Term Paper on "Sustainability of Low Cost Carriers in Europe"

Term Paper 20 pages (5333 words) Sources: 20 Style: APA

[EXCERPT] . . . .

Sustainability of Low Cost Carriers in Europe

Low Cost Carriers: Characteristics

The purpose of this study is to examine whether low cost carriers in Europe will still be profitable in the future or if upcoming new trends, laws or other restrictions will make the demand for low cost carriers decrease. The objectives of this study are to: (1) present significant literature which is related to the airline industry with an emphasis on low cost carriers in terms of performance and profitability; (2) to analyze the performance of European low cost carriers in the past and predict possible outcomes or signs which could lead to a change; and (3) to provide realistic recommendations to academia and the airline and tourism industry in order to examine whether the concept of low cost carriers still fits in the present time. There are three primary differences in low cost carriers and traditional airline carriers and by these differences the groups are divided into groups of: (1) service savings; (2) operational savings; and (3) overhead savings. (the Impact of Low Cost Carriers in Europe, 2003) the low cost airlines primarily focus on short haul routes and achieve low operating costs through having as many seats on board the aircraft possible, have those seats filled as much as they can and to fly routes as often as possible. In this realm of the low cost carrier "competitive advantage is derived from greater aircraft productivity"...achieved through "a combination of using uncongested secondary airports and not offering anything other than point-to-point services." (the Impact of Low Cost Carriers in Europe, 2003) Advantages of secondary airports include: (1) they tend to charge airlines less for their services; and (2) they are not as busy and delays due to congestion are less likely. Furthermore, the low cost airlines operate a single fleet of carriers only resulting in the pilots and crews being able to operate any carrier in the fleet. Significant cost-savings are realized by the low cost carriers due to direct and internet marketing and through electronic ticketing. This study concludes that the low-cost carrier industry in Europe has not yet realized its' full potential and that this industry is one that can expect growth and sustainability in the years to come. There is however, the issue of environmental concerns relating to jet fuel that will be addressed yet at the present there are no stated restrictions expecting to be attached to this industry in terms of restrictions or fuel taxes.

THE SUSTAINABILITY of LOW COST CARRIERS in EUROPE

CHAPTER ONE

INTRODUCTION to the STUDY

PURPOSE of STUDY

The purpose of this study is to examine whether low cost carriers in Europe will still be profitable in the future or if upcoming new trends, laws or other restrictions will make the demand for low cost carriers decrease.

OBJECTIVES of the STUDY

The objectives of this study are to: (1) present significant literature which is related to the airline industry with an emphasis on low cost carriers in terms of performance and profitability; (2) to analyze the performance of European low cost carriers in the past and predict possible outcomes or signs which could lead to a change; and (3) to provide realistic recommendations to academia and the airline and tourism industry in order to examine whether the concept of low cost carriers still fits in the present time.

BACKGROUND of the STUDY

The experience of Europe with low cost scheduled flight operators started in 1991 when "Irish carrier Ryanair transformed itself from a conventional regional airline into a carbon copy of the U.S. low cost pioneer Southwest Airlines. By focusing initially on serving the large leisure market between Ireland and the UK, the airline had a dramatic effect on services across the Irish Sea. The second phase of Ryanair's rapid growth has involved the carriers in building up a network of intra-EU routes linking London's third airport, Stansted, with over 50 under-utilized, secondary airports in a number of countries, making the second largest low-cost carrier in Europe." (the Impact of Low Cost Carriers in Europe, 2003) Following Ryanair's acquisition of British Airways Go, EasyJet in 1995, incidentally the rival of Ryanair, Ryanair is the largest low cost European carrier. There has been establishment of other low cost scheduled carriers during these development including launching of 'Buzz and bmibaby in the UK, Virgin Express in Belgium, Basiq Air in the Netherlands, and German wings and Germania in Germany.

