic tourism. LCCs have attracted different types of air travelers, ranging from business to leisure travelers, to visit many destinations with lower airfares, loyalty programs, more frequent flights, and shorter turnarounds times. Since the concept of a low-cost airline business model was first proposed by Southwest Airlines during the early 1970s, it has rapidly developed globally and impacted the tourism sector. LCC has been instrumental in promoting tourism destinations, transporting air travelers, and generating tourists to both mature and emerging destinations (Tsui, 2017). New Zealand, an island country, is one of the most famous international tourist destinations that travelers visit for adventure and sightseeing. Tsui (2017) notes that between 2014 a...