LOW COST CARRIERS: CHARACTERISTICS

There are three primary differences in low cost carriers and traditional airline carriers and by these differences the groups are divided into groups of: (1) service savings; (2) operational savings; and (3) overhead savings. (the Impact of Low Cost Carriers in Europe, 2003) the low cost airlines primarily focus on short haul routes and achieve low operating costs through having as many seats on board the aircraft possible, have those seats filled as much as they can and to fly routes as often as possible. In this realm of the low cost carrier "competitive advantage is derived from greater aircraft productivity"...achieved through "a combination of using uncongested secondary airports and not offering anything other than point-to-point services." (the Impact of Low Cost Carriers in Europe, 2003) Advantages of secondary airports include: (1) they tend to charge airlines less for their services; and (2) they are not as busy and delays due to congestion are less likely. Furthermore, the low cost airlines operate a single fleet of carriers only resulting in the pilots and crews being able to operate any carrier in the fleet. Significant cost-savings are realized by the low cost carriers due to direct and internet marketing and through electronic ticketing. The final area of cost savings and one that is clearer to passengers using low cost carrier services is the low cost of the on-board service.

THE SUSTAINABILITY of LOW COST CARRIERS in EUROPE

CHAPTER TWO

LITERATURE REVIEW

The work entitled: "The Impact of Low Cost Carriers in Europe" published in 2003 states that in the current climate in European aviation, which is difficult in nature "one sector is performing extremely well, the so-called low cost/no-fills carriers. While the flag carriers are experiencing severe difficulties, withdrawing from routes and cutting staff, the low cost sector continues to expand at a tremendous pace. There is evidence that the low cost carriers are even becoming dominant players on a significant number of intra-European shorthaul point-to-point routes. The extent to which this expansion of the low cost carriers will affect the traditional airline hub-and-spoke networks poses interesting questions for the European industry and policy makers." (2003) Strategies of low cost carriers in Europe are comprised of two basic types of low cost business models: (1) that of EasyJet; and (2) Ryanair. Ryanair "...serves secondary airports at relatively low frequencies and focuses on new leisure markets with no direct competition. The Ryanair model has as its focus, new leisure markets with no direct competition. EasyJet serves primary high costs airports at high frequencies and focuses on existing business and leisure markets and also new markets, which "...includes strongly persuading suppliers and airports to reduce charges." (the Impact of Low Cost Carriers in Europe, 2003) the other lost cost carriers in Europe attempt to follow one or both of these models however as they are "offshoots of major carriers, so lack the cost advantages of EasyJet and Ryanair." (the Impact of Low Cost Carriers in Europe, 2003) as of the time of this report in 2003 the review states that liberalization throughout Europe has resulted in "tremendous opportunities for the low cost carriers. If they maintain the 25% year on year growth that has bee seen recently, they will possess around one third of the intra-European market in ten years time. In addition, new price sensitive markets will emerge, such as Germany, Scandinavia and the countries of Eastern Europe." (the Impact of Low Cost Carriers in Europe, 2003)

There are uncertainties expressed regarding the sustainability of the low-cost model while simplicity has been noted as the 'key' factor in the success of the low cost carriers in Europe. Consumers are stated to have benefited "from the rise of the low cost sector in terms of more competition, more destinations, greater frequencies and a greater diversity of fares." (the Impact of Low Cost Carriers in Europe, 2003) There are stated to be some issues that aviation policy makers have linked with low cost sector expansion including the mitigating environment effects, especially at hitherto secondary airports, sine the majority of the low cost sector tend to select routes between regional airports stated to be due to a great growth in traffic as well as there are different "conditions of carriage compared to traditional carriers; ensuring the maintenance of a level competitive playing field; maintaining high standards of safety in Europe's increasingly crowded skies; and organizing the allocation of ever scarcer capacity at congested Europeans airports." (the Impact of Low Cost Carriers in Europe, 2003)

Traventec, Ltd., in the work entitled: "The Inevitable Convergence… READ MORE

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